Honor thy contracts

Last week, the North Luzon Expressway (NLEx) started to implement higher toll rates earlier approved by the Toll Regulatory Board (TRB), an attached agency of the Department of Transportation.

The new rates are inclusive of the rate adjustments that the NLEx was, pursuant to its concession agreement with the government, authorized to make in 2012, 2014, 2018 and 2020, but was unable to do so because its petitions were shelved by the TRB.

Finance Secretary Benjamin Diokno had said the rate adjustments piled up because of the inaction of past administrations. He did not name them, but it was obvious he was referring to the administrations of former presidents Benigno Aquino III and Rodrigo Duterte.

As in previous government-authorized increases in fees or charges for public services, the new rates drew opposition from several sectors of our society, including some senators who called for their suspension until the NLEx improves the flow of traffic in the tollway.

In justifying the increase, Diokno said “the government has to honor its contract or else it will have no credibility in future contracts.”

His statement about respecting the sanctity of contracts raised some eyebrows because he was once one of the economic managers of Duterte and the latter had no qualms about disregarding the government’s contractual obligations with the private sector for populist reasons.

The former president was not averse to weaponizing the law or threatening criminal prosecution to “persuade” business executives into giving in to his demands even if they had no legal basis.

If Diokno’s stance on the NLEx toll rates is indicative of the present administration’s policy on the handling of commercial transactions, the business community has reason to expect that, from hereon, the government would faithfully comply with its contractual obligations. It’s a 180-degree turn from the past administration’s attitude on that matter which sent jitters to the business sector.

That prospect assumes added significance for agreements that involve joint ventures with foreign companies or funding arrangements with international financial institutions where written commitments are, as a rule, etched in stone.

Note that the government has, on account of its vast resources and regulatory powers, the upper hand in any negotiations with the private sector. The saying “you cannot fight City Hall” is the elephant in the room that business persons worth their salt scrupulously take note of.

Thus, the government’s counterparty in all contractual negotiations always makes an effort to accommodate as much as possible its demands or make the proper adjustments to be able to reach a mutually acceptable agreement.

And once the contracts have been signed, sealed and delivered, they look forward to the government living up to their letter and spirit.

That’s the norm that civilized societies or trustworthy government institutions are expected to observe and honor. Any breach of that standard is bound to give rise to adverse consequences to the reneging party. As in all forms of human activity, disagreements may arise—through no fault of any of the parties or due to causes beyond their control—in the implementation or interpretation of some of the provisions of the contract.

If that happens, the rational or acceptable way to resolve them is to avail of the conflict resolution mechanism provided for in the contract and not to engage in strong arm or extralegal tactics.

The government’s action on the NLEx toll rates sends a positive signal to companies that may be interested in participating in the public-private partnership arrangements that the Marcos administration has planned for its infrastructure projects.

This time, there is reasonable expectation that the government would honor the contracts it enters into and not come up with all kinds of excuses to justify noncompliance with them. INQ

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