The Philippines is primarily a civil law jurisdiction. However, in respect of common law, the Civil Code of the Philippines also provides that judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines. The Philippine legal system also recognises certain indigenous customs and a distinct Islamic legal system.

The architects and engineers who will prepare, sign and seal the construction plans and specifications must be Filipinos and duly licensed by the Professional Regulatory Commission (‘PRC’). Construction contractors who will construct the project must be accredited by the Philippine Contractors Accreditation Board (‘PCAB’). Under Article 1723 of the Philippine Civil Code, if a building should collapse within 15 years by reason of defective designs and specifications or due to defects in the ground, the architect and engineer shall be liable. However, if there are no defects in the designs, but there is a defect in the construction or the use of materials of inferior quality or there is a violation of the terms of the contract, the contractor shall be liable as well. If the architect or engineer supervised the contractor, he shall be solidarily liable with the contractor.

(a) health and safety;

Before undertaking a construction project, a clearance from the Philippine Department of Labour and Employment (‘DOLE’) must be secured for purposes of health and safety of all personnel who will work on the construction project. In this regard, construction companies must show compliance with applicable occupational safety and health (‘OSH’) requirements in the Philippine Labour Code and the 2017 OSH Law. Construction companies must also comply with the salient DOLE regulations, including Department Order No. (‘D.O.’) 13-98, covering construction-industry OSH standards; Memorandum of Agreement – Joint Administrative Order No. 1, Series of 2011, on the coordination and harmonisation of the policies and programs of various government agencies and the PCAB on OSH in the construction industry; and D.O. 198-18, implementing the OSH Law.

Employers must have a dedicated OSH program that covers key duties such as furnishing employees with a workplace free from hazardous conditions, giving workers complete job safety instructions or orientation, using only approved devices and equipment in the workplace, and informing them of work-related risks and hazards as well as preventive measures and emergency procedures.

Parties should also be aware that local government units (‘LGU’) often pass legislation to impose additional OSH guidelines within their territorial jurisdiction.

(b) environmental issues;

The Green Building Code (‘GB Code’) was adopted as a Referral Code to supplement the NBCP by establishing minimum resource efficiency and sustainable construction standards while minimising the negative impact of buildings on human health and the environment. Key performance standards under the GB Code are energy efficiency, water efficiency, material sustainability, solid waste management, site sustainability, and indoor environmental quality.

Furthermore, proponents of construction and engineering projects are required to undergo environmental impact assessment and obtain an environmental compliance certificate (‘ECC’) that impose conditions required by a wide range of environmental laws, such as the Clean Water Act, the Toxic Substances and Hazardous and Nuclear Wastes Act, and the Sanitation Code. An ECC is required prior to the commencement of work for construction projects that are considered as environmentally critical or that are located within areas statutorily defined by the Department of Environment and Natural Resources (‘DENR’) as environmentally critical areas.

As for public construction activities, Republic Act No. (‘RA’) 12009 or the New Government Procurement Act (‘NGPA’), mandates the establishment of a sustainable and inclusive procurement program and the integration and implementation of a green public procurement strategy in procurement activities.

(c) planning;

For the planning of a construction project, the plans, drawings and specifications must comply with the requirements under relevant laws, rules and regulations, including the National Building Code of the Philippines (‘NBCP’) and its Referral Codes, such as the National Structural Code of the Philippines (‘NSCP’).

Specifically, the NBCP governs the required permits and inspection protocols imposed on all construction works. A building permit must be obtained from the local engineer, acting as the building official, of the city or municipality where the construction is to take place.

Under the NGPA for public infrastructure projects, all government procurement activities need to undergo strategic procurement planning, which entails the conduct of relevant market scoping, supply positioning, analysis of available procurement modalities, risk management, and disposal procedures. The preparation of concept, preliminary and detailed engineering designs for national infrastructure activities is further guided by the Philippine Department of Public Works and Highways’ 2015 Design Guidelines, Criteria and Standards.

