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.This web page features the full text of the

Build-Operate-Transfer Law [Republic Act No. 7718]

IMPLEMENTING RULES AND REGULATIONSOF R.A. NO. 6957, AS AMENDED BY R.A. NO.

7718"AN ACT AUTHORIZING THE FINANCING,

CONSTRUCTION, OPERATION AND MAINTENANCE OFINFRASTRUCTURE PROJECTS BY THE PRIVATE

SECTOR AND FOR OTHER PURPOSES"

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REPUBLIC ACT NO. 7718

AN ACT AMENDING CERTAIN SECTIONS OFREPUBLIC ACT NO. 6957, ENTITLED "AN

ACT AUTHORIZING THE FINANCING,CONSTRUCTION, OPERATION AND

MAINTENANCE OF INFRASTRUCTUREPROJECTS BY THE PRIVATE SECTOR, AND

FOR OTHER PURPOSES"

SECTION 1. Section 1 of Republic Act No. 6957 ishereby amended to read as follows:

"SECTION 1. Declaration of Policy. - It is thedeclared policy of the State to recognize theindispensable role of the private sector as themain engine for national growth anddevelopment and provide the most appropriateincentives to mobilize private resources for thepurpose of financing the construction,operation and maintenance of infrastructure anddevelopment projects normally financed andundertaken by the Government. Suchincentives, aside from financial incentives asprovided by law, shall include providing aclimate of minimum government regulationsand procedures and specific governmentundertakings in support of the private sector."

SEC. 2. Section 2 of the same Act is herebyamended to read as follows:

"SEC. 2. Definition of Terms. - The followingterms used in this Act shall have the meaningstated below:

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"[a] Private sector infrastructure ordevelopment projects. - The general descriptionof infrastructure or development projectsnormally financed and operated by the publicsector but which will now be wholly or partlyimplemented by the private sector, including bitnot limited to, power plants, highways, ports,airports, canals, dams, hydropower projects,water supply, irrigation, telecommunications,railroads and railways, transport systems, landreclamation projects, industrial estates ortownships, housing, government buildings,tourism projects, markets, slaughterhouses,warehouses, solid waste management,information technology networks and databaseinfrastructure, education and health facilities,sewerage, drainage, dredging, and otherinfrastructure and development projects as maybe authorized by the appropriate agencypursuant to this Act. Such projects shall beundertaken through contractual arrangementsas defined hereunder and such other variationsas may be approved by the President of thePhilippines.

"For the construction stage of theseinfrastructure projects, the project proponentmay obtain financing from foreign and/ordomestic sources and/or engage the services ofa foreign and/or Filipino contractor. Provided,That, in case an infrastructure or a developmentfacility's operation requires a public utilityfranchise, the facility operator must be Filipinoor if a corporation, it must be duly registeredwith the Securities and Exchange Commissionand owned up to at least sixty percent (60%) byFilipinos: Provided, further, That in the case offoreign contractors, Filipino labor shall beemployed or hired in the different phases of theconstruction where Filipino skills are available:Provided, finally, That projects which wouldhave difficulty in sourcing funds may befinanced partly from direct governmentappropriations and/or from OfficialDevelopment Assistance [ODA] of foreign

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Development Assistance [ODA] of foreigngovernments or institutions not exceeding fiftypercent [50%] of the project cost, and thebalance to be provided by the projectproponent.

"[b] Build-operate-and-transfer. - A contractualarrangement whereby the project proponentundertakes the construction, includingfinancing, of a given infrastructure facility, andthe operation and maintenance thereof. Theproject proponent operates the facility over afixed term during which it is allowed to chargefacility users appropriate tolls, fees, rentals, andcharges not exceeding these proposed in its bidor as negotiated and incorporated in thecontract to enable the project proponent torecover its investment, and operating andmaintenance expenses in the project. Theproject proponent transfers the facility to thegovernment agency or local government unitconcerned at the end of the fixed term whichshall not exceed fifty [50] years: Provided, Thatin case of an infrastructure or developmentfacility whose operation requires a public utilityfranchise, the proponent must be Filipino or, if acorporation, must be duly registered with theSecurities and Exchange Commission andowned up to at least sixty percent [60%] byFilipinos.

"The build-operate-and-transfer shall include asupply-and-operate situation which is acontractual arrangement whereby the supplierof equipment and machinery for a giveninfrastructure facility, if the interest of theGovernment so requires, operates the facilityproviding in the process technology transferand training to Filipino nationals.

