G.R. No. 176535 ; September 7, 2011
NATIONAL HOUSING AUTHORITY, Petitioner, vs. FIRST UNITED CONSTRUCTORS CORPORATION, Respondent.

FACTS

Respondent First United Constructors Corporation (FUCC) was the contractor for Phase I of the Freedom Valley Resettlement Project (FVR Project) of petitioner National Housing Authority (NHA). The parties entered into a Contract on March 10, 1998, with a stipulated work duration of 365 days and a contract amount of ₱568,595,780.00. FUCC commenced work on March 16, 1998, making the original completion date March 15, 1999. The project suffered various work suspensions, delays, and changes in scope, necessitating the issuance of Variation Orders (Nos. 1 and 2), which reduced the number of home lots and the contract price to ₱488,393,466.98. NHA granted FUCC time extensions totaling 679 calendar days, moving the final completion date to November 11, 2001. However, on September 25, 2001, the NHA Board reclassified the project and terminated the Contract under the “Contractor Not at Fault” clause, formally notifying FUCC on October 17, 2001. At termination, FUCC had pending claims with NHA. After nearly five years of unsuccessful negotiations, FUCC filed a Complaint with the Construction Industry Arbitration Commission (CIAC) on July 17, 2003, seeking payment for various claims including accomplished works not yet billed, cost of materials, price escalation, price adjustment, disengagement costs, idle equipment, and interests.

ISSUE

The primary issue for resolution was the validity and arbitrability of FUCC’s various monetary claims against NHA arising from the terminated construction contract.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals with MODIFICATION. The Court held that the CIAC properly exercised jurisdiction over the dispute as the parties’ Contract contained a valid arbitration clause (Article XVII). FUCC’s recourse to arbitration was not premature, as it had negotiated with NHA for almost five years without success, constituting a failure of pre-arbitration efforts. On the merits, the Court sustained the CIAC and CA awards for: (1) Payment for Accomplished Works Not Yet Billed (₱9,672,784.98), as the amount was established by evidence; (2) Payment for Cost of Materials, Equipment, and Facilities (₱4,801,992.82), as the items were verified and intended for the project; (3) Payment for Price Escalation (₱27,794,126.25), as FUCC’s claims for Progress Billings Nos. 1 to 5 were timely filed and NHA’s defense of non-compliance with the surety bond requirement was deemed waived due to its own delays and failure to act on the claims; and (4) Payment for Price Adjustment (₱14,768,770.22), as the claim was justified due to changes in the scope of work and NHA’s inaction constituted a waiver of the contract’s documentary requirements. However, the Court DISALLOWED the awards for Disengagement Costs and Idle Equipment Costs, finding them to be without sufficient factual and legal basis, as they were essentially claims for unearned profits and indirect costs not recoverable under the “Contractor Not at Fault” termination clause. The Court also DELETED the award of attorney’s fees. The total monetary award in favor of FUCC was thus reduced to ₱57,037,673.27, with legal interest at 6% per annum from the date of the CIAC Decision (January 7, 2004) until finality, and 12% per annum from finality until full payment.