The Supreme Court ruled that the Commission on Audit (COA) cannot deny concurrence to the renewal of contracts for legal advisors hired by the Power Sector Assets and Liabilities Management Corporation (PSALM) solely on procedural grounds, such as failing to secure prior approval from the Office of the Government Corporate Counsel (OGCC) and COA. The court emphasized that COA’s audit authority is limited to preventing irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. This decision affirms PSALM’s authority to hire legal experts, provided such hiring does not lead to unreasonable expenses, thereby balancing governmental oversight with the operational needs of GOCCs.
EPIRA Mandate vs. COA Oversight: Who Decides PSALM’s Legal Needs?
The Power Sector Assets and Liabilities Management Corporation (PSALM), tasked with managing the privatization of the National Power Corporation’s (NPC) assets under the Electric Power Industry Reform Act (EPIRA), sought to renew contracts with several legal advisors. These advisors provided consultancy services on privatization projects critical to PSALM’s mandate. However, the Commission on Audit (COA) denied concurrence to these contract renewals, citing PSALM’s failure to obtain prior written conformity from the Office of the Government Corporate Counsel (OGCC) and prior written concurrence from COA itself, as required by Memorandum Circular No. 9 and COA Circular No. 95-011. This denial led to a legal battle, questioning the extent of COA’s authority and PSALM’s operational autonomy in fulfilling its statutory obligations.
Under Presidential Decree No. 1415, the OGCC is designated as the principal law office for all government-owned or controlled corporations (GOCCs). However, this designation isn’t absolute. Recognizing the need for flexibility, Section 10, Chapter 3, Title III, Book IV of the Administrative Code allows for exceptions, acknowledging that GOCCs may, in certain cases, require specialized legal expertise not readily available within the OGCC. This understanding is crucial, as it sets the stage for balancing the OGCC’s oversight role with the practical realities faced by GOCCs like PSALM.
The Supreme Court has previously acknowledged that GOCCs can engage private lawyers in exceptional cases, provided they secure the written conformity of the OSG or the OGCC, and the written concurrence of the COA prior to the hiring. In PSALM’s case, the EPIRA Law contains no express prohibition on hiring private legal services. Section 51 (h) allows such hiring if availing the services of personnel detailed from other government agencies is not practicable. Given the technical and specialized nature of PSALM’s work, the Court recognized the impracticality of relying solely on the OGCC’s limited resources, reinforcing the need for PSALM to engage external legal expertise.
The EPIRA Law places specific time constraints on PSALM for implementing its key provisions. These include deadlines for submitting privatization plans, privatizing generating assets, and liquidating NPC financial obligations. These deadlines highlight the urgency and necessity of PSALM’s mission. If PSALM is to meet these statutory objectives in a timely manner, its administrative prerogative to determine its needs must be respected. This underscores the importance of allowing PSALM the flexibility to engage necessary expertise without undue procedural delays.
COA requires prior concurrence for every engagement of private lawyers and consultants, acting as a pre-audit to prevent suspicious transactions and ensure the proper use of public funds. This pre-audit is meant to identify potentially problematic transactions before they are implemented, thereby safeguarding against embezzlement or wastage of public funds. COA’s Circular No. 2021-003 outlines instances where government agencies and GOCCs can hire private lawyers without prior written concurrence, setting specific conditions for such exemptions.
The constitutional mandate of COA is to prevent irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The Court interpreted the term “irregular” in conjunction with the other terms, stating that it pertains to the transactions themselves. The court emphasized that the COA’s jurisdiction should focus on the transaction itself (the hiring or contract renewals) to determine if it aligns with constitutional standards, rather than solely on procedural compliance.
The COA’s refusal to grant concurrence centered on PSALM’s failure to secure prior approval. However, the court found that this procedural lapse, by itself, was insufficient justification for withholding concurrence. The COA must demonstrate that the contract renewals were, in fact, irregular, unreasonable, excessive, or extravagant. Without such a finding, PSALM’s actions could not be deemed a violation of the constitutional mandate to prevent misuse of public funds.
