DBM-PS et al. vs. Kolonwel Trading

Courts have no jurisdiction over actions impugning decisions of the Bids and Awards Committee unless the protest procedure under Section 55 of R.A. No. 9184 has been completed; the absence of an IRR for foreign-funded projects does not excuse noncompliance. The RTC’s order was nullified also because it proceeded without jurisdiction over Watana, an indispensable party not served with summons.

The Department of Education requested the DBM Procurement Service to undertake procurement of Makabayan textbooks and teachers manuals. The project was jointly funded by the World Bank through IBRD Loan Agreement No. 7118-PH dated September 12, 2002 and by the Asian Development Bank through SEDIP Loan No. 1654-PHI. Earlier, the Executive Director of the Government Procurement Policy Board, in reply to a DepEd query, stated that procurement for Makabayan textbooks sourced from the World Bank loan would be governed by the applicable procurement guidelines of the foreign lending institution. Republic Act No. 9184, the Government Procurement Reform Act, governed procurement and, under Section 4, required observance of any treaty or international or executive agreement affecting the subject matter to which the Philippine government is a signatory.

In the middle of 2005, the Department of Education requested the DBM Procurement Service to undertake the procurement of some 17.5 million copies of Makabayan (social studies) textbooks and teachers manuals. The project was jointly funded by the World Bank through the Second Social Expenditure Management Program of the Philippines under IBRD Loan Agreement No. 7118-PH dated September 12, 2002, and by the Asian Development Bank through SEDIP Loan No. 1654-PHI. Earlier, the Executive Director of the Government Procurement Policy Board, in reply to a DepEd query, stated that procurement for Makabayan textbooks funded from the World Bank loan would be governed by the applicable procurement guidelines of the foreign lending institution, and that the 2005 Call for Submission of Textbooks and Teacher’s Manuals should be viewed against relevant World Bank guidelines.

On October 27, 2005, the DBM-PS Inter-Agency Bids and Awards Committee called for bidding for the supply of the textbooks and manuals, divided into three lots: Lot 1 for Sibika Grades 1-3, Lot 2 for HeKaSi Grades 4-6, and Lot 3 for Araling Panlipunan Years I-IV. Of the foreign and local entities that procured bidding documents, only eleven submitted proposals, either as principal or in joint venture, for the different lots. Among them were Watana Phanit Printing & Publishing Co., Ltd. of Thailand, Vibal Publishing House, Inc., Daewoo International Corporation of South Korea, and Kolonwel Trading. Kolonwel’s tender appeared to cover all three lots.

Following the bid and book content/body evaluation, the IABAC, through Resolution No. 001-2006 dated March 9, 2006, resolved to recommend to the World Bank and the Asian Development Bank a failure of bids for all lots because of disqualifications, non-compliance, and reservations of the Department of Education. The disqualifying reasons included conflict of interest with respect to Watana and Vibal, failure in cover stock testing for Kolonwel, and the Department’s reservation. On March 15, 2006, the IABAC submitted Resolution No. 001-2006 to the World Bank for review and information, appending a Bid Evaluation Report and Recommendation for Award of Contract.

In a letter dated April 24, 2006 to the Department of Education and the DBM-PS IABAC Chairman, the World Bank, through Regional Senior Economist Rekha Menon, disagreed with the IABAC’s finding of conflict of interest on the part of Vibal and Watana and the rejection of their bids, but upheld the disqualification of all other bidders. The World Bank asked the IABAC to review its evaluation and provide a revised Bid Evaluation Report, taking into account the December 31, 2006 RP-IBRD loan closing date. On May 11, 2006, the IABAC informed Kolonwel of its or its bid’s failure to post-qualify and the grounds therefor. Kolonwel replied on May 18, 2006, raising issues and requesting reconsideration and setting aside of its disqualification; the IABAC apprised the World Bank of Kolonwel’s concerns. The IABAC thereafter agreed with the World Bank’s position and issued Resolution No. 001-2006-A, effectively recommending to the World Bank contract awards to Vibal for Sibika 1 and 3 and HeKaSi 5, to Watana for Sibika 2 and HeKaSi 4 and 5, and to Daewoo for Sibika 3. The World Bank offered no objection to the recommended award. Notices of award and the corresponding Purchaser-Supplier contracts were executed on September 12, 2006.

