Facts:

The case revolves around the petitioners, Virgilio C. Arriola and Julian L. Fernandez, who were employees of the defunct National Coal Authority (NCA). The case is a review by certiorari of Decision No. 943 by the Commission on Audit (COA), dated July 14, 1989, which disallowed a portion of the contract payment amounting to P83,766.60 related to the Batangas Water Well Project at the Batangas Coal Terminal. The procurement process began in October 1985 when the NCA invited several accredited contractors to bid on the project, but only one bid was submitted. Subsequently, a re-bidding took place on November 13, 1985, resulting in P.I. Well Drilling Corporation being awarded the contract for P277,662.00, which was later reduced to P262,662.00 after negotiation. The work was completed by February 14, 1986, and the contract was submitted to COA for post-audit review. In the months that followed, COA determined in September 1986 that the contract was excessive by 46.94%, calculating

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Facts:

Background and Nature of the Case

• The petition seeks review by certiorari of COA Decision No. 943 (dated July 14, 1985), which disallowed an amount of P83,914.22 from the contract sum of P262,662.00.
• The disallowed amount pertains to the Batangas Water Well Project undertaken by the defunct National Coal Authority (NCA), a subsidiary of the Philippine National Oil Co. (PNOC).
• Petitioners Virgilio C. Arriola and Julian L. Fernandez were held personally liable for the disallowed sum.

Bidding Process and Contract Award

• In October 1985, NCA invited eight accredited and prequalified PNOC contractors to bid for the construction of the Batangas Water Well.
• Only one contractor submitted a bid; consequently, NCA invalidated the bidding.
• During the re-bidding on November 13, 1985, P.I. Well Drilling Corporation (P.I. Wells) emerged as the winning bidder with an initial bid of P277,662.00.
• Subsequent negotiations led to a reduction of the bid to P262,662.00, representing a discount of P15,000.00.
• The contract was duly approved by the NCA Administrator and the Executive Committee.
• On December 9, 1985, NCA Administrator M.V. Tiaoqui formally notified P.I. Wells of the acceptance of its bid.

Submission to COA and Project Completion

• On January 28, 1986, the contract between NCA and P.I. Wells was submitted to the Commission on Audit (COA) for a post-audit review.
• The Batangas Water Well Project was completed on February 14, 1986.

COA Technical Service Office (COA-TSO) Involvement and Cost Comparison

• On April 9, 1986, a First Indorsement addressed to the Auditor of the NCA was issued by the COA-TSO, requesting a detailed breakdown of the contract amount.
• The breakdown was to include the quantity and unit cost of all labor and material items, along with the derivation of the total indirect cost.
• In response, the NCA submitted detailed cost estimates to facilitate the review.
• A Memorandum dated September 15, 1986, prepared by Acting Manager Jose F. Mabanta of the COA-TSO, stated that the contract was excessive by 46.94%.
• The memorandum based the excess on a higher unit cost used in the agency’s detailed cost estimates.
• The discrepancy amounted to P83,914.22, which was computed using a cost comparison by a COA-TSO engineer.
• Mr. Ernesto Morales, NCA’s designated auditor, disseminated the memorandum and demanded the refund of P83,914.22 on September 15, 1986.

Certificate of Settlement and Subsequent Reassessment

• On March 10, 1987, Mr. Morales issued a Certificate of Settlement and Balances (CSB No. 87-0001-42), demanding payment of P71,746.66 (after deducting 10% withholding taxes) from various NCA management officials, including petitioners.
• On April 7, 1987, the NCA requested the COA-TSO to recheck its review, contending that differences in material specifications and price changes between December 1985 and August 1986 might account for the price variance.
• The COA-TSO maintained its original finding and eventually increased the disallowance to P95,885.30, before a subsequent reconsideration.

Reconsideration and COA Decision

• On July 7, 1987, NCA sought reconsideration of the COA-TSO’s initial review, arguing that the documentation submitted for the breakdown was prepared by the contractor and not the official version furnished by P.I. Wells.
• Despite the request, the COA-TSO sustained its findings.
• On July 14, 1989, the COA rendered Decision No. 943, dismissing the appeal of NCA Deputy Administrator V.C. Arriola, but slightly reducing the disallowed amount to P83,766.60.
• On August 9, 1989, communication regarding the COA Decision was circulated by the Board of Liquidators, but only petitioners Arriola and Fernandez were specifically addressed for payment.

Petitioners’ Contentions and Due Process Allegations

• Petitioners argued that COA violated their right to due process by not producing the canvass sheets—the source documents on which the disallowance was based—despite repeated requests.
• They contended that COA’s findings and the disallowed amount were not supported by sufficient evidence, as key documents such as price quotations and canvass sheets were not disclosed.
• Petitioners further challenged the imposition of personal liability, noting that no allegation of bad faith, malicious intent, or negligence on their part was substantiated.
• The dispute included issues regarding the price determination for the 1 unit Goulds Submersible Pump, where COA’s comparison and reliance on a cost evaluation sheet were questioned.

COA’s Defense and Additional Communications

• COA cited a letter dated January 5, 1990, from COA-TSO Director Arturo Dadulfaza, stating that petitioners had never made a formal written request to view the canvass sheets.
• Petitioners rebutted that verbal requests had been made and that the information was denied on the grounds of confidentiality.
• A supporting affidavit from Atty. Bethany G. Kapili highlighted that NCA officials were repeatedly denied access to relevant documents during meetings with COA representatives.
• Petitioners insisted that access to the actual price quotations would have allowed them to verify that COA’s standards on excessive expenditures, as stated in COA Circular No. 85-55-A, were not correctly observed.

Issue:

Due Process Concerns

• Whether COA’s failure to produce the canvass sheets and other source documents for review amounted to a violation of petitioners’ right to due process.
• Whether the denial of access to key supporting documents impeded petitioners’ opportunity to rebut the findings.

Evidentiary Basis of the Disallowance

• Whether the disallowance of approximately P83,766.60 was supported by sufficient, documented evidence.
• Whether COA’s reliance on a cost comparison by a COA-TSO engineer, in the absence of corroborative price quotations or documented canvass sheets, is legally tenable.

Liability Imposition on Petitioners

• Whether holding petitioners personally liable for the disallowed amount was legally justified in the absence of any findings of bad faith, gross negligence, or malicious intent on their part.
• Whether the procedural irregularities and lack of transparency in the audit process undermine the imposition of personal liability on NCA officials.

Ruling:

• (Subscriber-Only)

Ratio:

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Doctrine:

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