(d) employment; and

The Philippine Labour Code applies with respect to general labour standards. Notably, Article 295 of the Labour Code makes a distinction between project-based and regular employees. This classification significantly affects the labour standards that apply to employees and the termination of their employment. The DOLE has also issued D.O. 19-93, which sets out additional guidelines to determine employment status and construction industry-specific labour standards.

(e) anti-corruption and bribery.

The Philippine Penal Code criminalises bribery and the Anti-Graft and Corrupt Practices Act penalises all direct and indirect forms of corruption, whether in securing permits, or during competitive biddings. Further to its stated policies of transparency, accountability, participatory procurement, and professionalism, the NGPA requires the standardisation of procurement processes and forms and the use of the inter-agency Philippine Government Electronic Procurement System. Observers in the Bids and Awards Committee (‘BAC’) are mandatory. Relations with key officials of a procuring entity as well as beneficial ownership information must be publicly disclosed. The NGPA also provides for a protest mechanism, administrative sanctions, and legal assistance and indemnification to protect BAC members and support staff from potential harassment.

The architects or engineers who will sign and seal the construction plans and specifications must be Filipinos and duly licensed by the PRC. Construction contractors must be accredited with the PCAB.

A building permit is required before construction work shall commence. The only exceptions are minor constructions and repair works, as detailed in the NBCP’s implementing rules. In processing building permit applications, the building official is tasked to ensure compliance with the standard requirements on zoning and land use, the requirements found in the NBCP and the Referral Codes, lines and grades, structural design, sanitation and sewerage, environment, health, and electrical and mechanical safety, among other pre-requisites.

During the construction works, there must be a logbook on-site at all times, in which the actual progress of construction including tests conducted, weather conditions and other pertinent data are to be recorded. This logbook is to be submitted along with a Certificate of Completion, as-built plans and specifications, and building inspection sheet when the works have been completed.

The building owner or permittee must obtain a certificate of occupancy after construction works have been completed and before the building can be used.

Non-compliance with any of the above is punished under the NBCP with administrative and criminal penalties, including fines and imprisonment. The LGU concerned can issue a stop work order or even cause the demolition of any construction work carried out without the necessary permits.

Additionally, a PCAB licence is a pre-requisite for those engaged in construction contracting. Those who falsely represent themselves to be licensed contractors or carry out contracting work without a licence are punished by a fine and are subject to the PCAB’s disciplinary actions.

The Philippines recognises quasi-delicts in its Civil Code as the closest analogue to the concept of torts. Although the two are sometimes used interchangeably in this jurisdiction, quasi-delicts are acts or omissions arising from fault or negligence that are the proximate cause of damage or injury to another. In other words, quasi-delicts exclude intentional and malicious acts. Quasi-delict is thus understood as a source of obligations separate from law, contract, quasi-contract, and crime.

The typical parties to a construction contract are the following:

1. Employer/owner – refers to the person who owns the project or development;
2. Architect or engineer – refers to the person who will prepare the plans, designs and specifications of the project;
3. Contractor – refers to the person who will perform the services/works in the contract;
4. Project manager – refers to the person who will supervise and manage the works on behalf of the employer.

For large-scale projects, a quantity surveyor would also provide its services to the employer.

For government projects, competitive bidding, which is a mode of procurement that is open to participation by any eligible bidder, must be conducted, subject to certain exceptions prescribed by law. This is consistent with the government principles on government procurement of competitiveness by ensuring equal opportunity for all eligible and qualified suppliers, manufacturers, distributors, contractors, consultants, and service providers, whether public or private.

However, other modes of procurement may be adopted consistent with the Fit-for-Purpose procurement approach by the government such as limited source bidding, competitive dialogue and unsolicited offers with bid matching. Fit-for-Purpose refers to an approach to procurement that applies the most suitable mechanism or strategy designed to address the specific needs of the procuring entity and each project.

