The Supreme Court held that public officials can be held liable for disallowed amounts in government projects if they acted with bad faith, malice, or gross negligence, but their liability can be reduced by the value of work completed under the principle of quantum meruit. This ruling balances the need for accountability in public spending with the recognition that contractors who have provided services should be compensated for work actually done, preventing unjust enrichment of the government.

When Procurement Rules are Bent: Who Pays When Public Projects Go Wrong?

This case revolves around the Restoration of the Damaged Revetment/Dredging of Flood Control of Meycauayan River project, undertaken by the Department of Public Works and Highways – National Capital Region (DPWH-NCR). Initially a single project, it was divided into eight phases to expedite completion. However, the Commission on Audit (COA) found irregularities in the bidding process, including the presence of the same individuals in the Board of Directors of the winning construction companies and non-compliance with pre-procurement requirements. This led to the issuance of a Notice of Disallowance (ND) for payments made to the contractors, with Armando G. Estrella and Lydia G. Chua, as DPWH-NCR officials, held liable. The central legal question is whether the COA committed grave abuse of discretion in sustaining the ND, considering the alleged compliance with procurement requirements and the completion of the project.

The heart of the matter lies in the interpretation and application of Republic Act (RA) No. 9184, also known as the Government Procurement Reform Act. This law mandates that all government procurement be done through competitive bidding, ensuring transparency and equal opportunity. Section 10 of RA No. 9184 underscores this requirement, stating that all acquisitions of goods, consulting services, and infrastructure projects must undergo competitive bidding, except as otherwise provided. The objective is to secure the most advantageous terms for the government while preventing favoritism. The Bids and Awards Committee (BAC) plays a crucial role in this process, tasked with advertising bids, conducting pre-procurement conferences, evaluating bidders, and recommending contract awards.

The 2009 Revised Implementing Rules and Regulations (IRR) of RA No. 9184 further detail the requirements for each procurement stage. One critical aspect is the posting of the Invitation to Bid/Request for Expression of Interest, which must be done continuously for seven calendar days on the PhilGEPS website and the procuring entity’s website. This ensures wide dissemination of information about the project and allows interested parties to participate. Moreover, the Invitation to Bid must contain essential information, including a description of the project, eligibility criteria, deadlines, the Approved Budget for the Contract (ABC), and contact details of the procuring entity.

The Court emphasizes the importance of pre-bid conferences, especially for projects with an ABC of One Million Pesos (P1,000,000.00) or more. These conferences serve as a platform to clarify the requirements, terms, and conditions of the bidding documents. They must be held at least twelve calendar days before the deadline for bid submission to allow prospective bidders sufficient time to prepare. The minutes of these conferences are recorded and made available to all participants, ensuring transparency and accountability. In this case, the COA found that the DPWH-NCR failed to comply with these requirements, leading to the disallowance.

The Supreme Court gave weight to the COA’s factual findings, acknowledging their expertise in matters falling under their jurisdiction. According to the Court, the schedule of procurement activities supported the COA’s findings that the pre-procurement requirements were not complied with, and a public bidding was not conducted. The fact that the project modification was requested and approved within a short span, with bidding allegedly conducted on the same day as approval, raised serious doubts about compliance with RA No. 9184. The Court agreed with the COA that it was improbable for the DPWH-NCR BAC to conduct public bidding on the very same day that the request for modification of the project title was approved without complying with the pre-bidding activities.

The Court cited Subic Bay Metropolitan Authority v. Commission on Audit, G.R. No. 230566 stating that “public biddings, together with the other procurement requirements, are systematic and definitive methods governed by the principles of transparency, competitiveness, simplicity, and accountability, purposely adopted to protect public interest.” This violation of procurement rules led the Court to uphold the propriety of the disallowance. The court, however, delved into the nuances of liability for the disallowed amount.

The liability of approving or certifying officers in procurement disallowances is primarily civil in nature, based on the principles of solutio indebiti and unjust enrichment. Sections 38 and 39 of the Administrative Code of 1987 outline the liability of superior and subordinate officers, respectively. Superior officers are not civilly liable for acts done in the performance of their duties unless there is a clear showing of bad faith, malice, or gross negligence. Subordinate officers are liable for willful or negligent acts contrary to law, morals, public policy, and good customs, even if acting under orders from superiors. In Madera v. Commission on Audit, G.R. No. 244128, the Supreme Court affirmed that the principles of unjust enrichment and solutio indebiti do not contravene the law on unlawful expenditures. These principles recognize that a payee or contractor should not shoulder the cost of a correctly disallowed transaction when it would unjustly enrich the government and the public who accepted the project benefits.

