G.R. No. 217590 , March 10, 2020
Philippine Contractors Accreditation Board, Petitioner, v. Manila Water Company, Inc., Respondent.

FACTS

On July 9, 2012, respondent Manila Water Company, Inc. wrote petitioner Philippine Contractors Accreditation Board (PCAB) seeking accreditation for its foreign contractors to undertake construction contracts for its waterworks and sewerage system facilities. Petitioner replied on November 8, 2012, citing Section 3.1, Rule 3 of the Revised Rules and Regulations Governing Licensing and Accreditation of Constructors in the Philippines (the Implementing Rules and Regulations or IRR of Republic Act No. 4566 ). This provision institutes two license types: (1) a “Regular License” reserved for and issued only to constructor-firms of Filipino sole proprietorship or partnership/corporation with at least sixty percent (60%) Filipino equity participation; and (2) a “Special License” for, among others, a foreign firm legally allowed to undertake construction activities, which authorization is restricted to a single specific project. Petitioner stated that since respondent’s construction contracts did not appear to be Build-Operate-Transfer contracts or foreign-assisted projects required to undergo international competitive bidding under R.A. No. 7718 , the issuance of a contractor’s license was not warranted. Respondent subsequently filed a Petition for Declaratory Relief before the Regional Trial Court (RTC), seeking a declaration that Section 3.1, Rule 3 of the IRR is unconstitutional for creating restrictions on foreign investments—a power exclusively vested in Congress—and for adding restrictions not found in R.A. No. 4566 . The RTC ruled in favor of respondent and declared the assailed IRR provision void, holding that it created a new restriction not found in the law and that the classification it imposed was unreasonable. Petitioner’s motion for reconsideration was denied, prompting this Petition for Review on Certiorari.

ISSUE

Whether Section 3.1, Rule 3 of the Implementing Rules and Regulations of Republic Act No. 4566 , which reserves a Regular License for constructor-firms with at least 60% Filipino equity and requires foreign firms to obtain a Special License limited to a single specific project, is valid.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Regional Trial Court’s ruling declaring Section 3.1, Rule 3 of the IRR void. The Court held that the assailed provision is an invalid exercise of administrative rule-making. While R.A. No. 4566 grants PCAB the power to issue rules and regulations and to effect classifications of contractors, such classifications must be reasonable and based on substantial distinctions germane to the law’s purpose. The nationality-based classification and the single-project restriction for foreign contractors imposed by the IRR are not found in, nor are they necessary to carry out, the provisions of R.A. No. 4566 . The law itself does not impose any nationality requirement or equity restriction for obtaining a contractor’s license; its qualifications focus on experience, knowledge of laws, and administrative capacity. The IRR provision therefore added a substantive requirement not contemplated by the legislature. Furthermore, the power to restrict foreign investments in specific business areas is vested exclusively in Congress through the enactment of a law, such as the Foreign Investments Act, and the subsequent issuance of a Foreign Investment Negative List by the President. The PCAB, as an administrative agency, cannot pre-empt this legislative power by imposing its own nationality-based restrictions. The assailed provision is also inconsistent with the state policy of promoting competition and deregulation, as recognized in other laws and executive issuances. Consequently, the provision constitutes an overreach of administrative authority and is invalid.