While COA possesses the authority to prevent excessive expenditures, this authority must be exercised in a reasonable and evidence-based manner. COA should have presented substantial evidence demonstrating the unreasonableness or extravagance of the contract renewals. Because they failed to do so, the court found that COA had gravely abused its discretion. Consequently, the Court granted PSALM’s petition, setting aside COA’s decisions and deeming the engagement of legal advisors as concurred in. This decision underscores the importance of balancing procedural compliance with the practical needs of GOCCs in fulfilling their statutory mandates.
FAQs
| What was the key issue in this case? | The central issue was whether the Commission on Audit (COA) correctly denied concurrence to the renewal of contracts for legal advisors hired by the Power Sector Assets and Liabilities Management Corporation (PSALM) due to procedural non-compliance. Specifically, PSALM did not secure prior approval from the Office of the Government Corporate Counsel (OGCC) and COA before renewing the contracts. |
| What is PSALM’s mandate under the EPIRA Law? | Under the Electric Power Industry Reform Act (EPIRA) of 2001, PSALM is responsible for managing the orderly sale, disposition, and privatization of the National Power Corporation’s (NPC) generation assets, real estate, and other disposable assets. Its main goal is to liquidate all NPC financial obligations and stranded contract costs efficiently within a 25-year period. |
| Why did PSALM hire private legal advisors? | PSALM hired private legal advisors to provide consultancy services on legal matters related to its privatization projects, aiming to achieve its mandate under the EPIRA Law. The corporation deemed these services vital for achieving its goals, especially given the specific time constraints set by the EPIRA Law. |
| What requirements did COA claim PSALM failed to meet? | COA claimed that PSALM failed to comply with Memorandum Circular No. 9 and COA Circular No. 95-011, which require government-owned and controlled corporations (GOCCs) to obtain prior written conformity from the Office of the Solicitor General (OSG) or OGCC, and prior written concurrence from COA before hiring private lawyers. These issuances aim to prevent unauthorized and unnecessary expenditures of public funds. |
| What was COA’s primary reason for denying concurrence? | COA primarily denied concurrence because PSALM did not obtain the required prior written conformity from the OGCC and prior written concurrence from COA before renewing the contracts. COA argued that PSALM’s non-compliance with these procedural requirements justified the denial. |
| What did the Supreme Court rule regarding COA’s denial? | The Supreme Court ruled that COA could not deny concurrence solely on procedural grounds. The Court emphasized that COA’s authority is limited to preventing irregular, unnecessary, excessive, extravagant, or unconscionable expenditures and that COA must present substantial evidence demonstrating that the contract renewals were indeed unreasonable or excessive. |
| What is the significance of the EPIRA Law in this case? | The EPIRA Law is significant because it provides the statutory context for PSALM’s mandate and imposes specific time constraints for achieving its objectives. The Court recognized the urgency of PSALM’s mission under the EPIRA Law as a factor in assessing the reasonableness of PSALM’s decision to hire legal advisors. |
| What does the ruling mean for other GOCCs hiring private lawyers? | The ruling clarifies that while GOCCs must comply with procedural requirements when hiring private lawyers, COA’s denial of concurrence must be based on substantive findings of irregular, unnecessary, or excessive expenditures. This underscores the need for COA to justify its decisions with evidence of actual misuse of public funds, rather than solely on procedural lapses. |
This decision highlights the delicate balance between ensuring governmental oversight and allowing government-owned corporations the necessary flexibility to operate effectively and meet their statutory mandates. The Supreme Court’s ruling clarifies the scope of COA’s audit authority, ensuring that it is exercised within constitutional bounds and with due consideration for the operational needs and statutory obligations of government entities.
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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: POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION (PSALM) vs. COMMISSION ON AUDIT, G.R. No. 218041, August 30, 2022