Infrastructure with foreign venture

Infrastructure with foreign venture | Daily Tribune

Infrastructure per se qualifies as different kinds of civil works for the government such as construction, improvement, rehabilitation, demolition, repair, restoration, or maintenance of roads and bridges, railways, airports, seaports, communication facilities; civil works components of information technology projects; irrigation, flood control, and drainage; water supply; sanitation; sewerage and solid waste management systems; shore protection; energy/power and electrification facilities; national buildings; school buildings and hospital buildings.

One common method for organizing consortia to build infrastructure is through a joint venture (JV), in which two or more registered entities unite to form one organization and participate in a bid process.

As explained by the Government Procurement Policy Board (GPPB) in Non-Policy Matter (NPM) 163-2015, both incorporated and unincorporated JVs may be eligible to participate in bidding activities under the Government Procurement Reform Act (GPRA). An incorporated JV holds a separate and distinct legal personality and is treated for all intents and purposes as a corporation and not merely a JV due to its registration with the Securities and Exchange Commission (SEC). In contrast, an unincorporated JV is an agreement that is not registered with the SEC.

Essentially, a JV need not be registered with the SEC to participate in a bidding under the GPRA. As a result, the JV bidders need only to submit a valid Joint Venture Agreement and their special PCAB license.

Capital Requirements

Under the Twelfth Foreign Investment Negative List: To date, a foreign bidder can participate in government infrastructure with up to 40 percent foreign equity. Stated otherwise, foreign contractors can join in bidding for infrastructure projects as long as the Filipinos have at least 60 percent of the interest or outstanding capital stock in the partnership, corporation, or joint venture. This rule, however, is not absolute. Depending on the specific type of infrastructure project, the GPRB may qualify for an increase or decrease in the 40 percent foreign equity participation.

For instance, when the structures that need to be built require techniques and/or technologies that can’t be provided by a person or entity meeting the 60 percent Filipino ownership requirement, a joint venture with less than 60 percent Filipino interest may still be able to bid, as long as the Filipino interest doesn’t fall below 25 percent.

Financial documents typically substantiate the monetary or capital contributions of each party member in a joint venture.

The Philippine Contractors Accreditation Board (PCAB) likewise must first issue a special PCAB license to the JV entities before the latter can join in bidding on a specific infrastructure project; otherwise, acting as a contractor without first obtaining the said license is unlawful.

Consistent with Sec. 4 of GPRA, Filipino-foreign joint ventures can take part in the procurement of infrastructure projects, regardless of whether they are locally or foreign-funded, provided they meet the licensing requirements. This corresponds to the essence of public bidding, which aims to protect the best interests of the stakeholders concerned.

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.