G.R. No. 143803. November 17, 2005.
Creser Precision Systems, Inc. vs. Commission on Audit.

FACTS

Petitioner Creser Precision Systems, Inc. entered into a 1981 Manufacturing Agreement with the Department of National Defense for the supply of mortar fuzes. The contract allowed for price renegotiation not more than once a year. After a price escalation was approved in July 1983, the DND, in September 1987, approved another price escalation effective September 1, 1983, and paid Creser the corresponding differential. The COA’s Technical Services Office later reviewed this and disallowed the material cost portion of the second escalation for violating the once-a-year renegotiation clause, as it took effect only two months after the prior July 1983 adjustment.
Despite an initial notation on a disbursement voucher suggesting no objection from some COA officials, which led the AFP to make the payment, the COA General Counsel later officially opined that any material cost escalation could only be effective from July 1984. Consequently, the AFP Auditor issued a Notice of Disallowance in 1989. Creser and AFP officials made several requests for reconsideration to various offices, but it was not until September 27, 1996, that Creser filed a formal letter-appeal directly with the COA Commission Proper.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in affirming the disallowance of the price escalation.

RULING

The Supreme Court ruled that the COA did not commit grave abuse of discretion. The legal logic centers on contract interpretation and procedural rules. On the substantive aspect, the Court upheld COA’s interpretation of the Manufacturing Agreement. The contract explicitly stated price adjustments could be made “not oftener than once a year.” The second escalation, effective September 1, 1983, was implemented merely two months after the July 1983 adjustment, constituting a clear violation of this contractual stipulation. The Court deferred to COA’s expertise in construing such terms in government contracts.
On the procedural aspect, the Court emphasized that the COA Commission Proper’s jurisdiction over the disallowance was only invoked by Creser’s formal letter-appeal dated September 27, 1996. Prior communications and indorsements to subordinate COA offices or AFP officials did not constitute a valid appeal that would toll the reglementary period or require official action from the Commission itself. The notation on the voucher by an auditor did not amount to a final COA decision and could not override the clear contract provision. Therefore, the COA correctly applied the terms of the contract and its own procedural rules in affirming the disallowance.