DOJ Opinion No. 037, s. 1982

DOJ OPINION NO. 037 , s. 1982 March 11, 1982 The President University of the Philippines Diliman, Quezon City Sir : This refers to your request for opinion on whether the University of the Philippines (U.P.) may properly and legally enter into the proposed agreement with the Japanese firm, Matsuda, Hirata and Sahamoto, Architects, Planners and Engineers, Inc. regarding consultant services for the establishment of the Philippine Social Science Center at the U.P. Campus in Diliman, Quezon City. We take it that you have serious misgivings about the legality and propriety of the proposed agreement with the Japanese firm in view of the nature of the services to be thereunder performed by the said firm which, principally, are: (1) the preparation of construction drawings and specifications, project costs, prequalification and bidding proceedings and bidding documents; and (2) administration and supervision of the construction project. It is the University's position that where architectural and engineering services are involved, the availment of professional services must be governed by Philippine laws and regulations which appear to give preferential treatment to Philippine professionals. The issue of the propriety of entering into the subject proposed agreement raises legal and policy considerations articulated in the opinion of the University Legal Counsel. After an evaluation of the same, and subject to the extended discussion that follows, it is my opinion that herein query may be answered affirmatively. The establishment of the Philippine Social Science Center (Center) was the subject of an Exchange of Notes between the Government of the Republic of the Philippines and the Government of Japan (see Exchange of Notes dated July 16, 1981) under which the Japanese Government in the spirit of "economic cooperation" and "with a view to strengthening friendly and cooperative relations between the two countries", agreed to extend to the Philippine Government a grant in the amount of One Billion Three Hundred Million Yen (1,300,000,000) for the "purpose of contributing to the establishment" of the Center. The proceeds of the grant, pursuant to Paragraph 3(1) of the Exchange of Notes, will be used by the Philippine Government "for the purchase of the products of Japan or the Philippines and the services of Japanese or Philippine nationals" necessary for the construction of the Center and the installation of the equipment therefor. Among the undertakings of the Philippine Government under the Exchange of Notes is "to secure a lot of land necessary for the construction of the Facilities of the Center" (see Paragraph 6[1][a]). In this connection, the University of the Philippines, through its board of Regents, agreed to the request of the Philippine Social Science Council, to have the Center constructed at a suitable site within the Diliman Campus, subject to the condition, among others, that the construction shall be "without cost to the University", shall be "in accordance with the standards of the University" and that "Filipino professional expertise (e.g., architects, engineers, etc.) shall be utilized, with Japanese and other foreign experts, serving, where needed, only as consultants." On January 13, 1982, the President issued Letter of Instructions No. 1187 designating the University of the Philippines "as the government implementing entity to take charge of the execution of the abovementioned project in accordance with the guidelines and instructions" mentioned therein, among which is that the "construction of the Center and the installation of facilities and equipment thereat shall be in accordance with the standards of the University (Paragraph 2), and that "all products and services to be supplied by Japanese and other foreign nationals for the construction of the Center and its facilities . . . shall be exempt from all customs duties, internal taxes and other fiscal levies." The specific objections of the University to the proposed agreement are contained in the opinion of the University Legal Counsel, to wit: 1. The proposed agreement is not in accord with the Exchange of Notes because it imposes "upon the University, the Philippine Government's implementing entity, not only the services, but the decisions of vital matters, of a Japanese firm, whereas Section 3 [par. 3(1)] of the Exchange of Notes gives to the Philippines the option of what products and services, whether Filipino or Japanese, to employ in the project." 2. It also runs counter to LOI No. 1187 which provides that the "construction of the Center and the installation of facilities thereat shall be in accordance with the standards of the University". Under the terms of the proposed agreement, "it is not the University's standards, but those of the Japanese consulting firm, that will prevail"; LexLib 3. It contravenes various laws intended to protect Filipino professionals e.g., RA No. 5181, RA No. 544, RA No. 545 under which laws, practice of profession in the Philippines by foreigners is prohibited unless allowed by the Professional Regulation Commission upon proof of reciprocity between the Philippines and foreign country involved; 4. The proposed agreement would render nugatory Article 1723 of the Civil Code which makes the engineer, architect and contractor liable for damages arising from any defect in the design, construction, and materials used within a certain period in case of collapse of or damage to the building. 