G.R. No. 252079. September 14, 2021.
ARMANDO G. ESTRELLA AND LYDIA G. CHUA, PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

FACTS

The Department of Public Works and Highways National Capital Region (DPWH-NCR) undertook an infrastructure project for the Restoration of the Damaged Revetment/Dredging of Flood Control of Meycauayan River (Valenzuela Side), funded with P40,000,000.00. The project was modified into eight phases of P5,000,000.00 each, which was recommended and approved by DPWH officials. The DPWH-NCR Bids and Awards Committee (BAC) conducted a public bidding where only one contractor bid for each phase. The contracts were awarded to four contractors, with some sharing the same Board of Directors/owners. Upon post-audit, the Commission on Audit (COA) issued an Audit Observation Memorandum citing irregularities: (1) the common ownership among contractors restrained competition; (2) two contractors failed to meet the experience requirement under RA 9184’s IRR; (3) the modification of the project into phases constituted illegal splitting of contracts; (4) the lack of mandatory newspaper advertisement for the invitation to bid due to the smaller contract amounts; and (5) physical inspection revealed structural defects (cracks and a collapsed midsection) in the completed project, indicating substandard work. A Notice of Disallowance (ND) No. 10-003 was issued, disallowing payments totaling P36,084,006.06. Petitioners Armando G. Estrella (as BAC Chairman) and Lydia G. Chua (as BAC Member) were held liable, along with other DPWH officers. The COA National Government Section upheld the disallowance against the BAC members but absolved the officials who approved the modification. The COA Proper affirmed this decision.

ISSUE

Whether the COA Proper committed grave abuse of discretion in sustaining ND No. 10-03.

RULING

The Court found the petition partly meritorious. It upheld the propriety of the disallowance. The Court ruled that the splitting of the contract into eight phases violated RA 9184 (the Government Procurement Reform Act), as it was done to avoid the mandatory advertising requirement for contracts exceeding P5,000,000.00, thereby defeating competitive bidding. The irregularities in the procurement process, including the lack of proper post-qualification and the award to contractors with common ownership/Boards, were affirmed. The government suffered a loss due to these procedural violations, which deprived it of the opportunity to secure the most advantageous proposal. The subsequent rectification of the project’s physical defects by the contractors did not cure the procurement irregularities or extinguish liability for the disallowance. However, the Court modified the liability of the petitioners. Applying the doctrine of good faith in the recent case of Madera v. Commission on Audit, the Court held that approving officers who acted in good faith and in the regular performance of official duties are not personally liable to refund disallowed amounts. The Court found that petitioners, as BAC members, were not shown to have acted with malice, gross negligence, or bad faith. They relied on the approval of higher officials for the project modification and the post-qualification reports from the Central BAC regarding contractor eligibility. Therefore, while the disallowance stands, petitioners are not personally liable to return the disallowed amounts. The liability to return rests solely with the payees/contractors who were unduly benefited by the irregular transactions.