PCC weighs competition issue in PCAB-Manila Water construction case

The Philippine Competition Commission (PCC) has sent an expert opinion regarding an ongoing case between the Manila Water Company Inc. (MWCI) and the Philippine Contractors Accreditation Board (PCAB) to level the playing field among contractors in the construction industry.

In a statement on Friday, the antitrust watchdog said it filed a brief before the Supreme Court on December 19, 2016 seeking to nullify the PCAB’s nationality requirement in the current licensing scheme for contractors.

“The nationality requirement by PCAB puts a substantial barrier to the entry of foreign contractors in the construction industry,” it said, noting the ease of entry into an industry is a positive sign of competitiveness.

The PCAB-MWCI case was elevated to the high court just weeks before the Philippine Competition Act was passed in July 2015.

"The construction industry plays an important role in economic development, because it builds the infrastructure of almost every other industry and the rest of the economy, including housing, transport, water and sanitation, and power," PCC said.
 
“It is a settled principle in economics that if there are many players in the market, healthy competition will ensue. Competition results in better quality products and competitive prices that will benefit the public,” it added.

Competition in the construction industry would result in improvements in the production processes, leading to economic benefits for the country, according to PCC.
 
The SC ruling is expected to make a significant impact on the Philippine construction industry, considering such ruling could either open up and level the playing field for both domestic and foreign contractors, or preserve the unduly restrictive licensing regime imposed under the regulation in question.
 
The PCAB is the authorized licensing body that issues regular and special licenses to contractors.

Local firms may get a regular license, which allows them to engage in many contracting activities for a year, while foreign contractors must get a special license and separate licenses for each contract activity.
 
"These conditions create a substantial difference in cost between foreign and local firms for securing licenses from PCAB," the PCC said.
 
To illustrate the difference in cost of licensing between foreign and domestic firms, the PCC calculated the potential cost of licensing between special and regular licenses, under the PCAB rule.

"Since the application process takes an average of 30 days, applying the daily minimum wage would place a conservative estimate of the cost for each application at P14,700 even without adding the cost of categorization fees. For 2015, there were 132,000 construction projects and 10,526 registered contractors, which mean each registered contractor undertook an average of 12 projects for the year," it said.

"Thus, a foreign contractor would have to spend 12 times more for license applications compared to a domestic contractor in a typical year in order to engage at the same level of activity," it noted.
 
“These conditions are not very encouraging for foreign contractors intending to participate in the construction industry,” the PCC said. — Ted Cordero/VS, GMA News