"[c] Build-and-transfer. - A contractualarrangement whereby the project proponentundertakes the financing and construction of agiven infrastructure or development facility andafter its completion turns it over to the

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after its completion turns it over to thegovernment agency or local government unitconcerned, which shall pay the proponent on anagreed schedule its total investments expendedon the project, plus a reasonable rate of returnthereon. This arrangement may be employed inthe construction of any infrastructure ordevelopment project, including critical facilitieswhich, for security or strategic reasons, mustbe operated directly by the Government.

"[d] Build-own-and-operate. - A contractualarrangement whereby a project proponent isauthorized to finance, construct, own, operateand maintain an infrastructure or developmentfacility from which the proponent is allowed torecover its total investment, operating andmaintenance costs plus a reasonable returnthereon by collecting tolls, fees, rentals or othercharges from facility users: Provided, That allsuch projects, upon recommendation of theInvestment Coordination Committee [ICC] of theNational Economic and Development Authority[NEDA], shall be approved by the President ofthe Philippines. Under this project, theproponent which owns the assets of the facilitymay assign its operation and maintenance to afacility operator.

"[e] Build-lease-and-transfer. - A contractualarrangement whereby a project proponent isauthorized to finance and construct aninfrastructure or development facility and uponits completion turns it over to the governmentagency or local government unit concerned ona lease arrangement for a fixed period afterwhich ownership of the facility is automaticallytransferred to the government agency or localgovernment unit concerned.

"[f] Build-transfer-and-operate. - A contractualarrangement whereby the public sectorcontracts out the building of an infrastructurefacility to a private entity such that thecontractor builds the facility on a turn-key

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contractor builds the facility on a turn-keybasis, assuming cost overrun, delay andspecified performance risks.

"Once the facility is commissionedsatisfactorily, title is transferred to theimplementing agency. The private entityhowever, operates the facility on behalf of theimplementing agency under an agreement.

"[g] Contract-add-and-operate. - A contractualarrangement whereby the project proponentadds to an existing infrastructure facility whichit is renting from the government. It operatesthe expanded project over an agreed franchiseperiod. There may, or may not be, a transferarrangement in regard to the facility.

"[h] Develop-operate-and-transfer. - Acontractual arrangement whereby favorableconditions external to a new infrastructureproject which is to be built by a private projectproponent are integrated into the arrangementby giving that entity the right to developadjoining property, and thus, enjoy some of thebenefits the investment creates such as higherproperty or rent values.

"[i] Rehabilitate-operate-and-transfer. - Acontractual arrangement whereby an existingfacility is turned over to the private sector torefurbish, operate and maintain for a franchiseperiod, at the expiry of which the legal title tothe facility is turned over to the government.The term is also used to describe the purchaseof an existing facility from abroad, importing,refurbishing, erecting and consuming it withinthe host country.

"[j] Rehabilitate-own-and-operate. - Acontractual arrangement whereby an existingfacility is turned over to the private sector torefurbish and operate with no time limitationimposed on ownership. As long as the operatoris not in violation of its franchise, it cancontinue to operate the facility in perpetuity.

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continue to operate the facility in perpetuity.

"[k] Project proponent. - The private sectorentity which shall have contractualresponsibility for the project and which shallhave an adequate financial base to implementsaid project consisting of equity and firmcommitments from reputable financialinstitutions to provide, upon award, sufficientcredit lines to cover the total estimated cost ofthe project.

"[l] Contractor. - Any entity accredited underPhilippine laws which may or may not be theproject proponent and which shall undertakethe actual construction and/or supply ofequipment for the project.

"[m] Facility operator. - A company registeredwith the Securities and Exchange Commission,which may or may not be the project proponent,and which is responsible for all aspects ofoperation and maintenance of the infrastructureor development facility, including but notlimited to the collection of tolls, fees, rentals orcharges from facility users: Provided, That incase the facility requires a public utilityfranchise, the facility operator shall be Filipinoor at least sixty per centum [60%] owned byFilipinos.

"[n] Direct government guarantee. - Anagreement whereby the government or any ofits agencies or local government units assumeresponsibility for the repayment of debt directlyincurred by the project proponent inimplementing the project in case of a loandefault.

"[o] Reasonable rate of return on investmentsand operating and maintenance cost. - The rateof return that reflects the prevailing cost ofcapital in the domestic and internationalmarkets: Provided, That, in case of negotiatedcontracts, such rate of return shall bedetermined by the ICC of the NEDA prior to the

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determined by the ICC of the NEDA prior to thenegotiation and/or call for proposals: Provided,further, That for negotiated contracts for publicutility projects which are monopolies, the rate ofreturn on rate base shall be determined byexisting laws, which in no case shall exceedtwelve per centum [12%].

