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Francisco Tatad, John Osmea, and Rodolfo Biazon v. Jesus B.

Garcia (DOTC Secretary) and EDSA LRT


Corp. (1995)

Quiason, J.

FACTS
This case challenges (Rule 65) the validity of the Build-Lease-Transfer contract signed by the government
and ESDA LRT Consortium (a foreign company) to build the EDSA LRT III. The primary law in effect was
RA 6957 which detailed the manner in which the private sector could participate in public infrastructure
projects through Build-Operate-Transfer (BOT) and Build-Transfer (BT) contracts.

Sequence of events in negotiation and perfection of the Build Lease Contract
1. July 1990 RA 6957 passed
2. Jan 1991 DOTC establishes Prequalification Bids and Awards Committee (PBAC) which then
solicited prequalification bidders through public notice.
3. Mar-Apr 1991 5 groups expressed interest and submitted pre-qualification documents (one of
which was EDSA LRT Consortium)
4. May 1991 Only EDSA LRT Consortium passed the prequalification stage and all other bids were
declared ineligible.
5. DOTC negotiated and presented for presidential approval Agreement to Build, Lease, and
Transfer LRT System for EDSA.
6. The contract was initially rejected by then executive secretary Drilon because (a) no actual
bidding took place (b) law authorizes bidding as the exclusive mode of awarding contracts (c)
IRR of BOT Law was unconstitutional (d) congressional approval had not been given for LRT
projects.
7. The contract was amended and eventually submitted by respondent DOTC Secretary Garcia for
approval which was approved by President Ramos.

Terms of the contract
1. EDSA LRT Consortium will finance, construct, and provide equipment to carry 450,000
passengers per day along 17.8km of EDSA. Construction within 3 years.
2. After construction DOTC will lease and operate the assets for a period of 25 years. After 25
years, the assets will transfer for a nominal fee of $1.00.

ISSUES
1. WON EDSA LRT Consortium, a foreign company, can own EDSA LRT III a public utility. (YES)
2. WON the Build-Lease-Transfer is allowed under the BOT Law. (YES)
3. WON Congressional approval is required prior to awarding rail infrastructure contracts (YES, but
lack of approval does not invalidate contract).
4. WON the rules on public bidding were violated (NO)
5. WON terms are gross disadvantageous to the government (NO)

Can a foreign company own a public utility?
1. Sec 11, Article XII of 1987 Constitution restricts the operation of public utility not necessarily
the ownership of such to domestic companies with minimum 60% Filipino ownership.
2. Ownership is separate from the right to operate. A franchise to operate a rail system is awarded
to an entity to transport passengers from one point to another point. It is a service to the
public.
3. In this case, DOTC is the operator and franchise owner of the public utility, not EDSA LRT Corp.
a. EDSA LRT Corp. will not run the light rail vehicles and collect fees from the riding public.
It will have no dealings with the public and the public will have no right to demand any
services from it.
4. Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite
Filipino nationality is when the entity applies for a franchise, certificate, or any other form for
authorization for that purpose.

Was Build-Lease-Transfer allowed under the BOT Law?
1. The BOT Law only describes BOT and BT transactions, but is not limited to such and does not
contemplate to list of all possible permutations.
2. Build-Lease-Transfer is a variation of BT. Also known as a lease-purchase transaction.

Was Congressional approval necessary?
1. Yes but lack thereof does not suffice to invalidate the award. Besides, the inclusion
subsequently of rail based projects in List of National Projects by Congress ratified the prior
EDSA LRT III contract.

Was public bidding requirement violated?
1. Petitioners and Executive Sec. Drilon contend that a public bidding was not conducted as
required by Section 5 of BOT Law.
2. SC ruled that:
a. Pre-qualification bidding ineligibilities left only one bidder. Absurd to still conduct
public bidding.
b. Must read RA 6957 with PD 1594 (Rules for Government Infrastructure Contracts).
the latter allows for bidding exceptions if, inter alia, there is a lack of qualified bidders.
c. Furthermore, Congress later passed RA 7718 which (a) defines BLT schemes (b) allows
for direct negotiation of contracts if only one bidder remains. The passage of RA 7718
rendered moot any issues with the BLT scheme or lack of bidding.
d. Finally, if there was foul play in the prequalification bidding process, how come none of
the other bidders filed a complaint?

Was the transaction disadvantageous to the government?
1. NO. Presumption of regularity. DOTC is the expert agency and it arrived at the terms after
painstaking study.

DISSENT (Davide Jr.)
1. Contract was void because entered into without public bidding which is a condition precedent to
award of infrastructure project under BOT contract. At least two bidders required. DOTC
should have reopened prequalification to give prior bidders a second chance or accept new
bidders.
2. BLT was not a scheme allowed under the BOT law which only recognizes BOT and BT schemes.
3. RA 7718 cannot be applied retroactively to pre-existing contracts because no such provision was
expressly included in the law.

Additional DISSENT (Feliciano)
1. Cannot read RA 6957 with PD 1594 because the latter is a general law. The former is specific to
BOT and BT type agreements and it contains unqualified requirement of public bidding.