Additionally, Section 43 of the Administrative Code states that every official or employee authorizing or making illegal payments and every person receiving such payment shall be jointly and severally liable to the Government for the full amount paid or received. The Court introduced the concept of “net disallowed amount” in Madera to clarify the extent of liability between approving/authorizing officers and recipients/payees. The “net disallowed amount” refers to the total disallowed amount minus the amounts excused to be returned by the payees. This approach acknowledges that the liability should be proportionate to the degree of culpability and the benefits received.

The Court synthesized these principles in Torreta v. Commission on Audit, G.R. No. 242925, laying down specific guidelines for the return of disallowed amounts. If a Notice of Disallowance is upheld, approving and certifying officers who acted in good faith, in the regular performance of official functions, and with due diligence are not civilly liable. However, those who acted in bad faith, malice, or gross negligence are solidarily liable with the recipients. Furthermore, the civil liability for the disallowed amount may be reduced by the amounts due to the recipient based on the principle of quantum meruit, which compensates for work done even in the absence of a valid contract.

In this case, the Court found that petitioners violated procurement requirements, making them solidarily liable with the payees. However, the Court also recognized that the project was completed, and the structural defects were rectified. Therefore, it would be unjust to hold petitioners liable for the entire amount without considering the value of the completed work. The Court cited Eslao v. Commission on Audit, 273 Phil. 97 (1991) stating that “to deny payment to the contractor of the two buildings which are almost fully completed and presently occupied by the university would be to allow the government to unjustly enrich itself at the expense of another.” Thus, the Court remanded the case to the COA for a further audit to determine the exact value of the works done and to issue an amended notice of disallowance reflecting petitioners’ liability based on that valuation. In cases such as this, the principle of immutability of judgment can be relaxed to serve substantial justice if the merits of the case dictate it, so the decision was also applied to Chua despite her procedural lapse.

FAQs

What was the main issue in this case?	The main issue was whether the COA committed grave abuse of discretion in upholding the Notice of Disallowance (ND) for payments made in an infrastructure project due to irregularities in the procurement process.
What is RA No. 9184?	RA No. 9184, or the Government Procurement Reform Act, mandates that all government procurement be done through competitive bidding to ensure transparency and equal opportunity.
What is the role of the Bids and Awards Committee (BAC)?	The BAC is responsible for advertising bids, conducting pre-procurement conferences, evaluating bidders, and recommending contract awards to ensure fair and transparent procurement.
What is a Notice of Disallowance (ND)?	A Notice of Disallowance (ND) is issued by the COA when it finds irregularities or illegalities in government transactions, disallowing the use of public funds for such transactions.
What is solutio indebiti?	Solutio indebiti is a principle that arises when someone receives something they have no right to demand, and it was unduly delivered through mistake, creating an obligation to return it.
What is the net disallowed amount?	The net disallowed amount is the total disallowed amount minus the amounts excused to be returned by the payees, which is the amount that approving/authorizing officers are solidarily liable for if they acted in bad faith.
What is quantum meruit?	Quantum meruit is a principle that allows for compensation for work done or services provided, even if there is no express contract, to prevent unjust enrichment.
What are the liabilities of public officials in disallowed transactions?	Public officials who acted in good faith are not civilly liable, while those who acted in bad faith, malice, or gross negligence are solidarily liable with the recipients for the return of the disallowed amount.
What is the significance of the Madera ruling in this context?	The Madera ruling clarified the extent of liability for approving/authorizing officers and recipients/payees in disallowed transactions, introducing the concept of the “net disallowed amount.”
What was the final decision in this case?	The Supreme Court affirmed the COA’s decision with modification, ruling that Estrella and Chua are solidarily liable only for the net disallowed amount, and remanded the case to the COA for determination of the exact value of the works done.

The Supreme Court’s decision in this case underscores the importance of adhering to procurement laws and regulations to ensure transparency and accountability in government projects. While public officials can be held liable for irregularities, the Court also recognizes the need to compensate contractors for work completed in good faith, balancing the interests of the government and private parties. This ruling ensures a more equitable approach to resolving disallowances, promoting fairness in government transactions.

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: ARMANDO G. ESTRELLA AND LYDIA G. CHUA, PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT., G.R. No. 252079, September 14, 2021