"[p] Construction. - Refers to new construction,rehabilitation, improvement, expansion,alteration and related works and activitiesincluding the necessary supply of equipment,materials, labor and services and related items."

SEC. 3. Section 3 of the same Act is herebyamended to read as follows:

"SEC. 3. Private Initiative in Infrastructure. - Allgovernment infrastructure agencies, includinggovernment-owned and -controlledcorporations and local government units arehereby authorized to enter into contract withany duly prequalified project proponent for thefinancing, construction, operation andmaintenance of any financially viableinfrastructure or development facility throughany of the projects authorized in this Act. Saidagencies, when entering into such contracts,are enjoined to solicit the expertise ofindividuals, groups, or corporations in theprivate sector who have extensive experience inundertaking infrastructure or developmentprojects."

SEC. 4. Section 4 of the same act is hereby amendedto read as follows:

"SEC. 4. Priority projects. - All concernedgovernment agencies, including government-owned and -controlled corporations and localgovernment units, shall include in theirdevelopment programs those priority projectsthat may be financed, constructed, operatedand maintained by the private sector under theprovisions of this Act. It shall be the duty of allconcerned government agencies to give wide

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concerned government agencies to give widepublicity to all projects eligible for financingunder this Act, including publication in nationaland, where applicable, international newspapersof general circulation once every six (6) monthsand official notification of project proponentsregistered with them.

"The lists of all such national projects must bepart of the development programs of theagencies concerned. The list of projects costingup to Three hundred million pesos [300,000,000]shall be submitted to the ICC of the NEDA for itsapproval and to the NEDA Board for projectscosting more than Three hundred million pesos[300,000,000]. The list of projects submitted tothe ICC of the NEDA Board shall be acted uponwithin thirty [30] working days.

"The list of local projects to be implemented bythe local government units concerned shall besubmitted for confirmation to the municipaldevelopment council for projects costing up toTwenty million pesos; those costing aboveTwenty up to Fifty million pesos to theprovincial development council; those costingup to Fifty million to the city developmentcouncil; above Fifty million up to Two hundredmillion pesos to the regional developmentcouncils; and those above Two hundred millionpesos to the ICC of the NEDA."

SEC. 5. A new section is hereby added after Section4 of the same Act and numbered as Section 4-A, toread as follows:

"SEC. 4-A. Unsolicited proposals. - Unsolicitedproposals for projects may be accepted by anygovernment agency or local government unit ona negotiated basis: Provided, That, all thefollowing conditions are met: [1] such projectsinvolve a new concept or technology and/or are

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involve a new concept or technology and/or arenot part of the list of priority projects, [2] nodirect government guarantee, subsidy or equityis required, and [3] the government agency orlocal government unit has invited bypublication, for three [3] consecutive weeks, ina newspaper of general circulation, comparativeor competitive proposals and no other proposalis received for a period of sixty [60] workingdays: Provided, further, That in the eventanother proponent submits a lower priceproposal, the original proponent shall have theright to match that price within thirty [30]working days."

SEC. 6. Section 5 of the same Act is herebyamended to read as follows:

"SEC. 5. Public Bidding of Projects. - Uponapproval of the projects mentioned in Section 4of this Act, the head of the infrastructure agencyor local government unit concerned shallforthwith cause to be published, once everyweek for three [3] consecutive weeks, in at leasttwo [2] newspapers of general circulation and inat least one [1] local newspaper which iscirculated in the region, province, city ormunicipality in which the project is to beconstructed, a notice inviting all prospectiveinfrastructure or development projectproponents to participate in a competitivepublic bidding for the projects so approved.

"In the case of a build-operate-and-transferarrangement, the contract shall be awarded tothe bidder who, having satisfied the minimumfinancial, technical, organizational and legalstandards required by this Act, has submittedthe lowest bid and most favorable terms for theproject, based on the present value of itsproposed tolls, fees, rentals and charges over afixed term for the facility to be constructed,rehabilitated, operated and maintainedaccording to the prescribed minimum design

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according to the prescribed minimum designand performance standards, plans andspecifications. For this purpose, the winningproject proponent shall be automaticallygranted by the appropriate agency the franchiseto operate and maintain the facility, includingthe collection of tolls, fees, rentals, and chargesin accordance with Section 5 hereof.

