REPUBLIC ACT NO.

6957
As amended by Republic Act 7718

AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND

MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR,
AND FOR THE OTHER PURPOSES

Sec. 1. Declaration of Policy1. - It is the declared policy of the State to recognize the
indispensable role of the private sector as the main engine for national growth and
development and provide the most appropriate incentives to mobilize private resources
for the purpose of financing the construction, operation and maintenance of
infrastructure and development projects normally financed and undertaken by the
Government. Such incentives, aside from financial incentives as provided by law, shall
include providing a climate of minimum government regulations and procedures and
specific government undertakings in support of the private sector.

Sec. 2. Definition of Terms.2 - The following terms used in this Act shall have the
meaning stated below:

[a] Private sector infrastructure or development projects. - The general description of

infrastructure or development projects normally financed and operated by the public
sector but which will now be wholly or partly implemented by the private sector,
including bit not limited to, power plants, highways, ports, airports, canals, dams,
hydropower projects, water supply, irrigation, telecommunications, railroads and
railways, transport systems, land reclamation projects, industrial estates or townships,
housing, government buildings, tourism projects, markets, slaughterhouses,
warehouses, solid waste management, information technology networks and database
infrastructure, education and health facilities, sewerage, drainage, dredging, and other
infrastructure and development projects as may be authorized by the appropriate
agency pursuant to this Act. Such projects shall be undertaken through contractual
arrangements as defined hereunder and such other variations as may be approved by
the President of the Philippines.

For the construction stage of these infrastructure projects, the project proponent may
obtain financing from foreign and/or domestic sources and/or engage the services of a
foreign and/or Filipino contractor. Provided, That, in case an infrastructure or a
development facility's operation requires a public utility franchise, the facility operator
must be Filipino or if a corporation, it must be duly registered with the Securities and
Exchange Commission and owned up to at least sixty percent (60%) by Filipinos:
Provided, further, That in the case of foreign contractors, Filipino labor shall be
employed or hired in the different phases of the construction where Filipino skills are
available: Provided, finally, That projects which would have difficulty in sourcing funds
may be financed partly from direct government appropriations and/or from Official
Development Assistance [ODA] of foreign governments or institutions not exceeding

1 Sec. 1, RA 7718, 8 May 1994.

2 Sec. 2, RA 7718, 8 May 1994.
fifty percent [50%] of the project cost, and the balance to be provided by the project
proponent.

[b] Build-operate-and-transfer. - A contractual arrangement whereby the project

proponent undertakes the construction, including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The project proponent operates the
facility over a fixed term during which it is allowed to charge facility users appropriate
tolls, fees, rentals, and charges not exceeding these proposed in its bid or as negotiated
and incorporated in the contract to enable the project proponent to recover its
investment, and operating and maintenance expenses in the project. The project
proponent transfers the facility to the government agency or local government unit
concerned at the end of the fixed term which shall not exceed fifty [50] years: Provided,
That in case of an infrastructure or development facility whose operation requires a
public utility franchise, the proponent must be Filipino or, if a corporation, must be duly
registered with the Securities and Exchange Commission and owned up to at least sixty
percent [60%] by Filipinos.

The build-operate-and-transfer shall include a supply-and-operate situation which is

a contractual arrangement whereby the supplier of equipment and machinery for a
given infrastructure facility, if the interest of the Government so requires, operates the
facility providing in the process technology transfer and training to Filipino nationals.

[c] Build-and-transfer. - A contractual arrangement whereby the project proponent

undertakes the financing and construction of a given infrastructure or development
facility and after its completion turns it over to the government agency or local
government unit concerned, which shall pay the proponent on an agreed schedule its
total investments expended on the project, plus a reasonable rate of return thereon. This
arrangement may be employed in the construction of any infrastructure or development
project, including critical facilities which, for security or strategic reasons, must be
operated directly by the Government.

