The Supreme Court ruled that the Commission on Elections (COMELEC) gravely abused its discretion by directly contracting with Smartmatic-TIM for the repair and refurbishment of PCOS machines, violating the Government Procurement Reform Act (GPRA). This decision underscores the importance of competitive public bidding to ensure transparency and accountability in government contracts, protecting public funds and preventing favoritism. The ruling emphasizes that exceptions to public bidding must be strictly justified and comply with legal requirements, safeguarding the integrity of electoral processes and government procurement.

Automated Elections Under Scrutiny: Was Direct Contracting for PCOS Machine Repair Justified?

The Philippines has embraced automated elections, but the process is not without its challenges. Central to these challenges is ensuring the integrity and transparency of every step, from the procurement of equipment to the maintenance of essential systems. This case revolves around the COMELEC’s decision to directly contract with Smartmatic-TIM for the diagnostics, maintenance, repair, and replacement of Precinct Count Optical Scan (PCOS) machines, a move that bypassed the usual competitive bidding process. The core legal question is whether the COMELEC’s direct contracting arrangement complied with the requirements of the Government Procurement Reform Act (GPRA) and other relevant laws, ensuring transparency and accountability in the expenditure of public funds.

Public bidding is the established procedure in the grant of government contracts in the Philippines. The GPRA emphasizes principles of transparency, competitiveness, streamlined processes, accountability, and public monitoring to secure the best possible advantages for the public through open competition. Section 5(e) of the GPRA defines competitive bidding as a method that is open to any interested party, involving advertisement, pre-bid conferences, eligibility screening, bid evaluation, and contract awards. This process aims to avoid favoritism and anomalies, placing all qualified bidders on equal footing.

However, Article XVI of the GPRA provides for alternative methods of procurement, including direct contracting, also known as single-source procurement. Direct contracting may be used only when justified by specific conditions outlined in the Act, subject to prior approval from the head of the procuring entity. These exceptional cases require that the procurement promotes economy and efficiency and ensures the most advantageous price for the government. The IRR further stipulates that alternative methods are permissible only in highly exceptional cases, with public bidding as the general rule.

The parameters for valid direct contracting are delineated in Section 50 of the GPRA, allowing it only under specific conditions. One condition is for the “procurement of goods of a proprietary nature, which can be obtained only from the proprietary source.” Another condition is when “the Procurement of critical components from a specific manufacturer, supplier or distributor is a condition precedent to hold a contractor to guarantee its project performance, in accordance with the provisions of this contract.” And lastly, for “those sold by an exclusive dealer or manufacturer, which does not have sub-dealers selling at lower prices and for which no suitable substitute can be obtained at more advantageous terms to the Government.”

While only one of these conditions needs to be met, COMELEC insisted that all of them attended in this case. Examining these claims, the Court determined whether Resolution No. 9922 and the Extended Warranty Contract (Program 1) were valid. Goods are considered of “proprietary nature” when owned by a person with a protectable interest, such as an interest protected by intellectual property laws. While Smartmatic-TIM has intellectual property rights over the SAES 1800 AES, including PCOS machines and related software, the Court found that the Extended Warranty Contract’s services—refurbishment, maintenance, diagnostics, and repair—were distinct and not covered by these rights.

The Court emphasized that these services are a separate contract object, capable of government procurement through competitive bidding. The GPRA defines “goods” to include such non-personal or contractual services. Even if the repair and refurbishment involved modifications to the PCOS hardware and software, the COMELEC was not bound to engage Smartmatic-TIM exclusively. Per the 2009 AES Contract, the COMELEC, by exercising its option to purchase, gained a perpetual, non-exclusive license to use and modify the PCOS systems and software for all future elections.

ARTICLE 9
SOFTWARE AND LICENSE SUPPORT

9.2 Should COMELEC exercise its option to purchase, it shall have perpetual, but non-exclusive license to use said systems and software and may have them modified at COMELEC’s expense or customized by the licensor for all future elections as hereby warranted by the PROVIDER, as per the license agreement. Accordingly, the PROVIDER shall furnish COMELEC the software in such format as will allow COMELEC to pursue the same.

Thus, the COMELEC could exploit the machines for election-related purposes, provided that they do not commercialize them. The COMELEC cannot insist that the PCOS machines should be repaired and/or refurbished solely by Smartmatic-TIM.

Another scenario, as per Section 50 (b) of the GPRA, would have warranted a direct contracting, only if it was a condition precedent. But, “critical components” refer to elemental parts that make up the machine, and not auxiliary services to an output that is completed. Furthermore, it was not settled that Smartmatic-TIM, as the exclusive manufacturer, was the only entity capable of supplying parts or that using parts from other manufacturers would compromise the machines’ functionality. An initial industry survey by the COMELEC’s Bids and Awards Committee (BAC) could have determined this.

Unfortunately, the GPPB’s set procedures for the aforementioned was not followed. To be certain that what the law aims for is achieved. Moreover, it was premature to procure repair services since COMELEC’s in-house personnel had not yet conducted an initial diagnostics of the PCOS machines. The COMELEC Law Department also admitted that the conduct of repair was premature.

Also, while under storage at the Cabuyao warehouse, it was our understanding that the ITD personnel are in the process of conducting routine and periodic preventive maintenance on the PCOS machines in order to maintain satisfactory operating condition by providing for systematic inspection, detection, and correction of incipient failures either before they occur or before they develop into major defects as well as to prevent faults from occurring by conducting a battery of maintenance tests, measurements, adjustments, and parts replacement, if necessary. As such, the conduct of repair is premature considering that the units requiring repair, if any, is yet to be determined.