On June 23, 2006, the DBM-PS IABAC Chairman informed Kolonwel of the denial of its request for reconsideration and of the World Bank’s concurrence with the denial. On September 8, 2006, the IABAC denied Kolonwel’s second request for reconsideration after the World Bank found the reasons, detailed in PS IABAC Resolution No. 001-2006-B dated July 18, 2006, unmeritorious, particularly on cover stock testing. Kolonwel then filed with the Manila RTC on October 12, 2006 a special civil action for certiorari and prohibition with a prayer for a temporary restraining order and/or writ of preliminary injunction, docketed as SP Civil Case No. 06-116010 and raffled to Branch 18. It sought to nullify IABAC Resolution Nos. 001-2006 and 001-2006-A and to set aside the contract awards in favor of Vibal and Watana, alleging in its TRO application that the supply-awardees were rushing implementation of the contracts to beat the loan closing-date deadline. Vibal and the Department of Education moved to dismiss on grounds including want of jurisdiction and lack of cause of action, alleging that Kolonwel had not complied with the protest procedure under Republic Act No. 9184. The trial court did not conduct a hearing on either dismissal motion, although it heard the parties on the propriety of a writ of preliminary injunction. The records also show that Watana, impleaded as a defendant because it had been awarded Sibika 2 and HeKaSi 4 and 5, was not served with summons; the Sheriff’s Return dated October 18, 2006 noted that summons was not served at No. 1281 G. Araneta Avenue corner Ma. Clara Street, Quezon City, because the companies were not holding office thereat according to Mr. Marvin V. Catacutan.

• Failure to Observe Protest Mechanism: Petitioners argued that the Manila RTC erred in assuming jurisdiction over SP Civil Case No. 06-116010 despite Kolonwel’s failure to observe the protest mechanism under Section 55 in relation to Sections 57 and 58 of R.A. No. 9184; court action may be resorted to only after the protest contemplated in the law shall have been completed, and cases filed in violation shall be dismissed for lack of jurisdiction.
• Lack of Cause of Action and Jurisdictional Defect: Vibal moved to dismiss on want of jurisdiction and lack of cause of action, and DepEd partly relied on the same protest provision, maintaining that Kolonwel pursued judicial relief without first complying with the protest procedure.

• Exhaustion of Administrative Remedies: Respondent maintained that it had twice sought reconsideration of its disqualification and was twice denied by the IABAC, so the judicial window was already opened under the exhaustion of available administrative remedies principle.
• Inoperative Protest Mechanism for Foreign-Funded Projects: Respondent argued that it was prevented from filing a protest because the government had not issued the Implementing Rules and Regulations of R.A. No. 9184 to render the protest mechanism operative for foreign-funded projects.

• Jurisdiction over BAC Decisions / Protest Mechanism: Whether the Manila RTC erred in assuming jurisdiction over Kolonwel’s petition for certiorari and prohibition despite Kolonwel’s failure to observe the protest mechanism under Section 55 in relation to Sections 57 and 58 of R.A. No. 9184.
• Effect of Absence of IRR for Foreign-Funded Projects: Whether the absence of an Implementing Rules and Regulations for foreign-funded projects excused Kolonwel from complying with the protest mechanism under R.A. No. 9184 before resorting to court.
• Indispensable Party / Jurisdiction over Watana: Whether the Manila RTC could proceed with SP Civil Case No. 06-116010 without acquiring jurisdiction over Watana, an indispensable party not served with summons.

• Jurisdiction over BAC Decisions / Protest Mechanism: No. The RTC had no jurisdiction because Kolonwel failed to complete the protest procedure under Section 55 of R.A. No. 9184 before filing its petition; Section 58 mandates dismissal for lack of jurisdiction.
• Effect of Absence of IRR for Foreign-Funded Projects: No. The absence of an IRR fixing the protest fee and periods did not excuse compliance; the protest mechanism is a built-in administrative remedy that must be completed before court action.
• Indispensable Party / Jurisdiction over Watana: No. The RTC could not proceed without jurisdiction over Watana, an indispensable party not served with summons, whose contract award was sought to be nullified.