[d] Build-own-and-operate. - A contractual arrangement whereby a project proponent

is authorized to finance, construct, own, operate and maintain an infrastructure or
development facility from which the proponent is allowed to recover its total
investment, operating and maintenance costs plus a reasonable return thereon by
collecting tolls, fees, rentals or other charges from facility users: Provided, That all such
projects, upon recommendation of the Investment Coordination Committee [ICC] of the
National Economic and Development Authority [NEDA], shall be approved by the
President of the Philippines. Under this project, the proponent which owns the assets of
the facility may assign its operation and maintenance to a facility operator.

[e] Build-lease-and-transfer. - A contractual arrangement whereby a project proponent

is authorized to finance and construct an infrastructure or development facility and
upon its completion turns it over to the government agency or local government unit
concerned on a lease arrangement for a fixed period after which ownership of the facility
is automatically transferred to the government agency or local government unit
concerned.
 [f] Build-transfer-and-operate. - A contractual arrangement whereby the public sector
contracts out the building of an infrastructure facility to a private entity such that the
contractor builds the facility on a turn-key basis, assuming cost overrun, delay and
specified performance risks.

Once the facility is commissioned satisfactorily, title is transferred to the

implementing agency. The private entity however, operates the facility on behalf of the
implementing agency under an agreement.

[g] Contract-add-and-operate. - A contractual arrangement whereby the project

proponent adds to an existing infrastructure facility which it is renting from the
government. It operates the expanded project over an agreed franchise period. There
may, or may not be, a transfer arrangement in regard to the facility.

[h] Develop-operate-and-transfer. - A contractual arrangement whereby favorable

conditions external to a new infrastructure project which is to be built by a private
project proponent are integrated into the arrangement by giving that entity the right to
develop adjoining property, and thus, enjoy some of the benefits the investment creates
such as higher property or rent values.

[i] Rehabilitate-operate-and-transfer. - A contractual arrangement whereby an existing

facility is turned over to the private sector to refurbish, operate and maintain for a
franchise period, at the expiry of which the legal title to the facility is turned over to the
government. The term is also used to describe the purchase of an existing facility from
abroad, importing, refurbishing, erecting and consuming it within the host country.

[j] Rehabilitate-own-and-operate. - A contractual arrangement whereby an existing

facility is turned over to the private sector to refurbish and operate with no time
limitation imposed on ownership. As long as the operator is not in violation of its
franchise, it can continue to operate the facility in perpetuity.

[k] Project proponent. - The private sector entity which shall have contractual
responsibility for the project and which shall have an adequate financial base to
implement said project consisting of equity and firm commitments from reputable
financial institutions to provide, upon award, sufficient credit lines to cover the total
estimated cost of the project.

[l] Contractor. - Any entity accredited under Philippine laws which may or may not
be the project proponent and which shall undertake the actual construction and/or
supply of equipment for the project.

[m] Facility operator. - A company registered with the Securities and Exchange
Commission, which may or may not be the project proponent, and which is responsible
for all aspects of operation and maintenance of the infrastructure or development
facility, including but not limited to the collection of tolls, fees, rentals or charges from
facility users: Provided, That in case the facility requires a public utility franchise, the
facility operator shall be Filipino or at least sixty per centum [60%] owned by Filipinos.

[n] Direct government guarantee. - An agreement whereby the government or any of

its agencies or local government units assume responsibility for the repayment of debt
directly incurred by the project proponent in implementing the project in case of a loan
default.

[o] Reasonable rate of return on investments and operating and maintenance cost. - The rate
of return that reflects the prevailing cost of capital in the domestic and international
markets: Provided, That, in case of negotiated contracts, such rate of return shall be
determined by the ICC of the NEDA prior to the negotiation and/or call for proposals:
Provided, further, That for negotiated contracts for public utility projects which are
monopolies, the rate of return on rate base shall be determined by existing laws, which
in no case shall exceed twelve per centum [12%].

[p] Construction. - Refers to new construction, rehabilitation, improvement,

expansion, alteration and related works and activities including the necessary supply of
equipment, materials, labor and services and related items.

Sec. 3. Private Initiative in Infrastructure.3 - All government infrastructure agencies,

including government-owned and -controlled corporations and local government units
are hereby authorized to enter into contract with any duly prequalified project
proponent for the financing, construction, operation and maintenance of any financially
viable infrastructure or development facility through any of the projects authorized in
this Act. Said agencies, when entering into such contracts, are enjoined to solicit the
expertise of individuals, groups, or corporations in the private sector who have
extensive experience in undertaking infrastructure or development projects.

