The Issue
Whether Presidential Decree 1594 requires the contractor to prove that the price increase of construction materials was due to the direct acts of the government before a price escalation is granted in this payment dispute in a construction contract
PEZA argues that there was no need for any statutory construction of PD 1594, since the provisions thereof are not ambiguous. It insists that Section 8 thereof requires certain conditions before an adjustment of the contract price may be made.[17] These conditions obtain when there is a concurrence of the following: there was an increase or a decrease in the cost of labor, equipment, materials and supplies for construction; and the said increase or decrease is due to the direct acts of the government. PEZA stresses that respondent Green Asia has failed to show the existence of these conditions.[18]
Green Asia, in its Comment,[19] claims that it has proved the increase or decrease in the cost of labor and construction materials. It has allegedly relied on the official indices of prices regularly issued by the National Statistics Office (NSO) for Calendar Years 1992-1999. It was on these indices that it based the amount of its claim.[20]
The Court’s Ruling
We sustain the assailed Decision.
After a painstaking study of the records before us and the relevant laws, we are of the opinion that the Court of Appeals was correct in its disposition of the case.
We agree with the ruling of the appellate court that the OP correctly construed PD 1594 as being in pari materia to PD 454. Since the two presidential decrees are in pari materia, there is a need to construe them together. Thus explained the Court in Honasan v. The Panel of the Investigating Prosecutors of the Department of Justice:[21]
Statutes are in pari materia when they relate to the same person or thing or to the same class of persons or things, or object, or cover the same specific or particular subject matter.
It is axiomatic in statutory construction that a statute must be interpreted, not only to be consistent with itself, but also to harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system. The rule is expressed in the maxim, “interpretare et concordare legibus est optimus interpretandi,” or every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.[22]
PD 454 which was enacted prior to PD 1594, was where the phrase “direct acts of the government” was explained to cover the increase of prices during the effectivity of a government infrastructure contract. The phrase was first used in Republic Act (RA) No. 1595, which was amended by PD 454. The latter amended R.A. No. 1595 by supplying the meaning of the phrase “direct acts of the government” and expressly including the increase of prices of gasoline within the coverage of that phrase. Consequently, when PD 1594 reproduced the phrase without supplying a contrary or different definition, the definition provided by the earlier enacted PD 454 was deemed adopted by the later decree. Thus, proof of an increase in fuel and cement price and a subsequent increase in the cost of labor and relevant construction materials during the contract period are considered a compliance with the IRR requirements for a claim for price escalation.
The parties separately invoke PD 1594[23] and its IRR. A reading of their provisions, however, leads to the conclusion that “price adjustment” under PD 1594 is actually the same as “price escalation” under the IRR. Just as the term “price escalation” is not found in PD 1594, so is “price adjustment” in the IRR. These concepts are, evidently, one and the same. They have different names, but pertain to the same thing -- the adjustment of the contract price due to certain circumstances. The computation of the adjustment has been explained in detail as price escalation in the IRR, found in CI 12. At first glance, price escalation may be considered as an expansion of the concept of price adjustment. In truth, however, the IRR did not expand anything, but merely laid out a guideline for the computation of the adjustment or escalation of price. The two provisions are therefore not separate and must be read together. Otherwise, if we accept the arguments of both parties that one is invoking either PD 1594 or the IRR, two different rights would arise therefrom, which is obviously not intended by the law.
Price escalation, as explained in paragraph 6 of Cl 2.1 of the IRR, is meant to compensate for changes in the prices of relevant construction necessities during the effectivity of the contract, resulting in more than 5% increase or decrease in the unit price of those items. It is thus the prices of the items that have actually increased that become the basis of the computation. It is also stated in the IRR that in case of advance payment, the materials to which the advance payment has been applied will not be adjusted for a price escalation.[24] The government will charge an interest on the amount it has paid in advance to the contractor. This interest will be deducted from the succeeding price escalation that may be due the contractor.[25]
It should also be mentioned that in National Steel Corporation v. The Regional Trial Court of Lanao del Norte,[26] the Supreme Court held:
[P]rice escalation is expressly allowed under Presidential Decree 1594, which law allows price escalation in all contracts involving government projects including contracts entered into by government entities and instrumentalities and Government Owned or Controlled Corporations (GOCCs). It is a basic rule in contracts that the law is deemed written into the contract between the parties. And when there is no prohibitory clause on price escalation, the Court will allow payment therefor.
The contract between PEZA and Green Asia did not incorporate provisions prohibiting price escalation or any clause that may be interpreted as a waiver of the price escalation. Consequently, payment of price escalation is deemed to have included the provision for the payment of price escalation.
It was therefore wrong for PEZA to disregard PD 454 by automatically denying the claim of Green Asia for price escalation or to require the latter to prove that the increase in the construction cost was due to the direct acts of the government. PD 454 actually bridges the gap between PD 1594 and its IRR. PD 1594 no longer explains the provision on price adjustment, because it is already found in PD 454 and in older laws. In its Whereas Clause, PD 454 states:
WHEREAS, the Government feels that amendment of the existing escalatory clause is a fair and equitable way of dealing with the situation.
The “amendment of the existing escalatory clause” referred to is found in Section 1 of PD 454, which provides:
“The provisions of Section 10(b) of Republic Act No. 5979 and other existing laws, or presidential decrees to the contrary notwithstanding, adjustment of contract prices for public works project is hereby authorized, should any or both of the following conditions occur:
(a) If during the effectivity of the contract, the cost of labor, materials, equipment rentals and supplies for construction should increase or decrease due to the direct acts of the government; and for purposes of this Decree the increase of prices of gasoline and other fuel oils, and of cement shall be considered direct acts of the Government;
(b) If during the effectivity of the contract, the costs of labor, equipment rentals, construction materials and supplies used in the project should cause the sum total of the prices of bid items to increase or decrease by more than five (5%) percent compared with the total contract price.
The increase or decrease in the contract price shall be determined by application of the appropriate official indices.” (emphasis and underscoring supplied)
We find that the assigned error allegedly committed by the Court of Appeals is absent. The appellate court was, thus, correct in granting respondent’s claim for payment of price escalation, and the assailed Decision must be upheld.
It will appear strange, to today’s consumer, that the government would automatically accept -- nay, decree under the express terms of PD 454 -- that “the increase of prices of gasoline and other fuel oils, and of cement shall be considered direct acts of the Government,” such that the effects of these
price increases in the form of escalation of the prices of contracts with the government would be absorbed by it and, indirectly, by the taxpayer. It would appear that the context in which this policy decision to absorb costs from price increases was made in an era in which the government was strictly monitoring oil, cement and gasoline prices, and was itself controlling the price of oil before the Downstream Oil Deregulation Law[27] was passed.
Considering the deregulation of the oil industry and the removal of price control on gasoline and other fuel oils, we believe that the wisdom behind Section 1 of PD 454 may no longer hold true. Government is significantly less responsible today for the price of gasoline and other fuel oils, as well as cement, than it used to be. The dynamics of pricing of these commodities has changed dramatically. This law merits a thorough reevaluation. Congress and the Executive Department, it is suggested, must look at whether this policy should be maintained.
IN VIEW OF THE FOREGOING, the assailed 15 July 2009 Decision of the Court of Appeals is hereby AFFIRMED in toto. Let a copy of this Decision be served on the Office of the President, the Senate President and the Speaker of the House of Representatives.
SO ORDERED.
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