To justify its exclusive engagement of Smartmatic-TIM, COMELEC invoked the “impracticality” standard. In order to harmonize the provisions of the pertinent laws, the COMELEC’s exercise of its power to conduct negotiations and sealed bids based on the standard of “impracticality” under Section 52 (h) of BP 881 should be read in conjunction with the GPRA, the latter being the special law currently governing all matters of government procurement. The situations stated under the GPRA which would justify a resort to alternative methods of procurement as instances that particularize Section 52 (h)’s broad gauge of “impracticality.”

The COMELEC cited the tight schedule and the perceived risk of using third-party providers due to the technical nature of the work. The Court finds that practicality is a relative term which, to stand the mettle of law, must be supported by independently verified and competent data. As an exception to the public policy and statutory command requiring all government procurement to be conducted through competitive public bidding, a claim of impracticality should only be based on substantiated projections. The conclusion is not well-taken.

While the COMELEC’s 88 calendar day estimation (double if the first bidding fails) to conduct a two-stage bidding process is correct, the rest of its projection, i.e., the forty (40) day inspection and diagnosis period, and the two hundred (200) day refurbishment period, lacks material basis. Also, COMELEC personnel could have been trained by Smartmatic-TIM itself and the initial industry survey and pre-procurement conference were not observed by the COMELEC. Thus, the reasons for the COMELEC’s non-compliance can only be second-guessed.

The COMELEC argues that the Extended Warranty Contract (Program 1) is an extension of the 2009 AES Contract, negating the need for bidding. The mere expedient of characterizing the services as a part of the original contract is not acceptable. To reiterate, under Article 8.8 of the 2009 AES Contract, Smartmatic-TIM warrants that its parts, labor and technical support and maintenance will be available to the COMELEC, if it so decides to purchase such services. However, this provision does not dispense with the need to bid out the ensuing purchase contract.

Besides, the Extended Warranty Contract (Program 1) is not accurately portrayed. The warranty period for manufacturing defects had already lapsed. Thus, the extended warranty could only be construed as a revival. The Extended Warranty Contract (Program 1) was in reality a distinct contract, founded upon a new offer and a new consideration, and for which a new payment was needed. Therefore, the COMELEC’s “extended warranty mode” cannot be sanctioned. The Solicitor General clarified during the oral arguments that the purchase price of the remaining PCOS machines stated in the assailed Deed of Sale was the price stated in Article 4.3 of the AES contract. Therefore, the said amount was already part of the original amount bidded upon in 2009 for the AES contract which negates the need for another competitive bidding.”

All the Procuring Entity has to do is simply revive the provisions of a dead contract and perpetually hold itself to the original contract awardee. This undermines the very core of the procurement law – it eliminates competition. Therefore, the COMELEC’s apprehensions under the lens of the procurement law, with heightened considerations of public accountability and transparency must be put to the fore. In order to safeguard an unimpaired vote, the conclusion thus reached is that the COMELEC had committed grave abuse of discretion amounting to lack or excess of jurisdiction.

FAQs

What was the key issue in this case?	The central issue was whether the COMELEC gravely abused its discretion by directly contracting with Smartmatic-TIM for the repair and refurbishment of PCOS machines, bypassing the competitive bidding process required by the GPRA. The Court examined whether the conditions for direct contracting were met.
What is the Government Procurement Reform Act (GPRA)?	The GPRA, or Republic Act No. 9184, governs government procurement activities in the Philippines. It emphasizes transparency, competitiveness, accountability, and public monitoring to ensure that government contracts are awarded in the best interest of the public.
What is direct contracting, and when is it allowed?	Direct contracting, also known as single-source procurement, is an alternative method allowed under the GPRA when specific conditions are met. These include procurement of proprietary goods, critical components, or goods sold by an exclusive dealer without suitable substitutes.
What did the COMELEC claim to justify direct contracting?	COMELEC claimed that the services were of a proprietary nature, that Smartmatic-TIM was the exclusive provider, and that a tight schedule made public bidding impractical. It also argued that direct contracting was necessary to maintain the existing warranties.
What did the Court find regarding COMELEC’s justifications?	The Court found that the services were not necessarily proprietary, that COMELEC failed to prove Smartmatic-TIM was the only capable provider, and that the schedule was not proven to make public bidding impractical. The existing warranties did not justify direct contracting.
What is the significance of the COMELEC’s failure to conduct an industry survey?	The failure to conduct an initial industry survey was a critical procedural lapse. Without it, COMELEC could not justify the exclusivity of Smartmatic-TIM and ensure that no other provider could offer more advantageous terms.
How did the Court interpret the 2009 AES Contract?	The Court interpreted that the perpetual license granted to COMELEC was non-exclusive and non-transferable, allowing COMELEC to modify the PCOS systems but not to delegate that right to third parties.
What does this ruling mean for future government procurements?	This ruling reinforces the need for strict compliance with the GPRA, particularly the requirement for competitive public bidding. It underscores that exceptions must be thoroughly justified and comply with procedural safeguards to ensure transparency and accountability.

In conclusion, this case emphasizes the importance of upholding the principles of transparency and competitive bidding in government procurement. While efficiency and expediency are important, they cannot come at the expense of legal compliance and public accountability. The decision serves as a reminder that strict adherence to procurement laws is essential for safeguarding public funds and maintaining the integrity of electoral processes.

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: Bishop Broderick S. Pabillo, DD, et al. vs. COMELEC & Smartmatic-TIM Corporation, G.R. No. 216098 & 216562, April 21, 2015