• Jurisdiction over BAC Decisions / Protest Mechanism: Section 55 requires three things: a verified position paper, submission to the head of the procuring entity, and payment of a non-refundable protest fee. Section 58 provides that courts have jurisdiction only after the protest has been completed, and cases filed in violation shall be dismissed for lack of jurisdiction. Kolonwel’s May 18 and June 28, 2006 letters requesting reconsideration were not protests: they were not addressed to the head of the procuring entity, in this case the DepEd Secretary or the head of the DBM Procurement Service; they were unverified; and no protest fee was paid. Kolonwel thus sought judicial intervention before completing the protest process, making its filing precipitate. The RTC could not lawfully acquire jurisdiction. The protest mechanism is a built-in administrative remedy embodied in the law itself, not merely an administrative circular, and ignoring it would defy the law. The RTC’s observation of substantial compliance was insufficient; it was not even clear that Kolonwel was aware of the protest requirements. Congress defines jurisdiction, and courts cannot entertain protests from BAC decisions unless the protest procedure is completed.
• Effect of Absence of IRR for Foreign-Funded Projects: The last sentence of Section 55 limits the IRR for foreign-funded projects to fixing the amount of the protest fee and the periods for filing and resolving the protest. The absence of provisions on protest fee and reglementary period does not defer implementation of the protest mechanism as a condition sine qua non to judicial relief. Kolonwel had to file a protest and pursue it to completion before going to court. There was no need to wait for the filing period because the protest must be lodged before court action, and no need for the fee to be prescribed first because Kolonwel could have proceeded without paying and remitted the proper amount once the IRR fixed the fee. No bona fide attempt to comply existed because no verified position paper was submitted, and the reconsideration letters did not advert to the protest procedure. IRR-A, issued on July 11, 2003 by the GPPB and the Joint Congressional Oversight Committee, provides in Section 55.1 that prior to protest, the aggrieved party must first file a motion for reconsideration; only after denial may the protest, accompanied by a fixed protest fee, be filed within the period defined in the IRR. Although IRR-A covers fully domestically-funded procurement, Abaya vs. Ebdane held that the policy behind Section 77 of IRR-A can apply to foreign-funded projects; there is no reason why the policy behind Section 55.1 cannot be applied analogously to foreign-funded procurement. No discernible justification exists for a different procedure for foreign-funded undertakings, and no concrete foundation in R.A. No. 9184 indicates that Congress intended such variance.
• Indispensable Party / Jurisdiction over Watana: Watana was impleaded as a defendant because it was awarded Sibika 2 and HeKaSi 4 and 5. Kolonwel assailed and sought to nullify the contract award in Watana’s and Vibal’s favor. Indispensable parties are those with such interest in the controversy that a final decree would necessarily affect their rights, so courts cannot proceed without their presence; all must be included for an action to prosper or for a final determination to be had. Watana was never served with summons and did not participate in the proceedings. The Sheriff’s Return dated October 18, 2006 noted that summons was not served at No. 1281 G. Araneta Avenue corner Ma. Clara Street, Quezon City, because the companies were not holding office thereat according to Mr. Marvin V. Catacutan. The RTC therefore did not acquire jurisdiction over an indispensable party whose joinder is compulsory.

• Protest Mechanism as a Jurisdictional Prerequisite — Under Section 58 of R.A. No. 9184, courts may act on actions impugning BAC decisions only after the protest procedure under Section 55 has been completed; cases filed in violation shall be dismissed for lack of jurisdiction. The Court applied this because Kolonwel’s letters for reconsideration were not verified, not addressed to the head of the procuring entity, and unaccompanied by the protest fee.
• Non-Excuse of Absent IRR for Foreign-Funded Projects — The absence of an IRR fixing the protest fee and periods for foreign-funded projects does not defer the protest mechanism or excuse noncompliance; the aggrieved party must still file and complete the protest before going to court. The Court applied the policy behind Section 55.1 of IRR-A analogously to foreign-funded procurement, following Abaya vs. Ebdane.
• Indispensable Parties and Compulsory Joinder — Indispensable parties are those with such interest in the controversy that a final decree would necessarily affect their rights, so courts cannot proceed without their presence; all must be included for an action to prosper or for a final determination. The Court held Watana was indispensable because the petition sought to nullify a contract award in its favor, and the RTC did not acquire jurisdiction over it due to non-service of summons.
• Pacta Sunt Servanda (Observation) — In an observation, the Court stated that under this principle, embodied in Section 4 of R.A. No. 9184, the Philippines as borrower bound itself to perform in good faith its duties under Loan No. 7118-PH, and the IABAC was legally obliged to comply with, or accord primacy to, the WB Guidelines. The concurring opinion noted that this discussion was dictum.