There is no prescribed method of procurement method for private projects. Employers may procure construction through competitive bidding or by negotiation, but competitive bidding is normally the preferred method, especially for large-scale and complex projects.

There are various forms of contract used depending on the parties to the contract. For government infrastructure projects covered under the NGPA and where competitive bidding is conducted, the Philippine Bidding Documents issued by the Government Procurement Policy Board (‘GPPB’) will generally apply. If a government infrastructure project is funded by third-party lenders such as international financial institutions, the use of the template forms of established institutions like FIDIC (the ‘International Federation of Consulting Engineers’) is generally required by the lender(s) (and, thus, agreed upon by the parties).

On the other hand, for private construction projects, the Construction Industry Authority of the Philippines (‘CIAP’) recommends the use of CIAP Document 102 (Uniform General Conditions of Contract for Private Construction). Private construction projects may likewise use the applicable FIDIC books, especially when a foreign entity is involved or where the project is complex, large-scale, or capital-intensive. Parties may amend these forms as necessary.

Procurement by all branches and instrumentalities of the national government, its departments, bureaus, offices and agencies, including State Universities and Colleges (‘SUC’), Government-Owned and -Controlled Corporations (‘GOCC’), Government Financial institutions (‘GFI’) and LGUs, is governed by the NGPA. The NGPA introduced the Fit-For-Purpose modalities and modernised procurement processes with the use of emerging technologies and innovative solutions, as well as integrated systems among relevant government agencies.¹

There are no legislative regimes affecting private construction projects. Under The Civil Code of the Philippines, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Hence, the parties shall be governed by the stipulations in the contracts.

Footnote(s):

¹ https://www.gppb.gov.ph/new-government-procurement-act-or-republic-act-no-12009/ last accessed on 1 April 2025.

Yes, the employer usually authorises consultants to supervise the works in accordance with the contract or the employer’s instructions, especially for large or complex projects. Employers also engage consultants for such services as design and plan review, assistance in bidding and permits, and punch-list/close-out review. No standard form is currently used in these engagements.

Yes, subcontracting is permitted especially for large-scale or complex private construction projects. Employers usually contract with a general contractor, but the construction work of the sections or packages will be subcontracted by the general contractor to one or more subcontractors.

In respect of government construction projects, subcontracting is not allowed, unless expressly authorised by the government agency.

Private construction projects are usually financed through debt from financial institutions like banks. On the other hand, public infrastructure projects are typically financed in whole or in part by the Government of the Philippines, a foreign government or an international financing institution.

Contractors are usually asked to submit performance bonds and advance payment bonds to guarantee the contractor’s performance of their obligations under the construction contracts. For privately-owned projects, these bonds are typically issued by accredited/licensed insurance companies that act as sureties, and these bonds are callable on demand. However, because of the difficulties in calling on the surety bonds, there is an increasing preference for employers in larger-scale projects (including the Philippine government) to require an irrevocable standby letter of credit or bank guarantee, which can be called upon the employer’s demand. A call on these bonds is rarely enjoined by courts, as the Philippine Rules of Court prescribe strict requirements, including that the damage the contractor stands to suffer is irreparable (thus, unquantifiable), before a preliminary injunction may issue.

Parent company guarantees for the performance of a subsidiary contractor are permissible; however, most employers require that the guarantee be issued by a third party such as a bank (e.g., bank guarantee or irrevocable standby letter of credit). The power to guarantee must be expressly authorised in a parent corporation’s articles of incorporation. Further, each guarantee must be specifically approved by the corporation’s board of directors (and, necessarily, the signatory to the guarantee must be specifically empowered to extend the same) and must be done in the legitimate furtherance of its primary purpose or business.

These are typically held until after the completion of the project and the contractor has remedied any defects in the works.

