CASE BrieF NO. 2019-0034


“R.A. No. 9184 “applies to the Procurement of Infrastructure Projects, Goods and Consulting Services, regardless of source of funds, whether local or foreign, by all branches and instrumentalities of government, its departments, offices and agencies, including government-owned and/or -controlled corporations and local government units.


CASE: Subic Bay Metropolitan Authority, et al. vs. Commission On Audit [G.R. No. 230566 January 22, 2019]

PONENTE: Associate Justice Alexander G. Gesmundo

SUBJECT:

  1. R.A. NO. 9184 or the Government Procurement Reform Act of 2003:
    i. Negotiated Procurement: Requisites
    ii. Period to Appeal decision of an auditor
    iii. Irregular expenditure vs. illegal expenditure
    iv. Good Faith – Requisites in appreciating good faith on the part of officers responsible for the disallowed disbursement
  2. REMEDIAL LAW:
    i. Computation of period – Section 1, Rule 22 of the Rules of Court

FACTS:        To address SBMA’s problem regarding its previous procurement of uniforms because the lowest bidder considerably compromised the quality of the said uniforms, Lolita S. Mallari, then Human Resource Management Officer of the SBMA, provided several recommendations to the SBMA Administrator regarding the acquisition of uniforms for the SBMA employees under the supervision of a Uniform Committee. Among her recommendations are the following:

1. No uniform allowances for CY 2009 shall be released to the department managers but, instead, shall be placed in a Trust Fund.

2. To authorize all department heads to handle and to be on top of the procurement of uniforms for their respective offices. This shall include the signing of contract.

Then SBMA Administrator and CEO Armand C. Arreza approved the recommendations.

Thereafter, the different department heads of SBMA solicited price quotations for special and field uniforms from SBMA’s accredited suppliers. The said department heads then conducted negotiations and contracts, which were awarded to the supplier with the lowest quotation and who met their specification requirements. After the delivery and acceptance of the uniforms, the winning contractors were paid out of the trust fund created for the uniforms.

On March 26, 2012, the Special Audit Team of the SBMA issued a Notice of Disallowance (ND) against several SBMA officers, department heads and suppliers regarding the procurement of special and field uniforms of the SBMA employees. The Special Audit Team stated that the total disallowed amount was ₱2,420,603.99 because several requirements of R.A. No. 9184 and its Implementing Rules and Regulations (IRR) were violated, like:

1. Management failed to post the procurement and the results of bidding and related information in the PhilGEPs bulletin board.

2. The procurement process in each department was not conducted by a duly created Bids and Awards Committee.

3. Uniforms were procured through negotiated procurement without adhering to the set criteria, terms and conditions for the use of Alternative Methods of Procurement.

Thus, the SBMA officers and department heads, and suppliers were held liable.

Aggrieved, SBMA and its officers, collectively referred as petitioners, filed an appeal before the COA-Region III.

In its decision dated April 7, 2014, the COA-Region III denied the appeal. It held that petitioners neither considered public bidding as the mode for procurement nor secured the recommendation of the Bids and A wards Committee (BAC) in resorting to the alternative method of negotiated procurement. The COA-Region III highlighted that the procurement of the uniforms did not comply with the requirements set forth by R.A. No. 9184 and its IRR. It also stated that disallowing the total amount may be drastic and harsh but it has no other option but to apply the law.

Undaunted, petitioners filed a petition for review before the COA.

In its decision dated December 29, 2015, the COA dismissed the petition because it was filed out of time. It observed that petitioners only had six (6) months or 180 days to file the petition before the COA. As the petition was filed beyond the 180-day period, the COA denied it outright.

Petitioners filed a motion for reconsideration but it was dismissed by the COA. Hence, they assailed the COA Decision via Rule 64 to the Supreme Court.

Petitioners argue that the 180-day period to file the petition for review before the COA fell on May 31, 2014, a Saturday, hence, it timely filed the petition on the next working day or June 2, 201. They also assert that they resorted to the alternative modes of procurement because SBMA experienced, from their previous supplier, that regular bidding procedure compromises the quality of the uniforms of the employees; and that the funds used for the uniforms were not public funds because these were kept in a trust fund on behalf of the employees, hence, private in character.

In its Comment, the COA countered that when petitioners received the decision of the COA-Region III on April 23, 2014, they only had thirty-seven (37) days or until May 30, 2014, a Friday, to file the petition, hence, since the petition was filed on June 2, 2014, it was filed out of time; that the funds used in the procurement of the uniforms, even though pooled in a trust fund, were still public funds because the grant of clothing allowance was covered by the appropriations for the SBMA and regulated by the budget circulars of the Department of Budget and Management (DBM); that the necessity of public bidding cannot be dispensed with; that petitioners failed to comply with the requirements of the alternative method of procurement, particularly, negotiated procurement, in purchasing the uniforms of their employees; and that petitioners were not in good faith.

