PCAB's Motion for Reconsideration

Please access our earlier alert, for further background on this case.

In its Motion for Reconsideration, the PCAB argued that the amendment of the IRR of RA 4566 through Board Resolution No. 08 dated 29 May 2015 of the Construction Industry Authority of the Philippines ("2015 Amendment"), which occurred subsequent to the filing of the Petition before the Supreme Court, allows the issuance of Regular Licenses to foreign entities,  provided they have a paid-up capital of at least PhP 1 Billion and engage only in the types of projects specified in the IRR.  Accordingly, the PCAB asserted that foreign contractors are no longer "prohibited" from participating in the Philippine construction industry, and that their participation is merely regulated.  The PCAB also highlighted that Section 3.1 of the IRR is consistent with the Constitutional provision that limits the practice of profession in the Philippines to Filipinos, except if provided by law.

The PCAB emphasized as well the impact of the COVID-19 pandemic to local contractors and urged the Supreme Court to take into account the reservation of construction jobs for Filipinos.

The Philippine Competition Commission (PCC) filed an amicus brief, arguing that the amendments to the IRR still constitute a significant barrier to entry for foreign contractors to the domestic construction market, because the PhP 1 Billion equity requirement and exclusion of foreign contractors from participating in government projects under a Quadruple A Gold License, may be classified as a nationality-based barrier to entry.

The Supreme Court's Ruling

The Supreme Court denied the PCAB's Motion for Reconsideration, on the ground that (a) there is no proof that the 2015 Amendment has been published in the Official Gazette or in a newspaper of general circulation, and that, (b) assuming the amendments have come into force, they are likewise invalid for the same reasons invalidating the original provisions of the IRR. 

The Supreme Court explained that, even with the 2015 Amendment, there still exists a nationality-based classification of licensing between domestic and foreign contractors. While the 2015 Amendment subjects Filipino and foreign contractors that hold a regular license with AAA annotation to the same capitalization requirements and project limitations, the PCAB's Guidelines for the Licensing of Category Quadruple A Contractors, which were issued in 2017, (a) refer to the license of local contractors as Quadruple A Platinum, while those of foreign contractors are referred to as Quadruple A Gold, and (b) allow foreign contractors with Quadruple A Gold Licenses to engage only in certain types of projects (i.e., vertical projects with a contract cost of at least PhP 5 Billion, and horizontal projects with a minimum contract cost of at least PhP 3 Billion). 

Hence, even with the 2015 Amendment, nationality-based licensing classifications are still present in the PCAB rules that are currently in place.

As for the economic exigencies brought about by the COVID-19 pandemic, and, the fact that the revival of the Philippine construction industry could possibly require restrictions on foreign participation, the Supreme Court held that such considerations pertain to matters of policy, which are outside the limits of judicial power. 

The Supreme Court emphasized that RA 4566 only authorized PCAB to classify contracting business into general engineering contracting, general building contracting, and specialty contracting, and did not sanction the imposition of nationality-based license classification.

Status of the Decision

The PCAB presently maintains the status quo and has yet to implement the ruling of the Supreme Court, because one of the intervenors in the case has also filed a Motion for Reconsideration of the Resolution, which remains pending. 

We are closely monitoring the Supreme Court's action on this Motion for Reconsideration.

Why this ruling is significant

Once it attains finality, the Supreme Court’s ruling would effectively lift the foreign ownership restrictions on engaging in construction projects in the Philippines, save only for those that remain under certain special laws.  This would be a welcome development for foreign construction firms that are looking to enter the Philippine market or expand their operations in the Philippines.  This would also be a significant development because, as the Supreme Court itself noted, this will “open opportunities for development and innovation that the foreign industry may introduce to our local contractors to make them more competitive in the world market”.

Actions to consider

Foreign contractors that are looking to establish or expand operations in the Philippines should keep abreast of developments on this matter, and plan their next actions accordingly.

Quisumbing Torres is closely monitoring the Supreme Court's action on the pending Motion for Reconsideration as well as the PCAB's response, including whether it will put in place new procedures and/or requirements for PCAB License applications, in order to implement the Supreme Court’s ruling.  We will be publishing updates on this matter in due course, as further developments arise.

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Please contact QTInfoDesk@quisumbingtorres.com for inquiries.

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