Sec. 4. Priority projects.4 - All concerned government agencies, including government-

owned and -controlled corporations and local government units, shall include in their
development programs those priority projects that may be financed, constructed,
operated and maintained by the private sector under the provisions of this Act. It shall
be the duty of all concerned government agencies to give wide publicity to all projects
eligible for financing under this Act, including publication in national and, where
applicable, international newspapers of general circulation once every six (6) months
and official notification of project proponents registered with them.

The lists of all such national projects must be part of the development programs of the
agencies concerned. The list of projects costing up to Three hundred million pesos
[300,000,000] shall be submitted to the ICC of the NEDA for its approval and to the
NEDA Board for projects costing more than Three hundred million pesos [300,000,000].
The list of projects submitted to the ICC of the NEDA Board shall be acted upon within
thirty [30] working days.

3
Sec. 3, RA 7718, 8 May 1994.
4
Sec. 4, RA 7718, 8 May 1994.
The list of local projects to be implemented by the local government units concerned
shall be submitted for confirmation to the municipal development council for projects
costing up to Twenty million pesos; those costing above Twenty up to Fifty million
pesos to the provincial development council; those costing up to Fifty million to the city
development council; above Fifty million up to Two hundred million pesos to the
regional development councils; and those above Two hundred million pesos to the ICC
of the NEDA.

Sec. 4-A. Unsolicited proposals.5 - Unsolicited proposals for projects may be accepted by
any government agency or local government unit on a negotiated basis: Provided, That,
all the following conditions are met: [1] such projects involve a new concept or
technology and/or are not part of the list of priority projects, [2] no direct government
guarantee, subsidy or equity is required, and [3] the government agency or local
government unit has invited by publication, for three [3] consecutive weeks, in a
newspaper of general circulation, comparative or competitive proposals and no other
proposal is received for a period of sixty [60] working days: Provided, further, That in the
event another proponent submits a lower price proposal, the original proponent shall
have the right to match that price within thirty [30] working days.

Sec. 5. Public Bidding of Projects.6 - Upon approval of the projects mentioned in Section
4 of this Act, the head of the infrastructure agency or local government unit concerned
shall forthwith cause to be published, once every week for three [3] consecutive weeks,
in at least two [2] newspapers of general circulation and in at least one [1] local
newspaper which is circulated in the region, province, city or municipality in which the
project is to be constructed, a notice inviting all prospective infrastructure or
development project proponents to participate in a competitive public bidding for the
projects so approved.

In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to

the bidder who, having satisfied the minimum financial, technical, organizational and
legal standards required by this Act, has submitted the lowest bid and most favorable
terms for the project, based on the present value of its proposed tolls, fees, rentals and
charges over a fixed term for the facility to be constructed, rehabilitated, operated and
maintained according to the prescribed minimum design and performance standards,
plans and specifications. For this purpose, the winning project proponent shall be
automatically granted by the appropriate agency the franchise to operate and maintain
the facility, including the collection of tolls, fees, rentals, and charges in accordance with
Section 5 hereof.

In the case of a build-and-transfer or build-lease-and-transfer arrangement, the contract

shall be awarded to the lowest complying bidder based on the present value of its
proposed schedule of amortization payments for the facility to be constructed according
to the prescribed minimum design and performance standards, plans and specifications:

5
Sec. 5, RA 7718, 8 May 1994.
6
Sec. 6, RA 7718, 8 May 1994.
Provided, however, That a Filipino contractor who submits an equally advantageous bid
with exactly the same price and technical specifications as those of a foreign contractor
shall be given preference.

In all cases, a consortium that participates in a bid must present proof that the members
of the consortium have bound themselves jointly and severally to assume responsibility
for any project. The withdrawal of any member of the consortium prior to the
implementation of the project could be a ground for the cancellation of the contract.

