MEMORANDUM

1. What is covered by “locally- funded public works” under Item 14 of

List A: 10th Foreign Investment Negative List (“FINL”)?

Item 14 provides:

Up to Twenty-Five Percent (25%) Foreign Equity

xxx

14. Contracts for the construction and repair of locally-funded public

works (Sec. 1 Commonwealth Act No. 541, Letter of Instruction No. 630)
except:

a. Infrastructure/development projects covered by RA 7718; and

b. Projects that are foreign funded or assisted and required to undergo
international competitive bidding (Sec. 2(a) of RA 7718)

Locally-funded public works are, under Section 1 of Commonwealth Act

No. 541, projects of “all branches, offices, and subdivisions of the Government
and all government-owned or controlled companies, authorized to contract and
make disbursements” for such project. Under Letter of Instruction No. 630, it
refers to projects of the “contracting government entity”. Thus, Item no. 14
refers to government funded projects with the exception of those covered by
Republic Act No. 7718 (BOT Law).

2. What is the basis for the foreign ownership requirements imposed by

PCAB?

Up to 25% Foreign Equity (Basis - 10th FINL)

 Contracts for the construction and repair of locally-funded public

works (Sec. 1 Commonwealth Act No. 541, Letter of Instruction No.
630) except:

a. Infrastructure/development projects covered by RA 7718;

and
b. Projects that are foreign funded or assisted and required
to undergo international competitive bidding (Sec. 2(a) of
RA 7718)

 Contracts for the construction of defense-related structures (Sec. 1

of CA 541)
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25% - 40% Foreign Equity

The foreign equity of corporations engaging in construction projects not

enumerated in the 10th FINL are not restricted by the 25% cap. However,
construction companies, whether they are engaged in construction for the
public or the private sector are required to secure a PCAB License; R.A. 4566,
also known as the “Contractors’ License Law”, does not distinguish whether the
contractor intends to engage in projects in the public or private sector. And it is
in securing the PCAB License that the 40% Foreign Equity cap is implemented.

Under Section 3.1 (a) of the Rules and Regulation Governing Licensing of
Constructors:

“Regular License” means a License of the type issued to a domestic construction

firm which shall authorize the Licensee to engage in construction contracting
within the field and scope of his License classification(s) for as long as the
License validity is maintained through annual renewal; unless renewal is denied
or the License is suspended, cancelled or revoked for cause(s)

The Regular License shall be reserved for and issued only to constructor-firms of
Filipino sole proprietorship, or partnership/ corporation with at least seventy
percent (70%)* Filipino equity participation and duly organized and existing
under and by virtue of the laws of the Philippines.

*Adjusted to 60% under Art. 48 of Chapter III, Book II of the Omnibus

Investment Code of 1987.

However, R.A. No. 7042 (Foreign Investments Act of 1991) has already repealed
Art. 48 of the Omnibus Investment Code. There is no longer any basis for the
blanket 40% foreign equity restriction under the Omnibus Investment Code of
1987.

Nevertheless, one of the requirements for obtaining a license when an applicant

for a PCAB License has foreign shareholders is that the General Information
Sheet of the corporation should show that “the percentage control of the
number of seats occupied by foreigners in the Board of Directors shall not
exceed 40%.” This has no basis in law and is currently the subject of a
pending Supreme Court case, MWCI vs. PCAB.1

More than 40% Foreign Equity

1 http://phcc.gov.ph/pcc-weighs-competition-issue-pcab-manila-water-construction-case/.
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Only special licenses are granted by the PCAB to construction corporations not
covered by the immediately preceding category – corporations exceeding 40%
foreign equity. Special Licenses are:

License of the type issued to a joint venture, a consortium, a foreign constructor

or a project owner which shall authorize the Licensee to engage only in the
construction of a single specific undertaking/project. In case the Licensee is a
foreign firm, the license authorization shall be further subject to condition(s) as
may have been imposed by the proper Philippine government authority in the
grant of the privilege for him to so engage in construction contracting in the
Philippines. Annual renewal shall be required for as long as the
undertaking/project is in progress, but shall be restricted to only as many times as
necessary for completion of the same.

The requirement for a foreign entity to be granted such special license is to

secure a “certification from the appropriate Tendering Agency (Ministry,
Bureau, Office) that the project is foreign financed/internationally-funded
and that international bidding is required, or the participation of foreign
contractors is allowed under the Bilateral Agreement entered into by and
between the Philippine Government and the foreign/International Financing
Institution.2”

The 10th FINL also specifically excludes “projects that are foreign funded or
assisted and required to undergo international competitive bidding (Sec. 2(a) of
RA 7718)” from the 25% foreign equity restriction. Sec. 2(a) of R.A. 7718
provides:

For the construction stage of these infrastructure projects, the project proponents
may obtain financing from foreign and/or domestic sources and/or engage the
services of a foreign and/or Filipino contractor: Provided, That in case an
infrastructure or a development facility's operation requires a public utility
franchise, the facility operator must be Filipino or if a corporation, it must be duly
registered with the Securities and Exchange Commission and owned up to at least
sixty percent (60%) by Filipinos: Provided, further, That in the case of foreign
contractors, Filipino labor shall be employed or hired in the different phases of the
construction where Filipino skills are available: Provided, finally, That subjects
which would have difficulty in sourcing funds may be financed partly from direct
government appropriations and/or from Official Development Assistance (ODA)
of foreign governments or institutions not exceeding fifty percent (50%) of the
project cost, and the balance to be provided by the project proponent.

2 Sec. 4.6 (ee), Rules and Regulation Governing Licensing of Constructors.