The Philippine construction industry, while promising, is strictly regulated to ensure quality, safety, and the protection of local interests. For foreign construction firms looking to participate in projects within the Philippines, securing a Philippine Contractors Accreditation Board (PCAB) Special License is a non-negotiable legal requirement.
Under Republic Act No. 4566, also known as the Contractors’ License Law, no contractor (including foreign entities) can engage in construction work without first obtaining a license from PCAB.
Understanding the PCAB Special License
Unlike a Regular License, which is reserved for Filipino sole proprietorships or corporations with at least 60% Filipino equity and is renewable annually, a Special License is project-specific. It is issued to foreign contractors for a particular undertaking, often involving high-tech or high-value infrastructure projects where local expertise may be augmented by international participation.
Types of Special Licenses for Foreign Entities
- Foreign Contractor License: Issued to a foreign firm as a single entity to undertake a specific project.
- Joint Venture (JV) License: Issued to a group of two or more contractors (often a mix of foreign and local) who have formed a JV for a specific project.
- Consortium License: Issued to a group of contractors acting as a consortium for a specific project.
Key Requirements for Application
To qualify for a Special License, a foreign firm must demonstrate technical competence, financial stability, and legal standing. The requirements generally include:
1. Legal Documents
- Certified Copy of Board Resolution: Authorizing the company to venture into the Philippine project and appointing an authorized representative.
- SEC Registration: Foreign firms must be registered with the Securities and Exchange Commission (SEC) to do business in the Philippines (e.g., as a Branch Office or a subsidiary).
- Articles of Incorporation and Bylaws: Authenticated/Apostilled documents from the home country.
2. Financial Requirements
- Audited Financial Statements (AFS): The most recent AFS, translated into English and expressed in Philippine Pesos (using prevailing exchange rates).
- Minimum Capitalization: The foreign firm must meet the Minimum Networth/Equity requirements corresponding to the category they are applying for (e.g., Quadruple A, Triple A, etc.).
3. Technical Requirements
- Sustaining Technical Employee (STE): The firm must nominate STEs who are Filipino-licensed professionals (Engineers or Architects) with relevant experience. They must be full-time employees for the duration of the license.
- Track Record: Documentation of completed projects, particularly those similar to the project being applied for in the Philippines.
4. Project-Specific Documents
- Invitation to Bid or Contract Agreement: Since the Special License is project-based, the applicant must provide proof of the specific project they intend to undertake.
The Equity Rule and Executive Order No. 65
Under the 11th Foreign Investment Negative List (FINL) and Executive Order No. 65, foreign equity in construction and repair of locally-funded public works is generally limited to 25%, with some exceptions for projects involving high-level technology or those funded by international agencies (Official Development Assistance or ODA).
However, for private construction projects, foreign equity can reach up to 100%, provided the firm meets the high capitalization requirements for a "Quadruple A" (AAAA) category, which is specifically designed to attract large-scale international contractors.
Step-by-Step Application Process
| Step | Action | Description |
|---|---|---|
| 1 | Pre-Screening | Ensure the foreign firm meets the minimum net worth for the desired category. |
| 2 | Document Prep | Gather and apostille all foreign-sourced legal and financial documents. |
| 3 | Online Filing | Applications are now primarily processed through the PCAB Online Portal. |
| 4 | Payment | Pay the required license fees, which vary based on project cost and category. |
| 5 | Evaluation | PCAB reviews the technical and financial capacity of the applicant. |
| 6 | Issuance | Once approved, the Special License is issued for that specific project only. |
Important Considerations
- Validity: The Special License is valid only for the specific project for which it was issued. If the firm wins another project, a new Special License application is required.
- Renewal: If the project extends beyond the fiscal year (ending June 30), the Special License must be renewed.
- Penalties: Operating without a PCAB license subjects the firm to cease-and-desist orders, heavy fines, and blacklisting from future Philippine government projects.
Note: Foreign firms are encouraged to seek a "Quadruple A" (AAAA) category if they intend to operate with 100% foreign equity. This category requires a very high minimum capitalization (currently PHP 1 Billion) but offers the most flexibility for international players.