Estrella vs. Commission on Audit

Non-compliance with the express procurement procedures under Republic Act No. 9184 renders the resulting payments illegal expenditures warranting disallowance, but approving officers grossly negligent in the procurement are solidarily liable only for the net disallowed amount after deducting amounts due to contractors on quantum meruit. Because the eight-phase project was completed and defects rectified under warranty with no proof of overpricing, remand for post-audit to determine the exact value of works done was required.

Armando G. Estrella served as Assistant Regional Director of the Department of Public Works and Highways-National Capital Region and Chairman of its Bids and Awards Committee, with Lydia G. Chua as BAC Member. The Commission on Audit exercises post-audit jurisdiction over government expenditures and may disallow illegal or irregular disbursements, with approving officers and payees solidarily liable under the Administrative Code. Republic Act No. 9184 mandates competitive bidding for infrastructure projects and prescribes detailed pre-procurement, advertisement, pre-bid conference, and post-qualification requirements under its Implementing Rules and Regulations.

The Department of Public Works and Highways-National Capital Region undertook the Restoration of the Damaged Revetment/Dredging of Flood Control of Meycauayan River (Valenzuela Side), funded under Special Allotment Release Order No. A-09-09064 dated December 21, 2009 for P40,000,000.00, released under Sub-Allotment No. SR2009-12-007232 dated December 22, 2009. On December 22, 2009, then Regional Director Edilberto D. Tayao requested modification of the project into eight phases of P5,000,000.00 each for separate bidding, which Assistant Secretary Dimas S. Soguilon and Undersecretary Manuel M. Bonoan recommended and approved on December 28, 2009. The DPWH-NCR Bids and Awards Committee allegedly conducted public bidding on that same approval date, with only one contractor bidding for each phase, and awarded Phases I and II to RNN Construction, Phases III and IV to R.M. Nuñez Construction, Phases V and VI to RAIN Construction Corporation, and Phases VII and VIII to AKN Construction Corporation.

Upon post-audit, Audit Observation Memorandum No. 10-09 dated November 9, 2010 cited restrained competition from common board members and owners among the four awardees, failure of RNN Construction and R.M. Nuñez Construction to meet the Section 23.5.2.5 experience requirement of at least one similar completed contract worth at least 50% of the Approved Budget for the Contract, possible splitting under Section 54.1 of the IRR-A, avoidance of nationwide newspaper advertisement under Section 21.2.3, and substandard construction evidenced by big cracks and a collapsed midsection in the 422-meter structure barely seven months after completion. In its January 14, 2011 response, DPWH-NCR justified segmentation by the urgent need to restore priority projects damaged by Typhoons Ondoy and Pepeng through simultaneous work by several contractors, admitted failure to detect interlocking directorships during post-qualification because only one bidder submitted per phase, claimed the collapsed portion was part of ongoing no-cost repair with bamboo shoring and tie-beam installation, and asserted the two questioned contractors met the 50% experience requirement as adjusted by National Statistics Office indices per Central BAC processing.

Unsatisfied, the auditors issued Notice of Disallowance No. 10-003 dated May 12, 2011 for the aggregate P36,084,006.06 paid to contractors, holding liable Estrella as BAC Chairman, Chua as BAC Member, the officers who recommended and approved the modification, and the rest of the BAC, but not the contractor-payees. On appeal, the COA National Government Section found no illegal splitting due to urgency and absolved Bonoan, Soguilon, and Tayao, but upheld the BAC members' liability for non-compliance with pre-procurement requirements, absence of public bidding, and improper post-qualification evaluation, as affirmed on automatic review by the COA Proper. The record before the Supreme Court showed the project in all eight phases was 100% completed per approved plans and specifications and already benefiting the public, with structural defects already rectified pursuant to the warranty agreement and each contractor paid the contract price.

• Compliance with Procurement Requirements: Petitioner argued that the procurement requirements under RA No. 9184 were complied with.
• Absence of Government Loss and Rectification: Petitioner maintained that there was no loss on the part of the government as the contractors completed the project and fully rectified the defects found in it, such that the ND should be lifted.

• Effect of Rectification and Procurement Misfeasance: Respondent countered that rectification of the defects cannot extinguish petitioners' liability under the ND because the ND is not solely grounded upon such defects, but also upon the BAC officers' misfeasance in the conduct of the procurement process, which denied the government of its right to secure the most advantageous cost for the project.

• Propriety of Disallowance: Whether the COA Proper committed grave abuse of discretion in sustaining ND No. 10-003 for violation of RA No. 9184 and its Revised IRR.
• Extent of Liability to Return: Whether petitioners as approving BAC officers may be held solidarily liable for the entire P36,084,006.06 despite completion of works and rectification of defects, or only for the net disallowed amount after application of quantum meruit.