There is no specific legislation relating to payment in the industry. Generally, the payment terms will be subject to the specific provisions of the applicable terms of reference for a particular project. Usually, progress payment shall be made based on a request for payment by the contractor for work accomplished.

The ‘pay when paid’ arrangement is a common arrangement between a general contractor and its subcontractors.

Provisions on retention are common in Philippine construction contracts and is usually at a rate of ten percent (10%) of the contract price. The parties may contractually allow the employer to retain a portion of the contract price, which retention amount will be released either upon the employer’s issuance of the certificate of final completion and the contractor’s submission of a defects liability bond, or upon the lapse of the defects liability period. For public works, the Philippines’ bidding documents typically provide for the employer’s right to retention.

Yes, the parties may agree on the amount of liquidated damages as penalty for a contractual breach, especially for delay. CIAP Document 102 reveals the industry practice that, in order to be entitled to such liquidated damages, the employer is not required to prove actual damages. Contracts typically allow the deduction of such amounts from any amount currently or subsequently owed to the contractor under the contract. Though the parties may set any amount, CIAP Document 102 provides that, in practice, liquidated damages must not exceed ten percent (10%) of the contract price. Further, under Article 2227 of the Philippine Civil Code, liquidated damages may be equitably reduced by the courts, at their discretion, when the contract has been partially or irregularly performed, or if the agreed damages are iniquitous or unconscionable. The circumstances considered by the courts in reducing the agreed penalty rate include: the type and purpose of the penalty; the nature of the obligation; the mode of breach and its consequences; the supervening realities; and the standing and relationship of the parties. Thus, to preclude the exercise of the power to mitigate, the employer must provide evidence to support the reasonableness of the claim. For reference, Philippine courts have declared a penalty equivalent to 32% of the contract price to be excessive and unconscionable, especially where the project was partially completed.

Yes, the parties may agree to exclude or limit liability subject to certain limitations. Under the Civil Code of the Philippines, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

However, the Civil Code of the Philippines expressly provides that the engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen (15) years from the completion of the structure, the same should collapse by reason of a defect in those plans and specifications, or due to the defects in the ground. The contractor is likewise responsible for the damages if the edifice falls, within the same period, on account of defects in the construction or the use of materials of inferior quality furnished by him, or due to any violation of the terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable with the contractor.

Under Article 1724 of the Civil Code, the contractor cannot withdraw from the contract, unless the contractor’s right to terminate the contract for convenience is expressly included in the contract.

On the other hand, Article 1725 of the Civil Code allows the employer to withdraw from the contract even if the contractor has commenced the work. However, the employer is required to indemnify the contractor.

In addition, Philippine law allows the termination of any contract in certain cases. For example, a party may terminate a contract if the other refuses to perform a reciprocal obligation. A contractor who undertakes work for a stipulated price, in conformity with plans and specifications agreed upon with an employer, can also withdraw from a contract when the employer has authorised a change in the plans or specifications in writing, but there is no written agreement on the adjustment of the price.

In government contracts, the employer may terminate the contract in case the contractor defaults, commits an unlawful act, or is declared insolvent. The contractor may terminate the contract if the government fails to timely deliver supplies, materials, right-of-way, or other items it is obligated to furnish, or if an adverse peace and order situation disrupts the works.

The Philippine law recognises the concept of force majeure and contract principles similar to the common law doctrine of frustration. The existence of a force majeure event which delays or obstructs the work entitles a contractor to an extension of time, unless the contractor was already in delay when the fortuitous event happened. The employer is likewise justified in suspending work on the grounds of force majeure. For materials and services supplied by the contractor, the contract price may be adjusted to account for cost changes due to force majeure. In a contract where the contractor undertakes to provide only its labour and skill, the contract is terminated if, by fortuitous event, the materials are lost.

The Civil Code allows for the release of a party from a contract when the performance becomes legally or physically impossible without such party’s fault. Further, when performance of a contract has become so difficult as to be manifestly beyond the contemplation of the parties, the performing party may be released from the contract.

