Key Features of RA 11711 and Jurisprudence: Empowering Local and Foreign Stakeholders
Executive Summary: Opening Doors to Global Opportunities in Construction
Two years ago, the Philippine construction industry began a transformative era with the enactment of Republic Act No. 11711 and the landmark Supreme Court decision in Philippine Contractors Accreditation Board (PCAB) v. Manila Water Company, Inc. Together, these pivotal changes modernized the regulatory framework, enhanced competition, and encouraged investment by allowing 100% foreign ownership in construction firms.
RA 11711 amended the decades-old Contractor’s License Law (RA 4566) by strengthening licensing requirements, imposing stricter penalties for violations, and streamlining renewal processes for long-standing contractors. Complemented by the Supreme Court’s ruling, which declared nationality restrictions unconstitutional, these reforms paved the way for a competitive, transparent, and world-class construction industry.
The Deciding Factor: PCAB v. Manila Water and the End of Equity Restrictions
The 2020 Supreme Court decision in Philippine Contractors Accreditation Board (PCAB) v. Manila Water Company, Inc.[1] was a game-changer for foreign contractors in the Philippines.
Manila Water challenged the nationality-based licensing rules in Section 3.1, Rule 3 of the Implementing Rules and Regulations (IRR)[2] of RA 4566, which required construction firms to maintain at least 60% Filipino ownership to secure a Regular License. The Supreme Court ruled this provision unconstitutional, declaring:
- Construction Is a Business, Not a Profession: Licensing for construction firms regulates business activities, not professional practices, which the Constitution reserves for Filipino citizens.[3]
- Authority of Administrative Agencies: PCAB exceeded its regulatory authority by creating equity restrictions not found in RA 4566 or the Constitution. Only Congress has the power to impose such restrictions.
- Encouraging Investment: The decision aligned with national policies to foster fair competition and open critical industries to foreign participation.
This ruling eliminated the 31-year-old equity restriction, allowing 100% foreign ownership of domestic construction firms. While some limitations remain for defense-related projects and specific infrastructure initiatives, the ruling fundamentally changed the landscape of the Philippine construction industry.
The Highlights of RA 11711: Strengthening Safety and Compliance
Building on the Supreme Court decision, RA 11711 introduced key reforms to ensure professionalism, safety, and ethical practices in construction:
- Stricter Penalties for Violations: Unlicensed contractors face fines between ₱100,000 and ₱500,000, plus 0.1% of project costs, and a one-year ban from obtaining a license.[4] License impersonation, fraudulent applications, or use of revoked licenses can result in fines up to ₱1,000,000 and imprisonment for 1–6 years.
- Streamlined Licensing and Renewal: Contractors in good standing for 25+ years may renew licenses every 3 years, reducing administrative burdens for established firms.[5] Renewals are tied to years of operation, rewarding long-standing compliance and professionalism.
- Fees Modernization: Fees increased tenfold, from ₱50 to ₱5,000 for original licenses and ₱6,000 for applicant examinations. Adjustments of up to 15% every three years are allowed to align with operational costs.[6]
- Special Licenses for Foreign Firms: Foreign firms incorporated abroad must still obtain Special Licenses for specific projects, ensuring compliance with local standards and oversight.
Bridging Local and Global Opportunities
The combined impact of RA 11711 and PCAB v. Manila Water is a clear signal that the Philippines is committed to creating a fair, competitive, and transparent construction industry. By opening the market to 100% foreign ownership, the government encourages international investment while strengthening local capabilities through collaboration and competition.
For local contractors, this is an opportunity to enhance skills and align with global standards. For foreign investors, it is an invitation to contribute to the Philippines’ ambitious infrastructure development goals. For the public, these reforms guarantee safer, higher-quality construction projects.
Benefits for All Stakeholders
For Foreign Contractors:
- Unrestricted Market Access: The removal of equity restrictions allows foreign firms to fully own and operate construction businesses in the Philippines.
- Lucrative Opportunities: A growing demand for infrastructure development presents abundant project opportunities.
For Local Contractors:
- Global Collaboration: Partnerships with foreign firms bring advanced technology, capital, and expertise to local projects.
- Fair Competition: Enhanced industry standards foster professionalism and credibility.
For the Public and Economy:
- Improved Infrastructure: Higher competition ensures safer, faster, and more reliable project delivery.
- Economic Growth: Foreign investment stimulates job creation and technological advancement, boosting the local economy.
Conclusion: A Blueprint for Progress
The combination of RA 11711 and the landmark PCAB v. Manila Water ruling has redefined the Philippine construction industry. By removing outdated barriers and modernizing the regulatory framework, the Philippines has created an open yet rigorous system that attracts global participation while safeguarding public safety and quality.
Two years after these reforms were introduced, the construction industry continues to thrive on collaboration, innovation, and trust. As the country builds its infrastructure and economy, the sector stands as a pillar of progress and resilience.
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Sources:
[1] G.R. No. 217590, March 10, 2020
[2] Republic Act No. 4566, Rules and Regulations, Section 3.1 License Types
Two types of licenses are hereby instituted and designated as follows:
- a) The Regular License
“Regular License” means a license of the type issued to a domestic construction firm which shall authorize the licensee to engage in construction contracting within the field and scope of his license classification(s) for as long as the license validity is maintained through annual renewal; unless renewal is denied or the license is suspended, cancelled or revoked for cause(s).
The Regular License shall be reserved for and issued only to constructor-firms of Filipino sole proprietorship, or partnership/corporation with at least seventy percent (70) Filipino equity participation and duly organized and existing under and by virtue of the laws of the Philippines.*
- Adjusted to 60% under Art. 48 of Chapter III, Book II of the Omnibus Investment Code of 1987.
- b) The Special License
“Special License” means a license of the type issued to a joint venture, a consortium, a foreign constructor or a project owner which shall authorize the licensee to engage only in the construction of a single specific undertaking/project. In case the licensee is a foreign firm, the license authorization shall be further subject to condition(s) as may have been imposed by the proper Philippine government authority in the grant of the privilege for him to so engage in construction contracting in the Philippines. Annual renewal shall be required for as long as the undertaking/project is in progress, but shall be restricted to only as many times as necessary for completion of the same.
The following can qualify only for the Special License:
- ba) A joint venture, consortium or any such similar association organized for a single specific undertaking/project;
- bb) A foreign firm legally allowed by the proper Philippine government authority to undertake construction activities in the Philippines.
- bc) A project owner undertaking by himself, sans the service of a constructor, the construction of a project intended for sale, lease, commercial/industrial use or any other income generating purpose
[3] GR No. 217590, March 10, 2020;
Accordingly, this Court finds that the construction industry is not one which the Constitution has reserved exclusively for Filipinos. Neither do the laws enacted by Congress show any indication that foreigners are proscribed from entering into the same projects as Filipinos in the field of construction. Thus, we find that setting the equity limit for a certain type of contractor’s license has no basis.
[4] “Republic Act No. 11711, Section 35. Prohibited Acts. The following are prohibited under this Act:
“(a) Any contractor who, for a price, commission, fee or wage, submits or attempts to submit a bid to construct, or contracts to or undertakes to constructs, or assumes charge in a supervisory capacity of a construction work within the purview of this Act, without first securing a license to engage in the business of contracting in the Philippines shall be penalized with a fine of not less than One hundred thousand pesos (P100,000.00) but not more than Five hundred thousand pesos (P500,000.00) plus the equivalent of one-tenth of one percent (1%) of the project cost. Furthermore, the offending party shall be prohibited from obtaining a contractor’s license for a period of one (1) year from the time that party is found guilty under this provision.
[5] Ibid
[6] Ibid