The public bidding must be conducted under a two-envelope/two-stage system: the

first envelope to contain the technical proposal and the second envelope to contain the
financial proposal. The procedures for this system shall be outlined in the implementing
rules and regulations of this Act.

A copy of each contract involving a project entered into under this Act shall forthwith be
submitted to Congress for its information.

Sec. 5-A. Direct Negotiation of Contracts.7 - Direct negotiation shall be resorted to

when there in only one complying bidder left as defined hereunder:

[a] If, after advertisement, only one contractor applied for prequalification and it
meets the prequalification requirements, after which it is required to submit a
bid/proposal which is subsequently found by the agency/local government unit [LGU]
to be complying.

[b] If, after advertisement, more than one contractor applied for prequalification but
only one meets the prequalification requirements, after which it submits bid/proposal
which is found by the agency/LGU to be complying.

[c] If, after prequalification of more than one contractor, only one submits a bid
which is found by the agency/LGU to be complying.

[d] If, after prequalification, more than one contractor submit bids but only one is
found by the agency/LGU to be complying: Provided, That, any of the disqualified
prospective bidder may appeal the decision of the implementing agency/LGUs
Prequalification Bids and Awards Committee within fifteen [15] working days to the
head of the agency, in case of national projects or to the Department of the Interior and
Local Government, in case of local projects from the date the disqualification was made
known to the disqualified bidder. Provided, furthermore, That the implementing
agency/LGUs concerned should act on the appeal within forty-five [45] working days
from receipt thereof.

Sec. 6. Repayment Scheme.8 - For the financing, construction, operation and

maintenance of any infrastructure project undertaken through the Build-Operate-and-

7
Sec. 7, RA 7718, 8 May 1994.
8
Sec. 8, RA 7718, 8 May 1994.
Transfer arrangement or any of its variations pursuant to the provisions of this Act, the
project proponent shall be repaid by authorizing it to charge and collect reasonable tolls,
fees, and rentals for the use of the project facility not exceeding those incorporated in the
contract and, where applicable, the proponent may likewise be repaid in the form of a
share in the revenue of the project or other non-monetary payments, such as, but not
limited, to the grant of a portion or percentage of the reclaimed land, subject to the
constitutional requirements with respect to the ownership of land: Provided, That for
negotiated contracts, and for projects which have been granted a natural monopoly or
where the public has no access to alternative facilities, the appropriate government
regulatory bodies, shall approve the tolls, fees, rentals, and charges based on a
reasonable rate of return: Provided, further, That the imposition and collection of tolls,
fees, rentals, and charges shall be for a fixed term as proposed in the bid and
incorporated in the contract but in no case shall this term exceed fifty [50] years:
Provided, furthermore, That the tolls, fees, rentals, and charges may be subject to
adjustment during the life of the contract, based on a predetermined formula using
official price indices and included in the instructions to bidders and in the contract:
Provided, also, That all tolls, fees, rentals, and charges and adjustments thereof shall take
into account the reasonableness of said rates to the end-users of private sector-built
infrastructure: Provided, finally, That during the lifetime of the franchise, the project
proponent shall undertake the necessary maintenance and repair of the facility in
accordance with standards prescribed in the bidding documents and in the contract. In
the case of a Build-and-Transfer arrangement, the repayment scheme is to be effected
through amortization payments by the government agency or local government unit
concerned to the project proponent according to the scheme proposed in the bid and
incorporated in the contract.

SecC. 9. Section 7 of the same Act is hereby amended to read as follows:

"Sec. 7. Contract Termination9 - In the event that a project is revoked,
canceled or terminated by the Government through no fault of the project
proponent or by mutual agreement, the Government shall compensate
the said project proponent for its actual expenses incurred in the project
plus a reasonable rate of return thereon not exceeding that stated in the
contract as of the date of such revocation, cancellation or termination:
Provided, That the interest of the Government in these instances shall be
duly insured with the Government Service Insurance System or any other
insurance entity duly accredited by the Office of the Insurance
Commissioner: Provided, finally, That the cost of the insurance coverage
shall be included in the terms and conditions of the bidding referred to
above.

