The government has warned the Supreme Court of the adverse impact on the country’s economy of its recent decision allowing foreign construction firms to obtain a regular license to engage in any private or government project in the country.
Thus, Solicitor General Jose Calida sought the reversal of the Court’s March 10 decision, made public on August 26, upholding a lower court resolution declaring void a provision in the implementing rules and regulations (IRR) of Republic Act 4566, which classifies the licenses that may be issued by the Philippine Constructors Accreditation Board (PCAB).
The OSG argued that the decision is untimely, considering how the Covid-19 pandemic has worsened the unemployment rate.
Calida said the decision would open the door for the entry of more players to the local construction market, which accounts for 10 percent of the country’s total employment.
He noted that foreign contractors usually bring their own nationals to work on their projects, thus, denying Filipino workers of employment opportunities.
Calida cited the projects being undertaken by Chinese contractors, where they employed their own nationals.
Undue advantage
“The entry of foreign contractors with their undue advantage will not only displace current professionals and workers in the industry, but will reduce employment opportunities for returning overseas Filipino workers,” Calida stressed.
“Undeniably, MSMEs [micro, small and medium enterprises] comprising of 97 percent of the registered contractors who are reeling from debilitating effects of the pandemic will further be subjected to foreign competitors whose wider supply chain networks and support from their respective government will put them at a disadvantage,” he added.
Likewise, the OSG said allowing the issuance of regular license to foreign contractors would mean the unbridled influx of foreign contractors to the detriment of local MSMEs.
The OSG’s position was supported by the country’s leading construction groups, including the Philippine Constructors Association Inc. (PCA), Cebu Contractors Association Inc., and Davao Constructors Association Center Inc. They joined their members and fellow organizations in filing three separate motions for reconsideration-in-intervention in the case of PCAB vs. Manila Water Co. Inc.
In its March 10 decision, the Court declared as unconstitutional Section 3.1 of the implementing rules and regulations (IRR) of Republic Act 4566, the law creating the Philippine Licensing Board for Contractors.
That provision classifies the licenses that may be issued by PCAB to contractors into regular and special license.
Under Section 3.1 of the contractors’ license law’s IRR, companies with at least 60 percent Filipino equity participation can be granted a regular license, which gives them continuing authority to engage in many contracting activities throughout a one-year period. Foreign firms can only be granted special license, and they need to have a separate license for each contract activity.
However, the SC declared that such provision was “a deterrent to the foreign players in the construction industry.”
It also agreed with the opinion of the Philippine Competition Commission (PCC) that nullifying the nationality requirement in the licensing scheme would level the playing field for local and foreign firms to undertake construction activities in the Philippines.
The OSG said the PCAB actually welcomes the entry of foreign contractors into the country; thus, the IRR recognizes the issuance of special license to address the current demands for the Philippines to be globally competitive and balance the participation of foreign contractors.
In fact, the OSG said Section 3.1 of the IRR was subsequently amended to allow the issuance of “regular license with annotation” to foreign firms with a capitalization of at least P1 billion.
Still, the OSG insisted that foreign contractors should compete with the local industry under the “proper regulatory measures provided by the PCAB” and that locally funded low-cost projects that require no technical expertise or new technology should be reserved for local MSMEs, which comprise 97 percent or 15,061 of all 15,533 licensed contractors in the country.
“Should the assailed provision in the IRR be nullified, the easier entry of foreign contractors will allow foreign contractors to compete with local MSME contractors in relatively smaller projects,” the OSG warned.
No barrier
It disputed the contention that the regulation deters the entry of foreign players in the country.
Citing PCAB records, the OSG said that a significant number of foreign companies were actually allowed to participate in the domestic government and private construction projects.
From July 2015 to December 2019, a total of 12,932 special licenses were issued by PCAB and 221 of these were given to wholly-owned foreign companies. Of the total, 12,448 and 263 special licenses were issued for joint venture (75 percent foreign and 25 percent Filipino) and consortium (40 percent foreign and 60 percent Filipino), respectively.
For the same period, foreign construction companies directly participated and won local projects with a total value of P1.1 trillion.
Data also showed that contractors given special licenses were able to participate in local projects with a total value of almost P2.98 trillion, which accounts for 25.86 percent of the total GDP by expenditure.
“Plainly, actual foreign participation belies the conclusion that Section 3.1 of the IRR of RA 4566 is effectively restrictive rather than purely regulatory. Such conclusion is merely based on incomplete or outdated information presented by the PCC to show that the assailed regulation tends to deter the entry of foreign players in the construction industry,” the OSG stressed.
Stakeholders in the local construction industry also asked the Court to allow them to intervene in the case as they are likely to be adversely affected by the ruling.
Among them are C.M Pancho Construction Inc., EEI Corp., DATEM Inc., D.M. Consunji Inc., Will Decena and Associates Inc., DDT Konstract Inc., IPM Construction and Development Corp., First Balfour Inc., New Kanlaon Construction, and TRM Construction and Development Corp., all members of the PCA.
Cebu Contractors Association Inc., together with Engineers Francis Gerard Canedo and Avelino Masong, likewise filed a petition-in-intervention in which it asked the Court to reverse its ruling on the case.
A separate motion for leave to intervene and to admit attached motion for reconsideration-in-intervention was also filed by PCA Pampanga, Constructors Association of Negros Oriental Inc., Association of Carrier and Equipment Lessors-Davao Chapter, Los Contratistas de la Ciudad de Zamboanga Inc., and Davao Construction Association Center Inc.
Source: https://businessmirror.com.ph/2020/10/05/osg-flags-dire-impact-of-construction-lib/