• Propriety of Disallowance: No. The disallowance was properly sustained, the transactions having been undertaken without adhering to the express pre-procurement, bidding, and post-qualification provisions of RA No. 9184 and its Revised IRR.
• Extent of Liability to Return: Only for the net disallowed amount, if any. Petitioners' solidary liability must be reduced by amounts due to contractors on quantum meruit, to be determined on remand by post-audit of the exact value of works done.

• Propriety of Disallowance: Factual findings of administrative agencies like the COA are generally respected and accorded finality when supported by substantial evidence, and re-evaluation is not undertaken where the procurement schedule itself supports non-compliance. The modification was requested December 22, 2009 and approved December 28, 2009, yet bidding allegedly occurred the same day despite substantial changes in specifications, completion time, and allotted budget required in the Invitation to Bid; advertisement for seven calendar days in the PhilGEPS and conspicuous places, required contents under Section 21.1, and at least one pre-bid conference at least twelve calendar days before bid submission under Sections 22.1-22.4 could not have been accomplished. Even assuming bidding, post-qualification was defective for failure to detect interlocking directors and to enforce Section 23.5.2.5 experience and Section 34.3 verification requirements, warranting treatment of the payments as illegal expenditures.
• Extent of Liability to Return: Palpable disregard of procurement laws amounts to gross negligence negating good faith under Sections 38 and 39 of the Administrative Code, triggering solidary liability with payees under Section 43, but liability is civil in nature grounded on solutio indebiti and unjust enrichment. Under Madera vs. Commission on Audit and Torreta vs. Commission on Audit, officers in good faith are not civilly liable to return; officers in bad faith, malice, or gross negligence are solidarily liable with recipients; and liability may be reduced by amounts due to recipients on quantum meruit. Here the ND alleged only general prejudice from non-compliance, with no allegation or proof of overpricing or undue use, while completion per plans, public benefit, and warranty rectification were undisputed and unconsidered by the COA Proper; consistent with Eslao vs. Commission on Audit, contractors who substantially accomplished works are entitled to compensation to avoid unjust enrichment. Despite Chua's failure to appeal to the NGS Director rendering the ND final as to her, relaxation of immutability was justified to avoid injustice where the correct amount remains undetermined and property, merits, and lack of prejudice favor review.

• Competitive bidding and procurement compliance — All acquisition of goods, consulting services, and contracting for infrastructure projects shall be done through competitive bidding under Section 10 of RA No. 9184, implemented through BAC functions under Section 12 including advertisement, eligibility determination, bid evaluation, post-qualification, and award recommendation. Public bidding with pre-procurement posting, required Invitation contents, and pre-bid conference under Sections 21-22 of the Revised IRR protects public interest by securing the best advantages through open competition and precluding favoritism; payments under contracts awarded without these express procedures are illegal expenditures warranting disallowance.
• Finality of COA factual findings — Factual findings of administrative agencies like the COA are generally respected and even afforded finality when supported by substantial evidence because of special knowledge and expertise, and the Supreme Court as non-trier of facts will not re-evaluate sufficiency of evidence. Applied to sustain non-compliance where the procurement schedule showed impossibility of same-day advertisement, pre-bid conference, bidding, and eligibility evaluation after modification.
• Liability for illegal expenditures; solutio indebiti and unjust enrichment — Under Sections 38, 39, and 43 of the Administrative Code of 1987, superior officers are civilly liable only upon clear showing of bad faith, malice, or gross negligence, subordinates are liable for willful or negligent acts contrary to law even under orders, and every official authorizing or taking part in illegal payment and every recipient are jointly and severally liable. This civil liability is grounded on solutio indebiti under Article 2154 and unjust enrichment under Article 22 of the Civil Code, such that officers cannot shoulder correctly disallowed costs where the government and public accepted project benefits.
• Net disallowed amount and Torreta rules on return — Madera vs. Commission on Audit introduced net disallowed amount as total disallowed amount minus amounts excused to be returned by payees, solidarily shared only by officers clearly shown in bad faith, malice, or gross negligence. Torreta vs. Commission on Audit synthesized the rules: (a) if ND is set aside, no return; (b) if upheld, good-faith officers performing regular functions with diligence of a good father of the family are not liable, bad-faith/malicious/grossly negligent officers are solidarily liable with recipients, and civil liability may be reduced by amounts due to recipients on quantum meruit case-to-case, without prejudice to more specific laws and COA rules. Palpable disregard of laws and jurisprudence constitutes gross negligence. Applied to limit petitioners' liability and require post-audit valuation.
• Quantum meruit for completed government works — Contractors who entirely or substantially accomplished obligations are entitled to compensation on quantum meruit despite invalidity or irregularity in procurement, as in Eslao vs. Commission on Audit where denial would unjustly enrich the government. Applied where all eight phases were 100% completed per plans, benefiting the public, with defects warranty-repaired at no government expense and no proof of overpricing.
• Relaxation of immutability of judgment — Finality admits exceptions for clerical corrections, nunc pro tunc entries, void judgments, and supervening circumstances rendering execution unjust and inequitable, with further relaxation for substantial justice considering life, liberty, honor or property, special circumstances, merits, fault, frivolity, and prejudice. Applied to extend the remand benefit to Chua despite her procedural lapse in failing to appeal to the NGS Director.

