Good Faith Can Shield Public Officers from Liability in Government Contract Disputes

Emerita A. Collado v. Commission on Audit, G.R. No. 193143, December 01, 2020

Imagine a government project that’s meant to serve the public but ends up mired in legal disputes over contract terms. This scenario is not uncommon, and it raises critical questions about the responsibilities of public officers involved in such projects. In the case of Emerita A. Collado, a supply officer at the Philippine Science High School, the Supreme Court had to determine whether she should be held liable for an error in calculating liquidated damages from a construction contract. The central issue was whether her actions were done in good faith, a concept that can significantly impact the outcome of similar cases.

The case revolved around the construction of the Philippine Science High School-Mindanao Campus Building Complex. Collado was found liable for under-deducting liquidated damages from payments made to the contractor, N.C. Roxas, Inc. However, the Supreme Court ultimately excused her from liability, highlighting the importance of good faith in government contracting.

Legal Context: Good Faith and Liability in Government Contracts

In the realm of government contracts, the principle of good faith plays a pivotal role. The Administrative Code of 1987, specifically Sections 38 and 39 of Chapter 9, Book I, provides the legal foundation for determining the liability of public officers. These sections state that public officers are not civilly liable for acts done in the performance of their duties unless there is clear evidence of bad faith, malice, or gross negligence.

Good faith is defined as an honest belief in the propriety of one’s actions, without any intent to defraud or cause harm. This concept is crucial in distinguishing between honest mistakes and deliberate wrongdoing. For instance, if a public officer makes an error in contract calculations but has taken reasonable steps to ensure compliance with the law, they may be protected from liability.

The Supreme Court has further clarified these principles in cases like Madera v. COA, which established the “Rules on Return.” These rules specify that approving and certifying officers who act in good faith, with diligence, and in regular performance of their duties are not civilly liable to return disallowed amounts. This ruling emphasizes the importance of assessing the intent and diligence of public officers in their official functions.

Case Breakdown: The Journey of Emerita A. Collado

Emerita A. Collado’s journey through the legal system began with a contract for the construction of the Philippine Science High School-Mindanao Campus Building Complex. The contract, signed in December 1988 with N.C. Roxas, Inc., was supposed to be completed within 240 days. However, delays occurred, leading to an extension of the contract time.

Collado, as the supply officer, was responsible for computing the liquidated damages owed by the contractor due to these delays. She calculated the damages based on what she believed was the correct formula, but the Commission on Audit (COA) later found that her calculations were incorrect, resulting in an overpayment to the contractor.

The COA issued Notices of Disallowance, holding Collado and other officials liable for the under-deducted amount. Collado and her co-officials appealed these decisions through various levels of the COA, but their efforts were initially unsuccessful. The COA upheld the disallowance, affirming that the correct formula for liquidated damages should have been applied.

Collado then brought her case to the Supreme Court, arguing that she acted in good faith and should not be held liable. The Supreme Court reviewed the case and considered the following key points:

• Collado did not benefit personally from the disallowed amounts.
• The disallowance was due to a mistaken understanding of the contract and applicable regulations, not deliberate wrongdoing.
• The COA’s Notices of Disallowance were issued eight years after the last payment, during which time Collado had no notice of any irregularity.

The Court’s decision emphasized the importance of good faith, stating:

“As can be deduced above, petitioners disbursed the subject allowances in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such reward.”

Ultimately, the Supreme Court excused Collado from liability, recognizing her good faith efforts and the absence of any bad faith or gross negligence.

Practical Implications: Navigating Government Contract Disputes

This ruling has significant implications for public officers involved in government contracts. It underscores the importance of documenting good faith efforts and diligence in performing official duties. Public officers should:

• Ensure thorough understanding and application of relevant laws and regulations.
• Document all steps taken to verify compliance with contract terms.
• Seek guidance from legal and auditing authorities when uncertainties arise.

Key Lessons:

• Good faith can shield public officers from liability in contract disputes.
• Timely and clear communication with auditing bodies is crucial to avoid misunderstandings.
• Public officers should maintain detailed records of their decision-making processes to demonstrate diligence and good faith.

Frequently Asked Questions

What is good faith in the context of government contracts?

Good faith refers to the honest belief that one’s actions are lawful and appropriate, without any intent to deceive or cause harm. In government contracts, it means acting with diligence and in accordance with the law.

Can a public officer be held liable for honest mistakes in contract calculations?

Generally, no. If a public officer acts in good faith and with due diligence, they are not liable for honest mistakes, as per the Administrative Code of 1987 and the Supreme Court’s rulings.

What steps can public officers take to demonstrate good faith?

Public officers should document their decision-making process, seek guidance from legal and auditing authorities, and ensure compliance with all relevant laws and regulations.

How long does the government have to issue a Notice of Disallowance?

There is no statute of limitations for the government to issue a Notice of Disallowance. However, timely issuance can help avoid disputes over good faith.

What happens if a contractor receives more than they are due under a contract?

The contractor may be liable to return the excess amount under the principle of solutio indebiti, which requires the return of payments received without a legal basis.

How can ASG Law assist with government contract disputes?

ASG Law specializes in government contract law. Contact us or email hello@asglawpartners.com to schedule a consultation.