In both private and government contracts, termination for convenience is generally allowed for the employer.

Philippine law adopts the principle of relativity of contracts, whereby contracts can only bind the parties, their assigns, and heirs. A stipulation in favour of another party may be allowed by way of exception, but only if the third party’s acceptance is communicated before the stipulation is revoked.

However, under the Civil Code, the claims upon buildings, canals or other works made by furnishers of materials used in the construction, reconstruction, or repair thereof shall be preferred and shall constitute an encumbrance or lien on a specific immovable property of the debtor.

Should a bank provide financing, it is possible that the bank will require a real estate mortgage over the land and all of the improvements found over the land, which will include the construction project. In case of non-payment, the bank may be able to foreclose upon the real estate mortgage.

Yes, contracts typically contain strict provisions governing notification of claims for additional time and money. These clauses are strictly construed, and failure to comply generally results in losing entitlement to the claim. Courts and arbitral tribunals would both recognise that compliance with a provision to notify the other party of a claim is a legitimate condition precedent to a cause of action based on such claim, on the basis that notification reasonably informs the other party of a claimed liability, giving the other party an opportunity to examine the claim while the matter is fresh, to safeguard it from false or fraudulent claims.

Contractors are required by law to register themselves and their employees with state-run social insurance programmes and pay insurance premiums to provide accident coverage. Other forms of insurance are not required by law, but CIAP Document 102 reflects the industry practice requiring contractors to provide liability, accident, and fire insurance for private contracts. Lastly, for large-scale projects, it is common for employers to require contractors to obtain a Contractor’s All Risks Insurance (‘CARI’) policy.

Incorporating arbitration agreements into construction contracts is gaining traction in the Philippines. Accordingly, a good proportion of construction disputes are typically resolved through arbitration. Where parties do not agree to resort to arbitration, the courts have jurisdiction to resolve the dispute. Notably, executive issuances encourage the inclusion of alternative dispute resolution (‘ADR’) clauses in infrastructure projects under, among others, private-public partnership arrangements. Under the NGPA, referral to the Construction Industry Arbitration Commission (‘CIAC’) of construction disputes within its jurisdiction is mandatory.

As an alternative, parties may also agree to resort to other modes of ADR including mediation before arbitration or litigation. There is also a growing appreciation for the dispute avoidance benefits of dispute boards.

Philippine courts support both domestic and international arbitration. The Philippines has long adopted a pro-arbitration policy and has been a contracting state of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

On the one hand, for local construction arbitral awards, the CIAC’s final award is immediately executory and, unlike domestic arbitration awards, may be enforced against the losing party without need to resort to courts. Final awards in CIAC arbitrations are generally unappealable (except on pure questions of law) and may only be subject to limited judicial factual review through a petition for certiorari when there is a finding that the arbitral tribunal compromised its integrity, committed illegal acts or unconstitutional acts.

On the other hand, for international construction arbitral awards, a disputable presumption arises that such awards were made and released in due course of arbitration and are subject to court enforcement. Philippine courts may only refuse recognition and enforcement of a foreign arbitral award on limited grounds listed in the Special Rules of Court on ADR (‘Special ADR Rules’) or on the basis that recognition or enforcement of the award amounts to a violation of public policy. Enforcement of foreign arbitral awards can take 1 to 2 years or longer, depending on the complexity of the award and the level of opposition from the losing party. A court decision to recognise or enforce, or to refuse recognition or enforcement of, an arbitral award may only be elevated on appeal or by petition for certiorari. No appeal or certiorari is available to question the merits of the award.

In either case, an appeal or petition for certiorari can take between 1 to 3 years to resolve. Decisions of appellate courts (whether in an appeal or on certiorari) may be further elevated to the Supreme Court, which may render a decision in as quickly as less than a year (which is highly exceptional) or as long as 10 years. Where the government is involved, the rules and procedures of the Philippine Commission on Audit may affect the enforcement and satisfaction of the award, local or international.