• "Court action may be resorted to only after the protests contemplated in this Article shall have been completed. Cases that are filed in violation of the process specified in this article shall be dismissed for lack of jurisdiction." — This is the jurisdictional rule in Section 58 of R.A. No. 9184 that the Court relied on to hold that the RTC lacked jurisdiction over Kolonwel’s petition.
• "Respondent’s letters of May 18, 2006 and June 28, 2006 in which it requested reconsideration of its disqualification cannot plausibly be given the status of a protest in the context of the aforequoted provisions of R.A. No. 9184." — This passage explains why Kolonwel’s reconsideration requests did not satisfy the protest requirements and why its resort to court was precipitate.
• "There can be no dispute that Watana is an indispensable party to the respondent’s petition in SP Civil Case No. 06-116010, Kolonwel having therein assailed and sought to nullify the contract-award made in its and Vibal’s favor." — This states the Court’s holding that the RTC failed to acquire jurisdiction over an indispensable party because Watana was not served with summons.
• "Under the fundamental international law principle of pacta sunt servanda, which is in fact embodied in the afore-quoted Section 4 of R.A. No. 9184, the RP, as borrower, bound itself to perform in good faith its duties and obligation under Loan No. 7118-PH." — This is the Court’s observation on the primacy of the World Bank Guidelines, which the concurring opinion characterized as dictum.

• Abaya vs. Ebdane, G.R. No. 167919, February 14, 2007 — Cited as precedent for applying the policy behind Section 55.1 of IRR-A on protest procedure analogously to foreign-funded procurement projects; the Court quoted Abaya’s ruling that there is no reason why the policy behind Section 77 of IRR-A cannot be applied to foreign-funded projects like the CP I project.
• Seno vs. Mangubat, G.R. No. L-44339, December 2, 1987, 156 SCRA 113 — Cited for the definition of indispensable parties: those with such interest in the controversy that a final decree would necessarily affect their rights, so courts cannot proceed without their presence.
• Nery vs. Leyson, G.R. No. 139306, August 29, 2000, 339 SCRA 232 — Cited together with Rule 3, Section 7 of the Rules of Court for the compulsory joinder of indispensable parties.

• Section 55, R.A. No. 9184 — Decisions of the BAC in all stages of procurement may be protested to the head of the procuring entity; the protest must be in the form of a verified position paper and accompanied by payment of a non-refundable protest fee. The Court held Kolonwel’s letters did not comply because they were not addressed to the head of the procuring entity, were unverified, and no protest fee was paid.
• Section 57, R.A. No. 9184 — No process taken from any decision treated in the Article shall stay or delay the bidding process, and protests must first be resolved before any award is made. The Court cited this as part of the protest mechanism.
• Section 58, R.A. No. 9184 — Court action may be resorted to only after the protests contemplated in the Article shall have been completed; cases filed in violation shall be dismissed for lack of jurisdiction. The Court relied on this to hold that the RTC lacked jurisdiction over Kolonwel’s petition.
• Section 4, R.A. No. 9184 — The Act applies to procurement of goods and consulting services regardless of source of funds, local or foreign, and any treaty or international or executive agreement affecting the subject matter to which the Philippine government is a signatory shall be observed. The Court cited this in its observation on the World Bank Guidelines and the loan agreement.
• Section 55.1, IRR-A — Prior to a resort to protest, the aggrieved party must first file a motion for reconsideration of the BAC decision; only after the BAC denies reconsideration may the protest, accompanied by a fixed protest fee, be filed within the period defined in the IRR. The Court applied this policy analogously to foreign-funded procurement.
• Rule 3, Section 7, Rules of Court — Compulsory joinder of indispensable parties. The Court cited this in holding that Watana, an indispensable party, had to be included and served with summons.
• Section 1, Schedule 4, Loan No. 7118-PH — Goods shall be procured in accordance with the provisions of Section 1 of the Guidelines for Procurement under IBRD Loans. The Court cited this in its observation that the IABAC conducted the bidding based on the World Bank Guidelines.
• Section 1, Guidelines for Procurement under IBRD Loans — The procedures apply to all contracts for goods financed in whole or in part from Bank loans. The Court cited this in its observation on the primacy of the World Bank Guidelines.

Reynato S. Puno (on official leave), Leonardo A. Quisumbing (Acting Chief Justice), Consuelo Ynares-Santiago, Angelina Sandoval-Gutierrez, Antonio T. Carpio, Ma. Alicia Austria-Martinez, Renato C. Corona, Conchita Carpio Morales (on leave), Adolfo S. Azcuna, Dante O. Tinga, Minita V. Chico-Nazario, Presbitero J. Velasco, Jr., and Antonio Eduardo B. Nachura concurred. Justice Dante O. Tinga filed a concurring opinion concurring in the ponencia on the jurisdictional aspects; he withheld comment on the concluding discussion regarding whether the WB Guidelines on Procurement under IBRD Loans have superiority over local laws until the point is raised as a determinative issue in an appropriate case, noting that the closing discussion was intended as dictum and would not affect the jurisdictional flaws in the RTC petition.