ISSUES:

A.       Whether the appeal to the COA-Central Office was timely filed.
a. What is the period to appeal the decision of an auditor?
B.       Whether the resort to negotiated procurement by SBMA was proper.
a. Did SBMA comply with the requisites of negotiated procurement?
b. Distinguish irregular expenditure from illegal expenditure.
C.       Whether the trust fund for the uniform allowance is not a public fund.
D.      Whether SBMA acted in good faith in the procurement of the special and field uniforms of their employees.
a. Are the SBMA officers personally liable under the Notice of Disallowance?

RULING:

A.       The appeal was timely.

Section 48 of Presidential Decree (P.D.) No. 1445, states the period within which a party may appeal the decision of an auditor of any government agency, including a notice of disallowance, to wit:

SECTION 48. Appeal from decision of auditors. – Any person aggrieved by the decision of an auditor of any government agency in the settlement of an account or claim may within six months from receipt of a copy of the decision appeal in writing to the Commission.

In this case, petitioners explained that they received the ND (Notice of Disallowance) on April 9, 2012 and they had 180 days to appeal. Then, on August 31, 2012, they filed an appeal before the COA-Region III. On April 23, 2014, petitioner received the decision of the COA-Region III denying their appeal, thus, they still had 38 days, or until May 31, 2014, to file a petition for review before the COA. As May 31, 2014 fell on a Saturday, petitioners filed their petition on the next working day, or on June 2, 2014. Thus, petitioners claim that their petition before the COA was filed on time.

On the other hand, the COA simply denied the petition because it was allegedly filed beyond the 180-day period. It did not give any explanation on its failure to consider the weekends in the counting of the period. Section 1, Rule 22 of the Rules of Court states that “if the last day of the period, as thus computed, falls on a Saturday, a Sunday, or a legal holiday in the place where the court sits, the time shall not run until the next working day.” Accordingly, the computation of time under the Rules of Court may be applicable under P.D. No. 1445 because its pertinent provisions may be applied by analogy or in a suppletory manner, in the interest of expeditious justice and whenever practical and convenient [Pyro Copper Mining Corporation v. Mines Adjudication Board-DENR, et al., 611 Phil. 583, 603, 607 (2009)].

Time and again, this Court has emphasized that procedural rules should be treated with utmost respect and due regard, since they are designed to facilitate the adjudication of cases to remedy the worsening problem of delay in the resolution of rival claims and in the administration of justice. From time to time, however, the Court has recognized exceptions to the Rules, but only for the most compelling reasons where stubborn obedience to the Rules would defeat rather than serve the ends of justice [CMTC International Marketing Corp. v. Bhagis International Trading Corp., 700 Phil. 575, 581 (2012)].

B.       SBMA did not comply with the requisites of negotiated procurement.

Public bidding as a method of government procurement is governed by the principles of transparency, competitiveness, simplicity and accountability. Alternative methods of procurement, however, are allowed under R.A. No. 9184, which would enable dispensing with the requirement of public bidding, but only in highly exceptional cases and under the conditions set forth in Article XVI thereof.

As public bidding is the general rule and alternative methods of procurement are mere exceptions, it was incumbent upon petitioners to prove the definite and particular alternative method of procurement they availed of under Section 48 of R.A. No. 9184. At best, petitioners assert that they resorted to the alternative mode of negotiated procurement to purchase the said uniforms.

In negotiated procurement, the procuring entity directly negotiates a contract with a technically, legally, and financially capable supplier, contractor or consultant. Section 53 of the IRR of R.A. No. 9184 lays down the specific grounds when a negotiated procurement may be availed of; while Section 54 of the same IRR provides the additional requirements that must be complied with.

SECTION 53. Negotiated Procurement.

Negotiated Procurement is a method of procurement of goods, infrastructure projects and consulting services, whereby the procuring entity directly negotiates a contract with a technically, legally and financially capable supplier, contractor or consultant only in the following cases:

x x x x

(b) In case of imminent danger to life or property during a state of calamity, or when time is of the essence arising from natural or man-made calamities or other causes where immediate action is necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities. In the case of infrastructure projects, the procuring entity has the option to undertake the project through negotiated procurement or by administration or, in high security risk areas, through the AFP;

(c) Take-over of contracts, which have been rescinded or terminated for causes provided for in the contract and existing laws, where immediate action is necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities;

x x x x

SECTION 54. Terms and Conditions for the Use of Alternative Methods. –

x x x x

d) For item (b) of Section 53 of the Act and this IRR-A, the negotiation shall be made with a previous supplier, contractor or consultant of good standing of the procuring entity concerned, or a supplier, contractor or consultant of good standing situated within the vicinity where the calamity or emergency occurred. The award of contract shall he posted at the G-EPS website, website of the procuring entity, if any, and in conspicuous place within the premises of the procuring entity.

