G.R. No. 217590, March 10, 2020
PHILIPPINE CONTRACTORS ACCREDITATION BOARD, PETITIONER, V. MANILA WATER COMPANY, INC., RESPONDENT.

FACTS

The Philippine Contractors Accreditation Board (PCAB), created under Republic Act No. 4566 (Contractors’ License Law), crafted Implementing Rules and Regulations (IRR) including Rule 3, Section 3.1. This provision instituted two license types: a “Regular License,” reserved for constructor-firms with at least 60% Filipino equity, and a “Special License,” for joint ventures, consortia, foreign constructors, or project owners, authorizing engagement only in a single specific project. Manila Water Company, Inc. applied for a regular license for its foreign contractors but was denied by PCAB, citing Section 3.1. Manila Water then filed a Petition for Declaratory Relief before the Regional Trial Court, claiming Section 3.1 was unconstitutional for imposing restrictions on foreign investments not found in RA 4566 or the Constitution. The trial court agreed with Manila Water, ruling the provision unreasonable. PCAB’s motion for reconsideration was denied, prompting it to file a Petition for Review before the Supreme Court. The majority of the Court denied PCAB’s petition, ruling Section 3.1 void for unduly discriminating against foreign contractors.

ISSUE

Whether Rule 3, Section 3.1 of the Implementing Rules and Regulations of Republic Act No. 4566 is valid.

RULING

In the Dissenting Opinion of Justice Leonen, the assailed classification under Section 3.1 does not run afoul of the Constitution. The provision is not an absolute restriction against foreign contractors but a licensing regulation that classifies two types of licenses, determining documentary requirements, license expiry, and the number of projects under a single license. It does not prohibit foreign contractors from applying for a license, impose an equity requirement, or restrict the type of projects they may apply for. The classification is meant to facilitate the grant of licenses, with special license requirements (like a board resolution authorizing a resident alien representative) necessary given that foreign contractors may be beyond the government’s reach. Section 3.1 does not usurp the legislative power to create nationality requirements under Article XII, Section 10 of the Constitution, as it does not create a nationality requirement but imposes a more stringent regulation. The classification also does not contradict the doctrines in Tañada v. Angara and Espina v. Zamora, Jr., which recognize economic policy is not isolationist and allow for foreign participation balanced with protection against unfair competition. The dissent argues that the state, through its police power, may regulate professions and industries to protect the public, and the classification is based on substantial distinctions (foreign contractors being temporary participants) that are germane to the law’s purpose of regulating the construction industry. The special license requirements are rationally connected to ensuring foreign contractors remain amenable to the state’s jurisdiction. Therefore, Section 3.1 is a valid exercise of PCAB’s rule-making power.