While construction disputes do not have a specific prescription period, the Philippine Civil Code’s general statute of limitations applies, meaning actions based on written contracts prescribe in 10 years from the time the right of action accrues.

The number of parties involved in a dispute depends on the nature and complexity of the contract and the circumstances that gave rise to the dispute. Disputes often arise between 2 parties only, such as an employer and a contractor or a contractor and a sub-contractor, but an insurer or guarantor may be involved through a third-party claim.

Philippine law does not recognise net contribution clauses per se, but the Philippine Civil Code does provide that liability can be either joint or solidary, and the parties are free to stipulate the manner in which such liability is apportioned. That said, net contribution clauses and provisions that assign liability proportionally to multiple parties’ contributions to an innocent party’s losses are not common in the Philippines.

The Philippine construction sector faces a shortage of skilled labour as quality technical education and vocational training opportunities remain scarce, the industry faces a high turnover rate, and many Filipinos look for opportunities to migrate to more developed economies. The complex and uneven regulatory environment adds friction to construction projects, accounting for substantial costs and delays. Meanwhile, the transition to sustainable and green construction has proved difficult for many players in the construction industry. However, both the tax stimuli for environmentally friendly construction projects and the sustained interest in sustainable residential and commercial construction incentivise the shift.

While still in relative infancy in the Philippines, collaborative construction contracting presents an emerging opportunity for construction project stakeholders to align commercial interests, streamline resource efficiency, reduce delays and defects, and avoid disputes altogether. The steady adoption of technology in the Philippine construction industry also presents opportunities for growth. While poor infrastructure also continues to constrain industry growth, the Philippines’ aggressive infrastructure development program has attracted large investments into the sector, as discussed below.

With the Philippines’ commitment to its infrastructure development program, a slew of ambitious projects has been attracting foreign investment. Accordingly, the 2022 Foreign Investment Negative List increased the maximum foreign equity participation in Philippine procurement of infrastructure projects from 25% to 40%.

The development of commercial and industrial centres is also driving investments, with an uptick in the construction of sustainable office buildings, retail spaces, mixed-use developments, and manufacturing and logistics facilities, but with the July 2024 government ban on Philippine offshore gaming operations—a major driver of the country’s recent real property market growth—this trend is expected to slow.

Renewable energy infrastructure projects are also on the rise. With the Philippines reaching record highs in renewable energy capacity installed, financing the infrastructure build-up to support the country’s intensifying efforts to integrate renewable energy into its power grid is crucial.

Construction companies are slowly adopting digital technologies like Building Information Modelling (‘BIM’), artificial intelligence, and cloud-based knowledge platforms to improve construction planning, operations, and management. Widespread use of these technologies is possible by 2030. The sector’s emphasis on the environment has brought on a wave of innovation in sustainable construction materials. Modular construction has also been touted as a cost-effective means to meet the demands of the affordable housing segment, which is expected to expand significantly in the same timeframe.

Philippine construction companies are still recovering from the impact of the country’s extended COVID-19 lockdown and the Russo-Ukrainian war on the global supply chain and material costs. Prolonged supply chain bottlenecks and the continued increase of material costs will only lead to further cost overruns and delays. Adding to supply chain issues and material cost volatility, the recent imposition of tariffs by the US on all its imports may cause sourcing shifts and material mark-ups across the globe.

To manage these disruptions, construction industry players will likely push for formula-based or cost-plus escalation clauses and better force majeure coverage. Construction contracts often strike a delicate balance of risk allocation that will need to be revisited. Parties may also be attracted to incorporating collaborative approaches to construction contracts.

The national push for infrastructure development, the increasing demands for commercial and industrial construction, and the adoption of resource-efficient technologies and sustainable practices may counteract these anticipated challenges. Industry stakeholders will be observing how these opposing factors will interact over the coming year.