Can a Contractor Get Paid for Work Done Without Proper Government Approval?

G.R. No. 222810, July 11, 2023

Imagine a contractor who completes a project for the government, only to find out later that the contract wasn’t properly approved. Can they still get paid for their work? This is a surprisingly common situation, and Philippine law offers some nuanced answers. The Supreme Court case of Former Municipal Mayor Clarito A. Poblete, et al. v. Commission on Audit sheds light on the complexities of government contracts, appropriation requirements, and the principle of quantum meruit – the idea that someone should be paid fairly for the value of their services, even without a valid contract.

The Importance of Proper Appropriations in Government Contracts

Government contracts in the Philippines are governed by strict rules to ensure transparency and accountability. One of the most critical requirements is that all government expenditures must be properly appropriated. This means that before a government agency can enter into a contract involving public funds, it must have a specific budget allocation for that purpose.

This principle is enshrined in Section 350 of the Local Government Code (LGC), which states: “All lawful expenditures and obligations incurred during a fiscal year shall be taken up in the accounts of that year.”

The Administrative Code of 1987 also reinforces this requirement in Sections 46, 47, and 48 of Book V, Title I, Subtitle B, Chapter 8. These sections mandate that contracts involving public funds must have a corresponding appropriation, and the responsible accounting official must certify that funds are available. Failure to comply with these provisions renders the contract void, and the responsible officers may be held liable.

For example, a municipality cannot simply decide to build a new road without first allocating funds for the project in its budget. If it does, the contract is invalid, and the contractor may face significant challenges in getting paid.

The Case of Silang, Cavite: A Tale of Disallowed Expenditures

The Poblete case arose from a situation in Silang, Cavite, where the municipality undertook several projects in 2004, 2006, and 2007. However, these projects were paid for using appropriations from the 2010 budget. The Commission on Audit (COA) disallowed these expenditures, arguing that they violated Section 350 of the LGC and the relevant provisions of the Administrative Code.

The case wound its way through the COA system, with the petitioners (the former Municipal Mayor, Budget Officer, and Accountant) arguing that the funds were ultimately used for legitimate purposes. However, the COA ultimately upheld the disallowance, and the petitioners appealed to the Supreme Court.

Here’s a breakdown of the key events:

• 2004-2007: Municipality of Silang undertakes various projects without proper prior year appropriations.
• 2010: Municipality pays for these prior year projects using the current year budget.
• June 2, 2011: COA issues 12 Notices of Disallowance (ND) amounting to P2,891,558.31.
• August 1, 2013: COA Regional Office affirms the NDs.
• Petitioners file a Petition for Review with the COA Proper but fail to pay the filing fees on time.
• February 23, 2015: COA dismisses the Petition for Review for being filed out of time.
• November 27, 2015: COA denies the petitioners’ Motion for Reconsideration.
• Petitioners appeal to the Supreme Court.

The Supreme Court ultimately sided with the COA, emphasizing the importance of adhering to proper appropriation procedures. The Court stated:

“The COA, therefore, did not err, much less commit grave abuse of discretion in dismissing the petitioners’ appeal on account of the foregoing procedural lapse.”

The Court also rejected the petitioners’ argument that the principle of quantum meruit should apply, noting that there was no prior appropriation for the projects. As the Court stated:

“On this note, the petitioners’ invocation of the quantum meruit principle is misplaced… there was prior appropriation in the case of Quiwa.”

However, it is important to note that there were dissenting opinions that argued in favor of applying quantum meruit, recognizing that the municipality had benefited from the completed projects.

Key Lessons for Government Contractors

This case underscores the critical importance of due diligence for anyone entering into a contract with the Philippine government. While the ruling in this case denied the application of quantum meruit, there may be other instances where it may be applied. Contractors must verify that funds have been properly appropriated and that all necessary certifications are in place before commencing work. Failure to do so can result in significant financial losses.

Key Lessons:

• Verify Appropriations: Always confirm that the government agency has a specific budget allocation for the project.
• Obtain Certifications: Ensure that the proper accounting officials have certified the availability of funds.
• Document Everything: Keep meticulous records of all communications, agreements, and approvals.

Frequently Asked Questions (FAQs)

Q: What is quantum meruit?

A: Quantum meruit is a legal principle that allows a person to recover the reasonable value of services rendered or goods provided, even in the absence of a formal contract. It’s based on the idea of fairness and preventing unjust enrichment.

Q: What happens if a government contract is deemed void?

A: If a government contract is void due to lack of appropriation or other legal deficiencies, the contractor may face significant challenges in getting paid. The responsible government officers may also be held liable.

Q: Can I still get paid if my government contract is invalid?

A: It depends. While the Poblete case denied the application of quantum meruit, other cases have allowed recovery based on this principle, especially if the government has benefited from the work performed. However, the legal landscape is complex, and it’s essential to seek legal advice.

Q: What should I do before signing a government contract?

A: Before signing any government contract, you should conduct thorough due diligence to ensure that all legal requirements have been met, including proper appropriation and certification of funds. Consult with a lawyer experienced in government contracts.

Q: What is the Arias Doctrine?

A: The Arias Doctrine generally states that a head of office can rely on the competence and good faith of their subordinates in preparing documents for their signature. However, this doctrine does not apply if there are obvious irregularities on the face of the document.

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