e) For item (c) of Section 53 of the Act and this IRR-A, the contract may be negotiated starting with the second lowest calculated bidder for the project under consideration at the bidder’s original bid price. If negotiation fails, then negotiation shall be done with the third lowest calculated bidder at his original price. If the negotiation fails again, a short list of at least three (3) eligible contractors shall be invited to submit their bids, and negotiation shall be made starting with the lowest bidder. Authority to negotiate contracts for projects under these exceptional cases shall be subject to prior approval by the heads of the procuring entities concerned, within their respective limits of approving authority. 

The Court finds that petitioners failed to comply with the requisites of a negotiated procurement under the above-cited rules. Petitioners did not establish that (1) there is imminent danger to life or property during a state of calamity; or (2) or that time is of the essence arising from natural or man-made calamities; or (3) other causes, where immediate action is necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities. Verily, there is no existing calamity or other cause where immediate action is necessary. Petitioners simply undertook the procurement of the uniforms because they were unsatisfied with the products of the previous supplier.

Likewise, under Section 53(c), IRR of R.A. No. 9184, there is no takeover of contracts, which have been rescinded or terminated for causes provided for in the contract and existing laws. Neither was there a need for immediate action necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities. Further, the additional requirements under Section 54 of the IRR were also not complied with because petitioners failed to post the procurement and the results of bidding and other related information in the PhilGEPs bulletin board.

Accordingly, the COA correctly argued that there was an irregular expenditure for the negotiated procurement because it was incurred without adhering to Sections 53 and 54 of the IRR of R.A. No. 9184. Under COA Circular No. 88-55-A, an irregular expenditure is an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in law. It differs from an illegal expenditure since the latter pertains to expenses incurred in violation of the law, whereas an irregular expenditure is incurred in violation of applicable rules and regulations other than the law. 

Petitioners’ bare assertion that they followed the requirements of the alternative modes of procurement based on good faith and transparency is not sufficient to set aside the necessity of a public bidding. Their previous experience regarding the poor quality of the uniforms provided by the winning bidder in the previous public bidding, no matter how terrible and unfortunate, is not a valid and legal ground to disregard and set aside the provisions of the law and its rules in the subsequent procurement of uniforms. Indeed, the exceptional recourse to any of the alternative methods of procurement must be justified based on the specific provisions of R.A. No. 9184 and its IRR.

C. The trust fund is a public fund.

Section 48 of R.A. No. 9524, or the General Appropriations Act for Fiscal Year 2009, provides that:

SECTION 48. Uniform or Clothing Allowance. – The appropriations provided for each department, bureau, office or agency may be used for uniform or clothing allowance of employees at not more than Four Thousand Pesos (₱4,000.00) each per annum which may be given in cash or in kind xxx.

Accordingly, the appropriation for the uniform allowance of the SBMA employees is provided for by the SBMA. Further, the alleged trust fund for the uniform allowance is not owned or controlled by SBMA employees. The latter have no power to decide on how to spend the said uniform allowance; instead, only the department heads of the SBMA have the discretion to utilize it. The employees do not have beneficial ownership over the uniform allowance; they are merely the end-users. Manifestly, as long as the appropriation for the uniform allowance stays in the coffers of SBMA and was not disbursed to its employees, it remains as public fund.

Likewise, R.A. No. 9184 “applies to the Procurement of Infrastructure Projects, Goods and Consulting Services, regardless of source of funds, whether local or foreign, by all branches and instrumentalities of government, its departments, offices and agencies, including government-owned and/or -controlled corporations and local government units.” Thus, even though the uniform allowance of the SBMA employees were pooled in a trust fund, it is still considered as public funds and must comply with R.A. No. 9184 and its IRR.

D. Petitioners exercised good faith in the procurement of the special and field uniforms of their employees.

Good faith is a state of mind denoting “honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious.” [Maritime Industry Authority v. COA, 750 Phil. 288, 337(2015)].

In Development Bank of the Philippines v. Commission on Audit (G.R. No. 221706, March 13, 2018), the Court ruled that good faith may be appreciated in favor of the responsible officers under the ND provided they comply with the following requisites: (1) that they acted in good faith believing that they could disburse the disallowed amounts based on the provisions of the law; and (2) that they lacked knowledge of facts or circumstances which would render the disbursements illegal, such when there is no similar ruling by this Court prohibiting a particular disbursement or when there is no clear and unequivocal law or administrative order barring the same.

In this case, the Court finds that petitioners exercised good faith. As to the first requisite, petitioners acted in good faith when they disbursed public funds to procure the uniforms of their employees. They merely wanted to address their problem regarding their previous procurement of uniforms because the lowest bidder considerably compromised the quality of the said uniforms.

