G.R. No. 191591 June 17, 2015
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Petitioner, vs. FOUNDATION SPECIALISTS, INC., Respondent.

FACTS

Foundation Specialists, Inc. (FSI) was the winning bidder for the DPWH’s EDSA/BONI PIONEER INTERCHANGE PROJECT. The original contract, signed on December 22, 1992, was for a 60-meter tunnel at a cost of ₱100,779,998.60, to be completed in 120 days. On March 4, 1993, the contract was renegotiated due to a major redesign, increasing the scope to a 282-meter “cut and cover tunnel” for an amended price of ₱146,344,932.91, with a new completion date of December 2, 1993. FSI failed to complete the project by this date and requested five extensions, all approved by DPWH, moving the final completion date to November 19, 1995. The project was substantially completed by November 1, 1995. DPWH also approved three variation orders, increasing the total contract price to ₱153,447,899.82, which was fully paid. A Certificate of Acceptance was issued on November 9, 2001.
FSI filed a Request for Arbitration before the CIAC on July 27, 2004, seeking recovery of additional expenses and damages incurred due to delays, including standby rental costs for rotary equipment (₱883,221.29), overhead costs during delays (₱15,379,790.11), and extended rental costs for various equipment (₱27,570,622.82), plus interest and attorney’s fees. FSI attributed the delays to problems beyond its control, such as right-of-way issues, underground obstructions not shown in plans, and utility obstructions it was contractually prohibited from touching. FSI cited Sub-Clause 42.2 of the Conditions of Contract, which entitles the contractor to cost reimbursement for delays caused by the employer’s failure to give possession.
DPWH denied liability, asserting that a modified Sub-Clause 42.2 in the Conditions of Particular Application barred FSI from claiming damages as a result of delay, especially since it had requested extensions. However, DPWH failed to substantiate this modified provision with any documentary evidence. DPWH also argued the delays were FSI’s fault, citing the project manager’s final report citing equipment breakdown, insufficient manpower, financial support, materials, and fuel, and FSI’s unsatisfactory performance ratings.

ISSUE

Whether the CIAC and the Court of Appeals correctly held DPWH liable for FSI’s monetary claims arising from the delays in the project.

RULING

Yes. The Supreme Court affirmed the decisions of the CIAC and the Court of Appeals, with modification on the interest rate. The CIAC correctly granted FSI’s claims for standby rental costs and overhead costs during the delays, but disallowed the claim for extended rental costs due to FSI’s failure to present credible computations. The DPWH’s defense, based on a purported modified Sub-Clause 42.2 that would bar FSI’s claims, failed because it was not supported by any documentary evidence. The provision presented by FSI was the one substantiated in the record. Furthermore, the delays were attributable to the DPWH’s failure to timely provide possession of the site free from obstructions, such as unrelocated utilities and structures, which were its responsibility under the contract. The DPWH’s allegations of FSI’s fault were insufficient to overcome the evidence presented by FSI detailing the specific obstructions and right-of-way problems that caused the delays. The awards for standby rental costs (₱355,582.60), overhead costs (₱15,379,790.11), and interest (₱8,876,310.93) were upheld. However, following prevailing jurisprudence, the interest rate on the total award was modified: interest at the rate of six percent (6%) per annum shall be imposed from July 27, 2004 (the date of the filing of the Request for Arbitration) until June 30, 2013, and interest at the rate of six percent (6%) per annum shall be imposed from July 1, 2013 until full satisfaction. The award for attorney’s fees (₱300,000) and arbitration cost reimbursement (₱388,909.87) was also affirmed.