Title
De Castro vs. Commission on Audit
Case
G.R. No. 228595
Decision Date
Sep 22, 2020
Former Bulan officials challenged COA disallowances on payments for BIBT and Slaughterhouse projects, citing overpricing, delays, and procurement violations. COA upheld partial disallowances, holding some officials liable, while affirming due process and its authority to modify rulings.
disallowance
construction projects
certiorari

Case Summary (G.R. No. 228595)

Statutory and Regulatory Framework in Dispute

The controversy primarily involved compliance with R.A. No. 9184 and its IRR-A, particularly provisions requiring full use of the Philippine Government Electronic Procurement System (PhilGEPS), and provisions governing the suspension of work and the treatment of liquidated damages. COA also invoked procurement and audit standards, including a policy guideline under COA Resolution No. 91-52 concerning reasonableness review in infrastructure biddings, and relied on COA audit rules and manuals on disallowances and initiation of actions.

Factual Background: The Bulan Projects and Subsequent COA Audit

On June 30, 2003, the Sangguniang Bayan (SB) of MGB enacted Ordinance No. 004, Series of 2003, authorizing the bond flotation of the Municipality of Bulan in an amount not exceeding P50,000,000.00 to fund the construction and development of the BIBT, the new municipal slaughterhouse, and other priority projects. The ordinance authorized the municipal mayor to conduct public biddings for awarding construction contracts.

In October 2006, MGB conducted public biddings for the BIBT and Bulan Slaughterhouse. Contracts were awarded to S.R. Baldon Construction & Supply for the BIBT (P32,984,700.00) and to Steven Construction and Supply for the Slaughterhouse (P4,991,800.00). After payment, COA issued an Office Order No. 2008-06-07 dated June 23, 2008 directing a special audit on these projects.

The special audit led to Notice of Disallowance (ND) issuances dated August 18, 2009, and a Supplemental ND dated October 9, 2009. The disallowances included, among others: a deficiency attributed to unaccomplished work for the BIBT; a net cost variance allegedly arising from estimated cost excess and overpricing/overestimation; liquidated damages for alleged delay in completion of the BIBT and Slaughterhouse; and nullification-related disallowances premised on alleged failure to post procurement opportunities through the PhilGEPS.

The Findings Under the Notices of Disallowance

COA’s audit findings under each ND were anchored on specific technical and documentary observations.

ND No. 2008-06-27-001-101 (2009) disallowed P196,526.13, attributed to a 0.58% unaccomplished deficiency. COA’s inspection report stated that the BIBT was only 99.42% completed, and that the deficiency related to electrical equipment not yet aligned with programmed specifications, including a transformer size and accessories such as a cut-out/lighting arrester and corresponding KWH meter.

ND No. 2008-06-27-002-101 (2009) disallowed P4,368,046.58 based on a net cost variance premised on the COA-estimated cost versus the approved contract price and quantities. COA found the project contract cost to be excessive compared with its estimated cost, referencing COA Resolution No. 91-52 and supporting calculations that treated some construction materials as overpriced and other cost components as overestimated.

ND No. 2008-06-27-003-101 (2009) disallowed P2,638,776.00 representing liquidated damages for an alleged 80-day excess of contract time for the BIBT.

ND No. 2008-06-27-004-101 (2009) disallowed P169,721.20 representing liquidated damages for an alleged 34-day excess of contract time for the Bulan Slaughterhouse. COA’s narrative reflected a discrepancy between certifications and alleged work completion timelines.

Finally, ND Nos. 2008-06-27-005-101 (2009) and 2008-06-27-006-101 (2009) declared the contracts null and void and disallowed related amounts on the theory that MGB failed to post procurement opportunities through the PhilGEPS, allegedly in violation of Section 8-IRR-A of R.A. No. 9184.

Administrative Appeals Before the COA Regional Office

After receiving the disallowances, petitioners and the private contractors appealed to the COA Regional Director (RD) of COA Regional Office V within the reglementary period. They raised issues touching: (a) whether subsequent rectification could lift disallowance; (b) whether liability attached for the BIBT’s cost variance; (c) whether liquidated damages could be charged in light of alleged suspensions and circumstances; (d) whether liquidated damages were supported for the Slaughterhouse; and (e) whether the contracts could be nullified due to alleged PhilGEPS posting failures.

On June 4, 2012, COA-RD issued COA Regional Office No. V Decision No. 2012-L-007, disposing of the disallowances in modified forms. It partially affirmed, lifted portions for lack of legal basis or insufficiency of evidence, and lifted the PhilGEPS-related disallowances for want of legal basis while expressly noting that administrative liabilities could still arise.