Conspicuously, the COA does not deny that petitioners still secured the most advantageous price for the government. Likewise, there was neither allegation of overpricing nor poor quality of uniforms from the chosen method of procurement. Verily, the ND simply made the petitioners personally liable based on the rigid implementation of the law and rules.

Evidently, the COA failed to consider the jurisprudence regarding the application of good faith regarding the ND. While petitioners did not strictly follow the letter of the IRR of R.A. No. 9184, at the very least, they attempted in good faith to comply with the spirit and policy of R.A. No. 9184. As reflected in the petition, the department heads of the SBMA, through the procedure laid down by the Uniform Committee, secured quotations from the SBMA accredited suppliers and they determined the lowest and most advantageous price and superior quality for the government. Again, there was no finding of overpricing or misapplication of funds.

As to the second requisite, petitioners lacked knowledge of facts or circumstances which would render the disbursements illegal. Evidently, there is neither specific law nor jurisprudence that prohibits the pooling of the uniform allowance in a trust fund to procure the uniforms of employees. Manifestly, the COA cannot cite a definite law or regulation that prohibits such alternative method of procurement for employees’ uniforms. The Court had to first analyze R.A. No. 9184 and dissect the applicable IRR provisions before it could conclude that the said procurement method is not permitted. Thus, petitioners cannot be faulted for improperly understanding the intricate application of the law in their devised procurement scheme.

Further, Lolita S. Mallari, then Human Resource Management Officer of the SBMA, sought the approval of the SBMA Administrator and CEO regarding the acquisition of special and field uniforms for the SBMA employees. Only after the imprimatur was given did the SBMA implement the creation of the Uniform Committee, absent any manifest defect in their chosen procedure. To reiterate, good faith may be appreciated because the approving officers were without knowledge of any circumstance or information which would render the transaction illegal or unconscientious [Joson III v. COA G.R. No. 223762, November 7, 2017].  

Notably, petitioners resorted to their chosen procurement method for the benefit of its employees -to ensure that they will receive the uniform with superior quality based on the budget provided by the government – and not for some selfish or ulterior motive. Evidently, while there may be irregular expenditure because petitioners did not strictly comply with the IRR of R.A. No. 9184, they may not be held personally liable under the ND based on their exercise of good faith.

While the disbursement of funds for the procurement of the employees’ uniforms must be disallowed because it particularly contravenes the provisions of IRR of R.A. No. 9184, the good faith exercised by petitioners exempts them from liability under the ND.

It is unfair to penalize public officials based on overly stretched and strained interpretations of rules which were not that readily capable of being understood at the time such functionaries acted in good faith. If there is any ambiguity, which is actually clarified years later, then it should only be applied prospectively. A contrary rule would be counterproductive. It could result in paralysis, or lack of innovative ideas getting tried. In addition, it could dissuade others from joining the government. When government service becomes unattractive, it could only have adverse consequences for society [Philippine Economic Zone Authority v. Commission on Audit, et al., 797 Phil. 117, 142 (2016)].

————————————————-

THINGS DECIDED:

  1. The computation of time under the Rules of Court may be applicable under P.D. No. 1445 because its pertinent provisions may be applied by analogy or in a suppletory manner, in the interest of expeditious justice and whenever practical and convenient.
  2. Procedural rules should be treated with utmost respect and due regard, since they are designed to facilitate the adjudication of cases to remedy the worsening problem of delay in the resolution of rival claims and in the administration of justice. From time to time, however, the Court has recognized exceptions to the Rules, but only for the most compelling reasons where stubborn obedience to the Rules would defeat rather than serve the ends of justice.
  3. As public bidding is the general rule and alternative methods of procurement are mere exceptions, it was incumbent upon petitioners to prove the definite and particular alternative method of procurement they availed of under Section 48 of R.A. No. 9184.
  4. Under COA Circular No. 88-55-A, an irregular expenditure is an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in law. It differs from an illegal expenditure since the latter pertains to expenses incurred in violation of the law, whereas an irregular expenditure is incurred in violation of applicable rules and regulations other than the law.
  5. As long as the appropriation for the uniform allowance stays in the coffers of SBMA and was not disbursed to its employees, it remains as public fund.
  6. Good faith is a state of mind denoting “honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious.”
  7. Good faith may be appreciated in favor of the responsible officers under the ND provided they comply with the following requisites: (1) that they acted in good faith believing that they could disburse the disallowed amounts based on the provisions of the law; and (2) that they lacked knowledge of facts or circumstances which would render the disbursements illegal, such when there is no similar ruling by this Court prohibiting a particular disbursement or when there is no clear and unequivocal law or administrative order barring the same.

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