"In the case of a build-and-transfer or build-lease-and-transfer arrangement, the contractshall be awarded to the lowest complyingbidder based on the present value of itsproposed schedule of amortization paymentsfor the facility to be constructed according tothe prescribed minimum design andperformance standards, plans andspecifications: Provided, however, That aFilipino contractor who submits an equallyadvantageous bid with exactly the same priceand technical specifications as those of aforeign contractor shall be given preference.

"In all cases, a consortium that participates in abid must present proof that the members of theconsortium have bound themselves jointly andseverally to assume responsibility for anyproject. The withdrawal of any member of theconsortium prior to the implementation of theproject could be a ground for the cancellation ofthe contract.

"The public bidding must be conducted under atwo-envelope/two-stage system: the firstenvelope to contain the technical proposal andthe second envelope to contain the financialproposal. The procedures for this system shallbe outlined in the implementing rules andregulations of this Act.

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"A copy of each contract involving a projectentered into under this Act shall forthwith besubmitted to Congress for its information."

SEC. 7. A new section is hereby added after Section5 of the same Act and numbered as Section 5-A, toread as follows:

"SEC. 5-A. Direct Negotiation of Contracts. -Direct negotiation shall be resorted to whenthere in only one complying bidder left asdefined hereunder:

"[a] If, after advertisement, only onecontractor applied for prequalification andit meets the prequalification requirements,after which it is required to submit abid/proposal which is subsequently foundby the agency/local government unit [LGU]to be complying.

"[b] If, after advertisement, more than onecontractor applied for prequalification butonly one meets the prequalificationrequirements, after which it submitsbid/proposal which is found by theagency/LGU to be complying.

"[c] If, after prequalification of more thanone contractor, only one submits a bidwhich is found by the agency/LGU to becomplying.

"[d] If, after prequalification, more than onecontractor submit bids but only one isfound by the agency/LGU to be complying:Provided, That, any of the disqualifiedprospective bidder may appeal the decisionof the implementing agency/LGUsPrequalification Bids and AwardsCommittee within fifteen [15] working daysto the head of the agency, in case of

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to the head of the agency, in case ofnational projects or to the Department ofthe Interior and Local Government, in caseof local projects from the date thedisqualification was made known to thedisqualified bidder. Provided, furthermore,That the implementing agency/LGUsconcerned should act on the appeal withinforty-five [45] working days from receiptthereof."

SEC. 8. Section 6 of the same Act is herebyamended to read as follows:

"SEC. 6. Repayment Scheme. - For thefinancing, construction, operation andmaintenance of any infrastructure projectundertaken through the Build-Operate-and-Transfer arrangement or any of itsvariations pursuant to the provisions of thisAct, the project proponent shall be repaidby authorizing it to charge and collectreasonable tolls, fees, and rentals for theuse of the project facility not exceedingthose incorporated in the contract and,where applicable, the proponent maylikewise be repaid in the form of a share inthe revenue of the project or other non-monetary payments, such as, but notlimited, to the grant of a portion orpercentage of the reclaimed land, subject tothe constitutional requirements withrespect to the ownership of land: Provided,That for negotiated contracts, and forprojects which have been granted a naturalmonopoly or where the public has noaccess to alternative facilities, theappropriate government regulatory bodies,shall approve the tolls, fees, rentals, andcharges based on a reasonable rate ofreturn: Provided, further, That theimposition and collection of tolls, fees,rentals, and charges shall be for a fixedterm as proposed in the bid andincorporated in the contract but in no case

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incorporated in the contract but in no caseshall this term exceed fifty [50] years:Provided, furthermore, That the tolls, fees,rentals, and charges may be subject toadjustment during the life of the contract,based on a predetermined formula usingofficial price indices and included in theinstructions to bidders and in the contract:Provided, also, That all tolls, fees, rentals,and charges and adjustments thereof shalltake into account the reasonableness ofsaid rates to the end-users of privatesector-built infrastructure: Provided, finally,That during the lifetime of the franchise, theproject proponent shall undertake thenecessary maintenance and repair of thefacility in accordance with standardsprescribed in the bidding documents and inthe contract. In the case of a Build-and-Transfer arrangement, the repaymentscheme is to be effected throughamortization payments by the governmentagency or local government unit concernedto the project proponent according to thescheme proposed in the bid andincorporated in the contract."

SEC. 9. Section 7 of the same Act is herebyamended to read as follows:

"SEC. 7. Contract Termination - In theevent that a project is revoked, canceled orterminated by the Government through nofault of the project proponent or by mutualagreement, the Government shallcompensate the said project proponent forits actual expenses incurred in the projectplus a reasonable rate of return thereon notexceeding that stated in the contract as ofthe date of such revocation, cancellation ortermination: Provided, That the interest ofthe Government in these instances shall beduly insured with the Government ServiceInsurance System or any other insuranceentity duly accredited by the Office of the

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entity duly accredited by the Office of theInsurance Commissioner: Provided, finally,That the cost of the insurance coverageshall be included in the terms andconditions of the bidding referred to above.