5. It is also violative of the International code of Ethics on Consulting Services approved by the Professional Regulation Commission on June 25, 1981, which inter alia provides "that the local consultants or professionals shall have the primary right to interpret the needs of his people and that his vision as to how his country's environment could be built, planned, improved or enhanced shall be entitled to respect;" 6. It is further violative of two important U.N. documents the United Nations Charter on Economic Rights and Duties of States and the United Nations Conference on Technical Cooperation Among Developing Countries held in Buenos Aires in 1978 both of which stress the basic principle that "the State has the right and the responsibility to choose its means and goals of development ensure the full participation of its people and the use of local expertise and consulting firms for achieving self-reliance". The legal objections raised refer to Philippine legislation intended to protect Philippine professionals in the hiring of services to be performed in the Philippines. There is no question that the laws regulating the practice of architecture and civil engineering impose nationality requirements for admission to the professions, but the same laws expressly exempt from registration thereunder, foreign experts and consultants who are hired by the government, provided that their practice shall be limited to the particular project for which their services are solicited (Sec. 15[1][b], RA No. 545; Sec. 16[6], RA No. 545). thus, Philippine laws recognize the prerogative of the government to hire foreign consultants for its projects. The allegation that the Agreement is not in accord with the Exchange of Notes, which gives the Philippine Government the option to employ Filipinos or Japanese for the project, appears to have no palpable legal basis, since obviously the Agreement itself would be an expression of the exercise of such option. while the Exchange of Notes does not in terms stipulate that the consultancy contract is a necessary condition for the availment of the loan, it is believed that the employment of Japanese consultants is consistent with the letter and intent of the Exchange of Notes, of LOI No. 1187, and the approval of the Board of Regents. Thus the Exchange of Notes provides that the grant will be used for the purchase of products of Japan or the Philippines and the services of Japanese or Philippine nationals (par. 3[1]), that the Philippine government or its designated authority will enter into contracts in Japanese yen with Japanese nationals, which contract shall be verified by the Japanese Government to be eligible for the grant (par. 4); and that the Japanese Government will execute the grant by making payment in Japanese yen to cover the obligation under said verified contracts (par. 5[1]). Thus, the Exchange of Notes contemplates the hiring of Japanese nationals for the project. This intention is affirmed in LOI No. 1187 which provides that the products and services to be supplied by the Japanese and other foreign nationals, shall be exempt from duties and taxes. And the Resolution of the Board of Regents also allows for the possibility that foreign experts will be serving as consultants for the project. Thus, the Agreement is in accord with the letter and spirit of the Exchange of Notes, LOI No. 1187 and the approval of the Board of Regents. The other objections are concerned with the extensive involvement of the Japanese consultant in the various "crucial" phases and aspects of the project that allegedly relegates the participation of the University to the "passive role" of accepting or not accepting what has already been accomplished. The inference deducible from these objections is that the role of the Japanese firm is more than that of an ordinary consultant and therefore the contract is not in keeping with the condition stipulated in the approval of the project by the Board of Regents that Philippine expertise shall be employed for the project. This question raises policy, rather than legal, issues. Suffice it to note, however, that the consultancy agreement will not do away with the participation, albeit under the supervision of the consultant of Filipino architects, engineers and contractors in the construction of the Center, which must necessarily be hired to carry out the project. It is noted also that far from assuming a passive role, the University is empowered to approve the Construction Drawings and Specifications (Art. 3[3.1.1]), the necessary bidding documents (Art. 3[3.2.1]) and the recommendation of the consultant regarding the choice of the Contractor (Art. 3[3.2.3]); to accept the Resident Engineer, hired by the consultant (Art. 5[5.1.1] and [5.2.1]); to designate a representative to act in its behalf and to examine the documents submitted by the consultant and render decisions pertaining thereto (Art. 7[7.2]; to give prompt notice in regard to any non-conforming work to the consultant (Art. 7[2.12]); and to certify as to the completion of the Works and Services to be performed under the Agreement which certification shall be the basis of the payment of the second and final installment to the consultants (Art. 8[8.5.4]). Thus, these appears to be no reason why the standards of the University cannot be imposed, if the construction drawings and specifications are subject to approval of the University, and the University shall certify as to the final completion of the Works and Services to be performed under the Agreement. LexLib Regarding the liability of the architect, engineer and contractor under Art. 1723 of the Civil Code, it must be point out that the Consultancy Contract precisely renders the consultant liable thereunder, jointly and severally with the project architect and the contractors even if the said provision of the Civil Code does not apply to the consultant. llcd We also find no persuasion in the objections based on supposed violations of the International Code of Ethics and the United Nations Charter on Economic Rights and Duties of States and the United Nations Conference on Technical Cooperation Among Developing Countries. The broad statements of principle contained in these documents are not transgressed by the commitments freely assumed by the Philippine government pursuant to the Exchange of Notes covering the grant of 1.3 billion by the Japanese Government. In this connection, we are made to understand that similar consultancy contracts have been entered into in connection with previous grants of the same nature extended by the Japanese government. In fine, we find no insuperable legal objection to the proposed contract; in fact policy considerations may even argue in favor of its acceptance if the contract is actually a necessary incident of or condition to, the availment of the Japanese government grant for the construction of the Center. It is relevant to add that the experience to be generated by the implementation of the subject contract will guide you in considering acceptance of similar undertakings in the future. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice