Title
Power Sector Assets and Liabilities Management Corporation vs. Commission on Audit
Case
G.R. No. 247924
Decision Date
Nov 16, 2021
PSALM engaged legal advisors for asset privatization without COA's prior concurrence; SC ruled COA's delay unreasonable, upheld good faith, and applied quantum meruit.
psalm corp
commission on audit
legal advisors
A

Case Summary (G.R. No. 247924)

Key Individuals and Context

  • Petitioner: Power Sector Assets and Liabilities Management (PSALM) Corporation, represented by Irene Joy Besido-Garcia (President and CEO), acting on behalf of concerned and affected PSALM officers and employees.
  • Respondent: Commission on Audit (COA).
  • External advisers engaged by PSALM: John T. K. Yeap (international legal adviser) and Atty. Michael B. Tantoco (Philippine legal adviser).
  • Context: PSALM sought to engage foreign and local legal advisers to assist in privatization of generation assets and Independent Power Producer (IPP) contracts under the Electric Power Industry Reform Act (RA 9136 / EPIRA). PSALM requested prior concurrences from the OGCC and COA; OGCC concurred promptly, COA did not respond within the requested timeframe and only acted years later to deny concurrence, prompting PSALM’s petition for certiorari under Rule 65/64.

Petitioner

  • PSALM asserted urgency in engaging specialized legal advisers to comply with EPIRA timelines for privatization and open access implementation, argued that the services were advisory (not court representation) and thus exempt from COA concurrence requirements, and invoked quantum meruit to justify payments already made to the advisers. PSALM sought relief from COA’s legal retainer review decision denying concurrence and disallowing payment.

Respondent

  • COA maintained that prior written concurrence is mandatory under COA Circulars (notably COA Circular Nos. 86-255 and 95-011) for all kinds of legal services paid from public funds, regardless of litigation or advisory nature; COA defended its authority to require pre-audit-type concurrence and explained operational constraints for timely action. COA later promulgated COA Circular No. 2021-003 clarifying limited exemptions and conditions for waiving prior concurrence.

Key Dates

  • PSALM request letters dated May 9, 2011; copies received by COA on May 11 and May 13, 2011; PSALM requested action by May 30, 2011.
  • PSALM engaged the advisers effective August 29, 2011 after extended nonresponse from COA.
  • COA issued Legal Retainer Review (LRR) No. 2014-174 on November 6, 2014 denying the request; COA Decision No. 2017-215 (denying reconsideration) dated July 6, 2017; Resolution-Decision No. 2019-004 (denying motion for reconsideration) dated January 30, 2019.
  • Supreme Court decision: November 16, 2021 (majority opinion granting PSALM’s petition).

Applicable Law and Issuances

  • Constitution (1987): Article IX-D (COA powers), Article III, Section 16 (right to speedy disposition).
  • COA Circulars and memoranda: COA Circular No. 86-255 (1986) and COA Circular No. 95-011 (1995) (prior concurrence requirement for hiring private lawyers); COA Circular No. 2009-002 (selective reinstitution of pre-audit); COA Circular No. 2011-002 (lifting of pre-audit in most transactions, with saving clause); COA Circular No. 2021-003 (limited exemptions from prior concurrence).
  • Presidential Decree No. 1445, Section 49 (60-day period for COA to render decisions); COA 2009 Revised Rules of Procedure (Rule X, Section 4).
  • OGCC/OSG concurrence requirement under prior presidential and COA memoranda (Memorandum Circular No. 9, Aug. 27, 1998).

Antecedent Facts and Contract Terms

  • PSALM sought to engage two advisers for six months: (1) John T. K. Yeap as international adviser (USD hourly rate, fixed monthly estimate and cap, travel/out-of-pocket reimbursements); (2) Atty. Tantoco as Philippine legal adviser (PHP hourly rate, estimated monthly and total cap, reimbursement cap). Scope: drafting/reviewing transaction documents, advising during due diligence and bidding, assisting with bidder queries, and advising during implementation of administration agreements. Letters stated services were advisory and not court representation; OGCC gave concurrence under Contract Review No. 161 (May 31, 2011). COA did not act within PSALM’s requested deadline.

Procedural History in COA

  • PSALM’s request remained unacted upon by COA for an extended period. PSALM proceeded to engage the advisers on August 29, 2011. COA only issued LRR No. 2014-174 (Nov. 6, 2014) denying the request because engagement occurred without prior COA concurrence and citing a prior denial (LRR No. 2011-004 / COA Decision No. 2014-136) involving the same advisers. COA denied PSALM’s motions for reconsideration; PSALM filed a Rule 65 certiorari petition to the Supreme Court.