• "Competitive public bidding aims to protect the public interest by giving the public the best possible advantages through open competition, and to preclude suspicion of favoritism and anomalies in the execution of public contracts." — States the policy purpose of Section 10 of RA No. 9184 and the rationale for strict enforcement of procurement requirements.
• "Payments made by virtue of contracts, awarded without complying with the express procedures of the law and the rules, are considered illegal expenditures which warrant disallowance." — Articulates the consequence of procurement non-compliance supporting affirmance of the ND.
• "a payee or contractor or approving and/or certifying officers cannot be made to shoulder the cost of a correctly disallowed transaction when it will unjustly enrich the government and the public who accepted the benefits of the project" — Defines the unjust-enrichment limit on return liability drawn from Madera vs. Commission on Audit.

• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Controlling precedent affirming application of unjust enrichment and solutio indebiti and introducing net disallowed amount to delineate officers' solidary liability vis-à-vis payees.
• Torreta vs. Commission on Audit, G.R. No. 242925, November 10, 2020 — Followed as synthesizing the rules on return of disallowed amounts in illegal or irregular government contracts, including good-faith exculpation and quantum meruit reduction.
• Eslao vs. Commission on Audit, 273 Phil. 97 (1991) — Followed to grant compensation on quantum meruit for substantially completed works despite failure of public bidding, to avoid unjust enrichment.
• Subic Bay Metropolitan Authority vs. Commission on Audit, G.R. No. 230566, January 22, 2019 — Cited for the mandate of competitive bidding under Section 10 and the purpose of procurement requirements in protecting public interest.
• Melchor vs. Commission on Audit, 277 Phil. 801 (1991) — Cited to support remand to COA for determination of excessive payments as net disallowed amount where accounting technicalities are involved.

• Section 10, Article IV, Republic Act No. 9184 — Mandates competitive bidding for all procurement of goods, consulting services, and infrastructure projects; applied to require open competition for the eight-phase flood-control project.
• Section 12, Article V, Republic Act No. 9184 — Tasks the BAC to advertise/post invitations, conduct pre-procurement and pre-bid conferences, determine eligibility, evaluate bids, undertake post-qualification, and recommend award; basis for Estrella and Chua's liability as BAC officers.
• Sections 21.1, 21.2.1, 22.1-22.4, Rule VII, Revised IRR of RA No. 9184 — Require continuous posting of Invitation to Bid with specified contents including scope, budget, and schedules, and at least one pre-bid conference at least twelve calendar days before bid deadline; non-compliance found fatal where same-day bidding was claimed after modification.
• Sections 23.5.2.5 and 34.3, IRR of RA No. 9184 — Require prior similar-contract experience of at least 50% of the Approved Budget for the Contract and non-discretionary post-qualification verification; violated by two awardees and by failure to detect interlocking directors.
• Section 54.1, IRR-A of RA No. 9184 — Prohibits splitting of government contracts; invoked in AOM as possibly violated by dividing the SARO amount into eight phases, though NGS found urgency justified modification.
• Sections 38, 39, and 43, Administrative Code of 1987 — Govern civil liability of superior and subordinate officers turning on bad faith, malice, or gross negligence, and impose joint and several liability for illegal expenditures on authorizing officers and recipients; applied to hold grossly negligent BAC officers solidarily liable but limited to net amount.
• Articles 22 and 2154, Civil Code — Define unjust enrichment and solutio indebiti obliging return of unduly delivered benefits; grounding for civil nature of disallowance liability and quantum meruit offset.

Gesmundo, C.J., Perlas-Bernabe, S.A.J., Leonen, Caguioa, Hernando, Carandang, Lazaro-Javier, Inting, Zalameda, Gaerlan, Rosario, and J. Lopez, JJ., concur.