"In the event that the government defaultson certain major obligations in the contractand such failure is not remediable or ifremediable shall remain unremedied for anunreasonable length of time, the projectproponent/contractor may, by prior noticeto the concerned national governmentagency or local government unit specifyingthe turn-over date, terminate the contract.The project proponent/contractor shall bereasonably compensated by theGovernment for equivalent or proportionatecontract cost as defined in the contract."

SEC. 10. Section 8 of the same Act is herebyamended to read as follows:

"SEC. 8. Regulatory Boards. - The TollRegulatory Board which was created byPresidential Decree No. 1112 is herebyattached to the Department of Public Worksand Highways with the Secretary of PublicWorks and Highways as Chairman."

SEC. 11. Section 9 of the same Act is herebyamended to read as follows:

"SEC. 9. Project Supervision. - Everyinfrastructure project undertaken under theprovisions of this Act shall be inaccordance with the plans, specifications,standards, and costs approved by theconcerned government agency and shall beunder the supervision of the said agency orlocal government unit in the case of localprojects."

SEC. 12. A new section to be numbered as Section10 is hereby added to read as follows:

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"SEC. 10. Investment Incentives. - Amongother incentives, projects in excess of Onebillion pesos [1,000,000,000] shall beentitled to incentives as provided by theOmnibus Investments Code, uponregistration with the Board of Investments."

SEC. 13. Section 10 of the same Act is herebyrenumbered as Section 11 to read as follows:

"SEC. 11. Implementing Rules andRegulations. - A committee composed ofone (1) representative each from theDepartment of Public Works and Highways,the Department of Transportation andCommunications, the Department ofEnergy, the Department of Environment andNatural Resources, the Department ofAgriculture, the Department of Trade andIndustry, the Department of Finance, theDepartment of the Interior and LocalGovernment, the National Economic andDevelopment Authority, the CoordinatingCouncil of the Philippine AssistanceProgram, and other concerned governmentagencies shall within sixty [60] days fromthe effectivity of this Act, formulate andprescribe, after public hearing andpublication as required by law, theimplementing rules and regulationsincluding, among others, the criteria andguidelines for evaluation of bid proposals,list of financial incentives andarrangements that the Government mayprovide for the project, in order to carry outthe provisions of this Act in the mostexpeditious manner.

"The Chairman of this committee shall beappointed by the President of thePhilippines from its members.

"From time to time the Committee mayconduct, formulate and prescribe after duepublic hearing and publication,

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public hearing and publication,amendments to the implementing rules andregulations, consistent with the provisionsof this Act."

SEC. 14. A new section to be numbered as Section12 is hereby added to read as follows:

"SEC. 12. Coordination and Monitoring ofProjects. - The Coordinating Council of thePhilippine Assistance Program [CCPAP]shall be responsible for the coordinationand monitoring of projects implementedunder this Act.

"Regional development councils and localgovernment units shall periodically submitto CCPAP, information on the status of saidprojects.

"At the end of every calendar year, theCCPAP shall report to the President and toCongress on the progress of all projectsimplemented under this Act."

SEC. 15. Section 11, 12 and 13 of the same Act arehereby renumbered as Sections 13, 14, and 15,respectively. SEC. 16. Repealing Clause. - All laws or parts of anylaw inconsistent with the provisions of this Act arehereby repealed or modified accordingly.

SEC. 17. Separability Clause. - If any provision ofthis Act is held invalid, the other provisions notaffected thereby shall continue in operation.SEC. 18. Effectivity Clause. - This Act shall takeeffect fifteen [15] days after its publication in at leasttwo (2) newspapers of general circulation.

Approved:

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[Sgd.] EDGARDO J. ANGARA [Sgd.]JOSE DE VENECIA, JR. President of the Senate Speaker of the House of Representatives

This Act which is a consolidation of House Bill No.10943 and Senate Bill No. 1586 was finally passed bythe House of Representatives and the Senate onApril 12, 1994 and April 27, 1994, respectively.

[Sgd.] EDGARDO E. TUMANGAN [Sgd.]ROBERTO P. NAZARENO Secretary of the Senate ActingSecretary General House ofRepresentatives

Approved: 8 MAY 1994

[Sgd.] FIDEL V. RAMOSPresident of the Philippines

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