G.R. No. 83748 May 12, 1989
FLAVIO K MACASAET & ASSOCIATES, INC., petitioner, vs. COMMISSION ON AUDIT and PHILIPPINE TOURISM AUTHORITY, respondents.

FACTS

On September 15, 1977, the Philippine Tourism Authority (PTA) entered into a contract with Flavio K. Macasaet & Associates, Inc. for project design and management services for a golf club development in Zamboanga City. The contract stipulated a professional fee of seven percent (7%) of the “actual construction cost,” with a detailed schedule of payments. The initial periodic payments under Article V were to be based on a “reasonable estimated construction cost.” Crucially, paragraph 5 of Article V specified that upon project completion and acceptance, “the balance of the professional fee, computed on the final actual project cost shall be paid.”
Upon project completion, PTA paid the petitioner what it deemed the final balance. Subsequently, however, PTA paid the main construction contractor an additional sum of P3,148,198.26 as a price escalation cost due to increased prices of construction materials. Petitioner, upon learning of this, demanded an additional professional fee of 7% of this escalation amount, or P219,302.47. PTA denied the claim, arguing the escalation did not entail additional work from the petitioner. The Commission on Audit (COA) sustained PTA, ruling that allowing the claim without extra services rendered would constitute an overpayment prejudicial to the government.

ISSUE

Whether the price escalation cost paid to the construction contractor forms part of the “final actual project cost,” thereby entitling the petitioner to additional professional fees under the contract.

RULING

Yes. The Supreme Court granted the petition and ordered PTA to pay the additional professional fees. The legal logic centers on the plain meaning and deliberate progression of terms within the contract. Article IV initially bases the fee on “actual construction cost.” However, the Schedule of Payments in Article V evolves this basis: paragraphs 1 to 4 use “reasonable estimated construction cost” for interim payments, while paragraph 5 definitively states the final balance is to be computed on the “final actual project cost.”
This terminological shift from “construction cost” to “project cost” is significant and deliberate. The term “final actual project cost” encompasses the totality of all costs ultimately incurred for the project, logically including contract price adjustments like escalation costs. The Court held that the parties’ clear intent, as expressed in paragraph 5, was to tie the final fee settlement to the actual, finalized total project expenditure, not merely a static initial construction estimate. The absence of a specific escalation clause in the petitioner’s contract is immaterial, as the concept is “built-in” through the contractual commitment to the “final actual project cost.”
The Court distinguished Article VI of the contract, which provides for extra compensation for additional work from major changes. Petitioner’s claim is not under this provision for additional services but is a demand for the complete balance under Article V, calculated on the true final cost. Since the contractual terms are clear, their literal meaning controls under Article 1370 of the Civil Code. The escalation cost is included in the final actual project cost, and PTA’s obligation to pay the corresponding percentage arises from the contract, which has the force of law between the parties under Article 1159 of the Civil Code. The COA ruling was set aside.