COA Proper’s Automatic Review and Assailed Decision

Because the COA-RD modified the auditor’s rulings, the decision was elevated to COA Proper for automatic review, consistent with COA’s revised procedural framework. On September 11, 2014, COA rendered COA Decision No. 2014-209, which affirmed with modifications and revised certain amounts and bases of liability.

In substance, COA Proper: affirmed the reduced liquidated damages for the transformer-related deficiency; sustained part of the net cost variance disallowance for overestimation in quantity while lifting overpricing; set aside the lifting of the BIBT liquidated damages and held Mayor De Castro liable based on the supposed invalidity of the municipal work suspension order; and set aside the lifting of the Slaughterhouse liquidated damages, holding the municipal engineer liable for inconsistent and misleading information. COA Proper also affirmed the PhilGEPS-related disallowances for want of legal basis while preserving the possibility of administrative liability for violations of R.A. No. 9184 and its IRR.

COA Proper later denied reconsideration in COA Resolution dated November 9, 2016, and directed referral to the Ombudsman for any warranted charges.

Grounds Raised in the Petition for Certiorari

Petitioners invoked numerous grounds alleging grave abuse of discretion by COA. They argued that COA: disallowed based on wrong legal authority; relied on equipment rental rates allegedly unsupported by legally effective administrative issuance; violated their right to speedy disposition by not resolving within periods under the 2009 Revised Rules of Procedure of COA; violated administrative due process; disregarded or failed to consider arguments; imposed liability despite lack of proper basis; and mishandled the issuance and effect of amended notices and computation details. They likewise challenged COA’s imposition of personal liability and its treatment of administrative accountability despite the lifting of certain disallowances. They also alleged improper assessment of appeal-related filing fees.

Timeliness of the Petition and Justification for Relaxation of Rules

Before addressing the merits, the Court examined the procedural issue of timeliness. COA argued that the petition was filed beyond the thirty (30)-day period under Section 3, Rule 64. COA noted that petitioners received the COA Decision on September 29, 2014 and filed a motion for reconsideration on October 9, 2014; after denial, petitioners received the COA Resolution on November 29, 2016 and filed the petition on December 29, 2016, which COA characterized as ten (10) days late.

The Court acknowledged that procedural rules are ordinarily strictly observed. Still, it held that exceptions may justify relaxing technical rules, including the presence of prima facie merit, special or compelling circumstances, and the absence of unjust prejudice. Citing its earlier jurisprudence on relaxation, the Court found that even the Office of the Solicitor General (OSG) partially disagreed with COA on certain points and raised reversible errors. The Court thus found the petition to have prima facie merit and decided to entertain it despite the procedural defect.

Right to Speedy Disposition and Due Process in COA Proceedings

Petitioners asserted that COA violated the right to speedy disposition because COA-RD and COA Proper allegedly decided beyond the periods set under the 2009 RRPC. They specified that COA-RD rendered its decision on June 4, 2012 beyond the fifteen-day period; COA Proper rendered its decision on September 11, 2014 beyond the sixty-day period; and COA Proper denied reconsideration on November 9, 2016 beyond the sixty-day period.

COA countered that petitioners failed to establish that delay was oppressive or capricious and argued that thoroughness in audit justified the time taken. The Court agreed with COA. It treated the constitutional right under Article III, Section 16 as relative and flexible, requiring a weighing of: the length of delay, reasons for delay, the assertion of the right, and prejudice.

The Court found the delay not inordinate, considering the time consumed by lower tribunals to resolve the case involving multiple disallowances with complex or technical issues.

On due process, petitioners claimed COA failed to resolve each argument in reconsideration, failed to issue amended notices consistent with the dispositions, and issued notices allegedly not citing the violated law. The Court rejected the claim. It reiterated that administrative due process requires meaningful notice and a genuine opportunity to be heard, and it found that the relevant NDs contained sufficient factual reasons and references to documents, particularly for the questioned deficiency and the liquidated damages-related items. The Court further held that lack of discussion of every individual argument did not automatically amount to denial of due process, noting that tribunals are not required to resolve every issue unless necessary.

Main Issues on Each Notice of Disallowance

ND No. 2008-06-27-001-101 (2009): Transformer-Related Deficiency and Liquidated Damages

The Court addressed the modification of ND No. 2008-06-27-001-101 (2009). It recalled that COA initially disallowed P196,526.13 for an unaccomplished deficienc

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