THE Department of Justice (DoJ) said a 2007 Supreme Court (SC) ruling on “extraordinary inflation” cannot be applied to price escalation clauses in government procurement contracts.

“The pronouncement of the Supreme Court on the requisites of extraordinary inflation (or deflation) in order to affect an obligation is specific to the factual circumstance in the Equitable (PCI Bank) case and may not be interpreted to extend to a different set of facts, such as the determination of price escalation claim under the law,” Justice Secretary Jesus Crispin C. Remulla said in a legal opinion addressed to National Economic and Development Authority (NEDA) Undersecretary Joseph J. Capuno. “The 2007 ruling has factual circumstances specific only to the case.”

Mr. Capuno had sought guidance on whether a certification of extraordinary inflation from the Bangko Sentral ng Pilipinas (BSP) was an absolute requirement for price escalation requests by contractors on government projects.

Price escalation is an increase in the contract price due to basis of “extraordinary circumstances” as determined by NEDA, according to the Government Procurement Policy Board (GPPB).

The DoJ recommended that NEDA consult the (BSP) and the GPPB on price escalation requests. 

“This time-honed policy of consulting is dictated not only by practical considerations but by a sincere respect for the expertise on, and familiarity with, the policies relating to the subject, and the rightful exercise of jurisdiction by a co-equal and coordinate government offices,” Mr. Remulla said.

He said that a court may adhere to previous jurisprudence and apply it to future cases where the factors are “substantially the same.”

The Justice secretary said that at the time of the 2007 decision, there was an absence of guidelines or policy to determine instances of extraordinary inflation.  

“To rule on the query would inevitably involve the correctness of the ruling or interpretation of the Supreme Court which is beyond our authority to review.”

Under the High Court ruling, extraordinary inflation exists when there is an unusual decrease in the purchasing power of a currency that could not be “reasonably foreseen.”

The Government Procurement Act allows price escalation only under “extraordinary circumstances” and with the approval of the GPPB. — John Victor D. Ordoñez