The Supreme Court, in Joson III v. Commission on Audit, clarified the extent to which a public official can rely on the actions of subordinates. The Court ruled that a governor, as head of a procuring entity, could not be held liable for disallowed funds simply because of their signature on a contract, especially when the irregularities stemmed from the actions or omissions of the Bids and Awards Committee (BAC). This decision underscores the importance of establishing direct responsibility and demonstrating bad faith or gross negligence before holding a public official personally liable for financial irregularities.

Nueva Ecija Hotel Fiasco: Can a Governor Trust His Subordinates?

This case revolves around the construction of the Nueva Ecija Friendship Hotel, a project that faced significant financial setbacks. In 2007, a COA audit uncovered irregularities in how the provincial government awarded the construction contract to A.V.T. Construction. Payments to the contractor, totaling Php155,036,681.77, were disallowed due to non-compliance with eligibility requirements under Republic Act (R.A.) No. 9184, the Government Procurement Reform Act. The COA held Tomas N. Joson III, then governor of Nueva Ecija, solidarily liable, citing his role as head of the procuring entity and his approval of payment vouchers. Joson challenged this ruling, arguing that the BAC was primarily responsible for determining bidder eligibility and that he reasonably relied on their competence.

The central legal question before the Supreme Court was whether the COA committed grave abuse of discretion in holding Joson personally liable for the disallowed amount. The COA based its decision on Section 19 of the Manual on Certificate of Settlement and Balances and Section 103 of Presidential Decree (P.D.) No. 1445, the Government Auditing Code of the Philippines. These provisions generally hold public officials liable for unlawful expenditures if they are directly responsible. Specifically, the COA argued that Joson failed to exercise due diligence in ensuring A.V.T. Construction’s eligibility and that his signature on the contract implied prior knowledge of the irregularities. However, the Supreme Court disagreed, ultimately siding with Joson.

Building on this principle, the Court emphasized the importance of due process and the need to establish direct responsibility before holding a public official liable for disallowed funds. The Court noted that the missing documents—the eligibility checklist, Net Financial Contracting Capacity (NFCC), and technical eligibility documents—pertained to the pre-qualification stage, which falls under the BAC’s purview. Joson had no direct involvement in preparing these documents, so the absence of such documents are not something he can be held liable for.

In its decision, the Supreme Court distinguished this case from Escara v. People, where an official had actual foreknowledge of an infirmity in a contract. In Escara, the official had received a letter acknowledging that the materials were confiscated. In contrast, the COA presented no evidence beyond Joson’s signature to prove his awareness of A.V.T. Construction’s ineligibility. The Court also invoked the doctrine established in Arias v. Sandiganbayan, which recognizes that heads of offices must reasonably rely on their subordinates’ good faith and competence. The Court stated:

We would be setting a bad precedent if a head of office plagued by all too common problems-dishonest or negligent subordinates, overwork, multiple assignments or positions, or plain incompetence-is suddenly swept into a conspiracy conviction simply because he did not personally examine every single detail, painstakingly trace every step from inception, and investigate the motives of every person involved in a transaction before affixing, his signature as the final approving authority.

The Court emphasized that the head of the procuring entity’s responsibility does not extend to meticulously scrutinizing every document, especially when subordinates have already evaluated them. To require such an extent of scrutiny would be counterproductive, given the volume of paperwork that passes through a governor’s office. The Court then cited Ramon Albert v. Celso D. Gangan, et. al. In this case, they stated:

We have consistently held that every person who signs or initials documents in the course of transit through standard operating procedures does not automatically become a conspirator in a crime which transpired at a stage where he had no participation.

The decision also considered the benefits derived from the completed hotel. The Court found it unjust to hold Joson liable, as the Nueva Ecija Friendship Hotel (now Sierra Madre Suites) was fully functional and operating as a provincial government economic enterprise. Making Joson personally liable would amount to unjust enrichment, as the government was already enjoying the hotel’s benefits. The court emphasized that mistakes committed by a public officer are not actionable without clear evidence of malice or gross negligence amounting to bad faith.

Furthermore, the COA argued that Section 37.2.3 of the Implementing Rules and Regulations of R.A. No. 9184 made the eligibility requirements part of the contract, implying Joson’s responsibility to ensure their presence. However, the Court clarified that this provision merely states that such documents form part of the contract. It does not impose a direct responsibility on the head of the procuring entity to ensure their attachment before signing. The Court noted that Section 37.2.4 of the IRR, which outlines supporting documents for contract approval, does not even mention eligibility documents. This further supported the argument that the BAC bears the primary responsibility for ensuring bidder eligibility, not the head of the procuring entity.

In conclusion, the Supreme Court granted Joson’s petition, reversing the COA’s decision. The ruling reaffirms that a public official’s liability for disallowed funds must be based on direct responsibility, bad faith, or gross negligence, not merely on their position or signature on a document. It also recognizes the principle that heads of offices can reasonably rely on the competence and good faith of their subordinates. Finally, the ruling takes into account the benefits received by the government from a completed project, mitigating personal liability in cases where the government has already profited from the transaction.

FAQs

What was the key issue in this case?	The key issue was whether a governor could be held personally liable for disallowed funds due to irregularities in a construction contract, despite relying on the Bids and Awards Committee (BAC) for bidder eligibility.
What is the Arias doctrine?	The Arias doctrine, stemming from Arias v. Sandiganbayan, allows heads of offices to reasonably rely on the good faith and competence of their subordinates, unless there is clear evidence of their own negligence or bad faith.
What is the significance of R.A. No. 9184?	R.A. No. 9184, the Government Procurement Reform Act, governs the procurement of goods, infrastructure projects, and consulting services by the Philippine government. It sets the rules and procedures for bidding, eligibility, and contract awards.
What documents were missing in this case?	The key missing documents were the pre-qualification or eligibility checklist using the “pass/fail” criteria, the Net Financial Contracting Capacity (NFCC), and the technical eligibility documents of the winning contractor.
Who is primarily responsible for ensuring bidder eligibility?	The Bids and Awards Committee (BAC) is primarily responsible for determining whether prospective bidders meet the eligibility requirements set forth in the Invitation to Bid, based on the submitted legal, technical, and financial documents.
What was the COA’s basis for holding the governor liable?	The COA held the governor liable based on his signature on the contract and his alleged failure to exercise due diligence in ensuring the contractor’s eligibility. They argued that his signature implied prior knowledge of the irregularities.
How did the Supreme Court’s decision differ from the COA’s?	The Supreme Court disagreed with the COA, finding that the governor could reasonably rely on the BAC’s assessment of bidder eligibility and that his signature alone was insufficient to establish liability, especially without evidence of bad faith.
What role did the completed hotel play in the Court’s decision?	The fact that the hotel was completed and operational, benefiting the provincial government, factored into the Court’s decision. Making the governor personally liable would have resulted in unjust enrichment for the government.
What must be proven before a public official is held liable for disallowed funds?	Before a public official is held liable for disallowed funds, it must be proven that they were directly responsible for the violation, acted in bad faith or with gross negligence, and that their actions caused the financial loss to the government.

This case serves as a reminder of the importance of establishing direct responsibility and proving bad faith or gross negligence before holding public officials personally liable for financial irregularities. It also underscores the principle that heads of offices can reasonably rely on their subordinates’ competence and good faith. While promoting accountability is essential, it should not come at the expense of fairness and due process.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: TOMAS N. JOSON III, VS. COMMISSION ON AUDIT, G.R. No. 223762, November 07, 2017