"In the event that the government defaults on certain major obligations in
the contract and such failure is not remediable or if remediable shall
remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national
government agency or local government unit specifying the turn-over

9
Sec. 9, RA 7718, 8 May 1994.
 date, terminate the contract. The project proponent/contractor shall be
reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract."
SEC. 10. Section 8 of the same Act is hereby amended to read as follows:
"SEC. 8. Regulatory Boards. - The Toll Regulatory Board which was created
by Presidential Decree No. 1112 is hereby attached to the Department of
Public Works and Highways with the Secretary of Public Works and
Highways as Chairman."
SEC. 11. Section 9 of the same Act is hereby amended to read as follows:
"SEC. 9. Project Supervision. - Every infrastructure project undertaken
under the provisions of this Act shall be in accordance with the plans,
specifications, standards, and costs approved by the concerned
government agency and shall be under the supervision of the said agency
or local government unit in the case of local projects."
SEC. 12. A new section to be numbered as Section 10 is hereby added to read as follows:
"SEC. 10. Investment Incentives. - Among other incentives, projects in
excess of One billion pesos [1,000,000,000] shall be entitled to incentives
as provided by the Omnibus Investments Code, upon registration with
the Board of Investments."
SEC. 13. Section 10 of the same Act is hereby renumbered as Section 11 to read as
follows:
"SEC. 11. Implementing Rules and Regulations. - A committee composed of
one (1) representative each from the Department of Public Works and
Highways, the Department of Transportation and Communications, the
Department of Energy, the Department of Environment and Natural
Resources, the Department of Agriculture, the Department of Trade and
Industry, the Department of Finance, the Department of the Interior and
Local Government, the National Economic and Development Authority,
the Coordinating Council of the Philippine Assistance Program, and
other concerned government agencies shall within sixty [60] days from
the effectivity of this Act, formulate and prescribe, after public hearing
and publication as required by law, the implementing rules and
regulations including, among others, the criteria and guidelines for
evaluation of bid proposals, list of financial incentives and arrangements
that the Government may provide for the project, in order to carry out the
provisions of this Act in the most expeditious manner.

"The Chairman of this committee shall be appointed by the President of

the Philippines from its members.

"From time to time the Committee may conduct, formulate and prescribe
after due public hearing and publication, amendments to the
implementing rules and regulations, consistent with the provisions of this
Act."
SEC. 14. A new section to be numbered as Section 12 is hereby added to read as follows:
"SEC. 12. Coordination and Monitoring of Projects. - The Coordinating
Council of the Philippine Assistance Program [CCPAP] shall be
 responsible for the coordination and monitoring of projects implemented
under this Act.

"Regional development councils and local government units shall

periodically submit to CCPAP, information on the status of said projects.

"At the end of every calendar year, the CCPAP shall report to the
President and to Congress on the progress of all projects implemented
under this Act."

SEC. 15. Section 11, 12 and 13 of the same Act are hereby renumbered as Sections 13, 14,
and 15, respectively.

SEC. 16. Repealing Clause. - All laws or parts of any law inconsistent with the provisions
of this Act are hereby repealed or modified accordingly.

SEC. 17. Separability Clause. - If any provision of this Act is held invalid, the other
provisions not affected thereby shall continue in operation.

SEC. 18. Effectivity Clause. - This Act shall take effect fifteen [15] days after its
publication in at least two (2) newspapers of general circulation.

