Sanctity of contracts
THE INAUGURAL address of President Duterte was music to the ears of the local business community.
Among his initial orders to all department secretaries and heads of agencies was “to refrain from changing and bending the rules of government contracts, transactions and projects already approved and awaiting implementation.”
He emphatically stated “changing the rules when the game is ongoing is wrong.”
The directive was clear and precise. It did not give any room for interpretation about its objective: Honor all done deals.
No qualifications, pre-conditions or “ifs” were cited that can be exploited by influence peddlers to their advantage.
The President was, in effect, giving the past administration the presumption that the contracts it entered into were done in accordance with existing rules and in good faith.
It was a policy statement that must have elated our businessmen, especially those who did not look kindly at candidate Duterte during the elections.
In the past, whenever there was a change in administrations, it was almost standard practice for parties who earlier lost in biddings for government contracts to question (with the assistance of politicians identified with the new administration) the validity of the awards for alleged irregularity or failure to comply with the rules.
Investigation
All it took then to “justify” the re-opening of or investigation into already signed contracts or awarded projects was a privilege speech in Congress, courtesy of a congressman or senator who wanted to quickly recoup his election expenses, or a media blitz through AC (attack and collect) newspaper columnists and radio commentators.
Faced with the prospect of incurring delays in the completion of the project due to a congressional investigation—which could result in additional operating costs or, worse, liquidated damages for failure to meet the deadline for completion—the winning bidder had no choice but settle with the complaining party.
The settlement was either by way of sub-contracting portions of the project at inflated prices to the losing party or paying the latter a substantial sum of money to keep its mouth shut.
At the end of the day, it was the public that suffered because the cost of buying peace was recovered through poor quality materials, substandard work and underpaid workers.
This practice was more aggressive if the target of the complaint for alleged irregularities in the procurement of government contracts was closely identified with the previous administration or backed the wrong candidate in the preceding election.
Assurance
The fact that President Duterte recognized the sanctity of contracts entered into by the government early in his administration, and on nationwide broadcast at that, indicated his seriousness about the matter.
This gives the companies awarded 13 private-public partnership (PPP) projects during the Aquino administration the peace of mind that their contracts are safe from unwanted questioning and that their terms and conditions will be honored by the Duterte administration.
The same level of comfort will be enjoyed by their foreign partners and the local and foreign financial institutions that have agreed to extend them the credit facilities needed to complete the projects within the stipulated time frames.
It also sends a positive signal to foreign investors who may want to tie up with local companies in bidding for future PPP contracts, especially infrastructure projects, that the Philippine government can be trusted to abide by its contractual obligations.
This message will, in some way, mitigate the adverse publicity generated by the government’s expropriation of Ninoy Aquino International Airport Terminal 3 in 2006 and its refusal to give just compensation to its builders, Philippine International Air Terminals Company, Inc. (Piatco) and its German partner Fraport AG.
Compensation
The action resulted in the filing of damage suits in the Philippines and arbitration cases in international arbitration tribunals, with representatives of Germany and the European Union publicly expressing their concern about the failure of the Philippines to live up to its obligations under the agreement.
Finally, in September 2015, the Supreme Court put an end to the controversy by ordering the government to compensate Piatco in the amount of $510 million, plus annual interest of $16 million until fully paid.
To date, however, the award remains unpaid because the government offices concerned are at a loss on who should pay it and where to get the money for that purpose.
Also adding doubts about the Philippine government’s ability to meet its contractual obligations are the arbitration cases filed in Singapore by Metro Manila water service providers, Manila Water Co. and Maynilad Water Services, Inc. and their foreign partners, against the government for the latter’s failure to implement the agreed water rate adjustments.
It defies legal sense for the then Aquino administration to refuse to abide by its obligations in the contracts it entered into with the water concessionaires simply because some of the provisions it earlier agreed to are supposedly of doubtful legality.
The government officials who signed the agreements either did not know what they were getting into or were outwitted by their counterparts during the negotiations.
We shall see in the coming months if the President’s directive to respect the sanctity of contracts will be scrupulously followed by the government officials concerned.
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