Nicolas and De Vega Law Offices Article Image - Arbitration as the Preferred Mode of Resolving Disputes in Government Contracts

Arbitration in Government Procurement

Are you thinking of going into government procurement or participating in public bidding, but are afraid of disputes that normally hound contractual arrangements? Fear not.

Republic Act No. 9184 otherwise known as the Government Procurement Reform Act, and its revised Implementing Rules and Regulations, institutionalized the manner in which disputes and issues between the government on one hand, and the winning bidder to whom the project was awarded to, on the other, are resolved.

Section 59 of Republic Act No. 9184 provides that “[a]ny and all disputes arising from the implementation of a contract covered by this Act shall be submitted to arbitration in the Philippines according to the provisions of Republic Act No. 876, otherwise known as the “Arbitration Law”.

Arbitration to Resolve Disputes in Government Contracts

Arbitration is the preferred mode of settling disputes involving issues in the interpretation or implementation of a government contract or government project. In fact, where the dispute involves construction and government infrastructure projects, Republic Act No. 9184 states that such disputes shall be referred to the Construction Industry Arbitration Commission.

Moreover, an appellate process for awards arising from arbitration proceedings is instituted in the law itself. Section 60 of Republic Act No. 9184 states that an arbitral award and any decision rendered shall be appealable by way of a petition for review to the Court of Appeals. The law also clearly defines that only pure questions of law may be raised in the appeal.

This means that where a dispute in a government procurement is referred to arbitration, and an arbitral award is rendered as a result, the losing party has a limited opportunity of contesting award, and can raise purely questions of law as grounds for an appeal.

Coverage of Arbitration and Dispute Settlement

Section 59 of Republic Act No. 9184 has laid the requisites for resort to arbitration with a government agency or instrumentality, where a government contract or procurement is involved. It outlines the following premises, for arbitration to be invoked:

a. The existence of a contract between the government agency or instrumentality, and the person to whom the contract was awarded.

b. The existence of a dispute involving its implementation.

Republic Act No. 9184 and its revised Implementing Rules and Regulations both did not enumerate what particular disputes may be submitted to arbitration. As such, and in consonance with the policy of the law which is to promote arbitration as a preferred means of settling disputes, we look at arbitration as the primary means of settling any and all types of disputes involving the implementation of a government contract.

It bears great emphasis that a contract is required for arbitration to take place and be binding. (Gonzales vs. Climax Mining, GR 161957, 22 January 1991). This is because of the basic premise that before arbitration may be resorted to as a means of settling disputes, there must be a clause or stipulation in a contract requiring the parties to resort to arbitration.

Regarding government contracts, this provision is implicit. The General Conditions of Contract stipulate that “[a]ll the provisions of RA No. 9184 and its 2016 revised IRR, including the Generic Procurement Manual, and associated issuances, constitute the primary source for the terms and conditions of the Contract, and thus, applicable in contract implementation.” This means that Section 59 of Republic Act No. 9184 is deemed written into the contract, providing for arbitration as the primary mode of settling disputes involving the implementation of a contract. Thus, there is actually no need to include an arbitration clause in government contracts.

Other Alternative Modes of Dispute Resolution

Of course, as expressly provided under Section 59 of the same law, the parties may agree in writing and incorporate the same into the contract, to submit such disputes to such other alternative modes of dispute resolution. This means that arbitration is not the only means of resolving disputes. 

Thus, mediation, mediation-arbitration, settlement conferences, in addition to arbitration, may be resorted to by the parties, as these are alternative modes of dispute resolution. However, resort to these modes is not automatic. The law requires that both parties, meaning, the government agency or instrumentality, on one hand, and the winning bidder, on the other hand, must agree in writing to submit the dispute to other alternative modes of dispute resolution. In addition to this written agreement, the same agreement must appear and form part of the contract.

Because of this requirement, resort to alternative modes of dispute resolution, apart from the default mode of dispute settlement – arbitration, is rarely adopted.

Resolving Issues Prior to Contract Award

Prior to the award of a contract, can you utilize arbitration to resolve a dispute or issue during the bidding process?

The answer is no. As previously mentioned, reference to arbitration requires the existence of a contract. This is because the basis for resorting to arbitration is the arbitration clause, a clause found in all government contracts. If a contract has not yet been awarded, there would be no legal basis to refer a matter to arbitration.

Prior to the government agency’s award of a government procurement contract, the affected person who wishes to place an issue under dispute will have to utilize the existing protest mechanisms, which include filing a request for reconsideration within three (3) days from receipt of the contested order from the Bids and Awards Committee or verbal notification of the award, and thereafter, the existing protest mechanism outlined under the revised Implementing Rules and Regulations of Republic Act No. 9184. Also, only a failed bidder can start the protest mechanism by first moving for reconsideration of the questioned ruling of the Bids and Awards Committee. (Querubin vs. COMELEC, G.R. No. 218787, 08 December 2015)

About Nicolas and De Vega Law Offices

If you need assistance in registration with the Securities and Exchange Commission, or have issues in corporate law, commercial law, corporate or commercial litigation, or civil or other criminal law-related issues,  we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at info@ndvlaw.com. Visit our website https://ndvlaw.com.

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