Issues Presented to the Court

  1. Whether COA’s required prior written concurrence to hiring private counsel is a species of pre-audit, and whether COA can impose it as a prerequisite to validity of such engagements.
  2. Whether the specific PSALM contracts fall within the coverage of COA Circular Nos. 86-255 and 95-011.
  3. Whether COA committed grave abuse of discretion in delaying action on PSALM’s concurrence request for more than three years.
  4. Whether the approving PSALM officers are personally liable for payments to the advisers.

Majority Ruling — Overview

  • The Supreme Court granted PSALM’s petition. The Court held: (a) COA’s prior written concurrence is an instance of pre-audit; (b) COA has constitutional authority to determine when to require pre-audit (including written concurrence) and to define the scope of its audit; (c) the challenged PSALM contracts fell within the coverage of COA Circulars Nos. 86-255 and 95-011; (d) COA gravely abused its discretion by unreasonably delaying action on PSALM’s request, violating PSALM’s right to a speedy disposition; and (e) PSALM officers who approved and implemented the contracts acted in good faith and are not personally liable for the advisers’ fees; the advisers are entitled to payment. The Court nullified COA’s decisions denying concurrence and directed COA to allow payment to the advisers.

Legal Analysis — Is Prior Concurrence a Pre-audit?

  • The Court concluded that COA’s prior written concurrence is an instance of pre-audit because it embodies the same goals and processes as pre-audit: examination of proposed expenditures before consumption to determine compliance with appropriations/statutory authority, sufficiency of funds, reasonableness of expenditure, and proper approvals and supporting evidence. COA’s stated principal objective in concurrence reviews — to determine reasonableness of legal fees and ensure consistency/policy across agencies — aligns with pre-audit purposes. The Court therefore treated the concurrence requirement as pre-audit in nature.

COA’s Discretion to Require Pre-audit

  • The Court recognized COA’s constitutional mandate (Article IX-D) to define its audit scope and methods, including the discretionary choice between pre-audit and post-audit measures. Pre-audit is not per se mandatory for all transactions; COA may selectively require it where internal controls are inadequate or circumstances warrant. The Court declined to overturn COA’s authority to require written concurrence as an exception to general lifting of pre-audit, and upheld COA’s competence to impose such requirement reasonably.

Coverage of COA Circulars: Were PSALM’s Contracts Subject?

  • The Court rejected PSALM’s contention that advisory-only legal services are outside COA Circulars Nos. 86-255 and 95-011. Precedent (Alejandrino; Polloso; OAate; Phividec, etc.) interprets those circulars broadly to cover hiring of private lawyers for any form of legal service — not only litigation — and requires prior OGCC/OSG conformity plus COA concurrence in exceptional cases. Accordingly, the Court held the PSALM contracts are subject to the concurrence requirement.

COA’s Inordinate Delay and Grave Abuse of Discretion

  • The Court found COA committed grave abuse of discretion by failing to act within a reasonable time: PSALM requested action by May 30, 2011; COA only issued a decision denying concurrence on November 6, 2014 — more than three years later — and took arbitrarily long intervals in requesting and transmitting documents. The delay contravened the constitutional right to speedy disposition (Article III, Section 16) and applicable procedural periods (PD 1445 Section 49 and COA’s revised rules provide a 60-day decision period for commission actions). COA’s justifications (workload, volume of requests) were insufficient to excuse the long delay. Because COA’s denial was premised solely on PSALM’s alleged failure to obtain prior concurrence — a situation directly attributable to COA’s own inaction — the Court excused PSALM’s noncompliance and ruled COA’s denial was unjustified.

Doctrine Applied to PSALM’s Conduct and Contractual Payments

  • The Court concluded PSALM had properly sought OGCC concurrence and timely requested COA’s concurrence; PSALM’s subsequent engagement of advisers after COA’s prolonged inaction was a reasonable judgment call to meet EPIRA implementation deadlines. Given the advisers had fully performed and PSALM’s objective pursued public interest (privatization required under EPIRA), the advisers are entitled to their contractual fees; they need not return payments under quantum meruit doctrine because the contracts were perfected and services rendered. The approving PSALM officers acted in good faith and without malice or bad faith; therefore they should not be held personally liable for payments. The Court emphasized that personal liability attaches only where acts are malicious, in bad faith, or beyond authority.

Remedial Measures and Guidelines (Majority)

  • To prevent recurrence where COA’s inaction would produce unfair disallowances, the Court provided practical guidelines as best practices (not black-letter law): (1) agencies must submit requests for COA concurrence not later than 60 calendar days prior to estimated engagement or retainer, attaching OGCC/OSG written conformity; (2) COA has 60 calendar days from receipt to act on such requests, stating reasons for denial if any; (3) if COA fails to act within 60 days, the request is deemed approved; (4) COA may accept shorter notice in truly exceptional circumstances but the

    ...continue reading

    Analyze Cases Smarter, Faster
    Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

    About Privacy Terms