Sec. 5. Public Bidding of Projects. - Upon approval of the projects

mentioned in Section 4 of this Act, the concerned head of the infrastructure agency
or local government unit shall forthwith cause to be published, once every week for
three (3) consecutive weeks, in at least two (2) newspapers of general circulation and
in at least one (1) local newspaper which is circulated in the region, province, city or
municipality in which the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in a public bidding for the
projects so approved. In the case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the lowest complying bidder based on the present value
of its proposed tolls, fees, rentals, and charges over a fixed term or the facility to be
constructed, operated, and maintained according to the prescribed minimum design
and performance standards, plans, and specifications. For this purpose, the winning
contractor shall be automatically granted by the infrastructure agency or local
government unit the franchise to operate and maintain the facility, including the
collection of tools, fees, rentals, and charges in accordance with Section 6 hereof.
In the case of build-and-transfer arrangement, the contract shall be awarded to
the lowest complying bidder based on the present value of its proposed schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall
be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall
forthwith be submitted to Congress for its information.
Sec. 6. Repayment Scheme. - For the financing, construction, operation,
and maintenance of any infrastructure project undertaken pursuant to the provisions
of this Act, the contractor shall be entitled to a reasonable return of its investment
and operating and maintenance costs in accordance with its bid proposal as accepted
by the concerned contracting infrastructure agency or local government unit and
incorporated in the contract's terms and conditions. In the case of a build-operateand-
transfer arrangement, this repayment scheme is to be effected by authorizing the
contractor to charge and collect reasonable tools, fees, rentals, and charges for the
use of the project facility not exceeding those proposed in the bid and incorporated in
the contract: Provided, That the government infrastructure agency or local
government unit concerned shall approve the fairness and equity of the tolls, fees,
rentals and charges except in case of tolls for national highways, roads, bridges and
public thoroughfares which shall be approved by the Toll Regulatory Board: Provided,
further, That the imposition and collection of tolls, fees, rentals and charges shall be
for a fixed term as proposed in the bid and incorporated in the contract but in no case
shall this term exceed fifty (50) years: Provided, finally, That during the lifetime of
the franchise, the contractor shall undertake the necessary maintenance and repair of
the facility in accordance with standards prescribed in the bidding documents and in
the contract. In the case of a build-and-transfer arrangement, the repayment scheme
is to be effected through amortization payments by the government infrastructure
agency or local government unit concerned to the contractor according to the scheme
proposed in the bid and incorporated in the contract.
In the case of land reclamation or the building of industrial estates, the
repayment scheme may consist of the grant of a portion or percentage of the
reclaimed land or industrial estate built, subject to the constitutional requirements
with respect to the ownership of lands.
Sec. 7. Contract Termination and Adjustment. - In the event that a
project is revoked, cancelled or terminated by the Government through no fault of
the contractor or by mutual agreement, the Government shall compensate the said
contractor for its actual expenses incurred in the project plus a reasonable rate of
return thereon not exceeding that stated in the bidding documents and in the
contract as of the date of such revocation, cancellation or termination: Provided,
That the interest of the Government in these instances shall be duly insured with the
Government Service Insurance System or any other insurance entity duly accredited
by the Office of the Insurance Commissioner: Provided, finally, That the cost of the
insurance coverage shall be included in the terms and conditions of the bidding
referred to above. The tolls, fees, rentals and charges on the facility are subject to
adjustment according to a formula related to official government price indices which
shall be defined before the bidding, through the bidding documents, and incorporated
in the contract.
Sec. 8. Toll Regulatory Board. - The Toll Regulatory Board is hereby
attached to the Department of Public Works and Highways with the Secretary of
Public Works and Highways as Chairman. acd
Sec. 9. Project Supervision. - Every infrastructure project undertaken
under the provisions of this Act shall be constructed, operated and maintained by the
contractor concerned in accordance with the plans, specifications, standards, and
costs approved by the concerned government infrastructure agency and under the
technical supervision of the said agency.
Sec. 10. Implementing Rules and Regulations. - A committee composed
and representatives from the Department of Public Works and Highways, the
Department of Finance, the Department of Local Government, the National Economic
and Development Authority, and duly accredited organizations representing the
private Philippine construction industry shall formulate and prescribe, after public
hearing and publication as required by law, the implementing rules and regulations,
including, among others, the criteria and guidelines for evaluation of bid proposals,
provisions to subject the facility collections to audit by the Commission on Audit, and
conditions for the cancellation of contracts, in order to carry out the provisions of this
Act.
Sec. 11. Repealing Clause. - All laws or parts of any law inconsistent with
the provisions of this Act are hereby repealed or modified accordingly.
Sec. 12. Separability Clause. - If any provision of this Act is held invalid,
the other provisions not affected thereby shall continue in operation.
Sec. 13. Effectivity. - This Act shall take effect fifteen (15) days after its
publication in at least two (2) newspapers of general circulation.

Approved: July 9, 1990