G.R. No. L-71557 November 29, 1988
PABLO S. CRUZ, petitioner, vs. COMMISSION ON AUDIT, respondent.

FACTS

Petitioner Pablo S. Cruz, a licensed architect, entered into a Contract of Services with the Government Service Insurance System (GSIS) on September 27, 1960, for the construction of the GSIS Hospital. The contract stipulated architect’s fees at 3.65% of an initial project cost of P10,000,000.00, with a provision for adjustment should the construction cost increase or decrease. The total project cost was later approved at P15,000,000.00, allocated as P13,000,000.00 for the building and P2,000,000.00 for equipment. Petitioner claimed additional architect’s fees based on this increased cost.
The Commission on Audit (COA) disallowed a portion of his claim amounting to P91,354.47, corresponding to the cost of specific built-in equipment items: laundry equipment (F), x-ray equipment (G), and stills, sterilizers, and special lighting (H). COA ruled these equipment costs were not part of the “construction cost” for computing architect’s fees, arguing they did not require architectural expertise and were not integral to the building, citing a U.S. case principle that equipment is distinct from construction.

ISSUE

Whether the cost of the disputed built-in equipment (Items F, G, and H) should be included in the “construction cost” for the purpose of computing the petitioner’s additional architect’s fees under his contract with GSIS.

RULING

The Supreme Court ruled in favor of the petitioner, ordering COA to allow the claim. The legal logic centered on contract interpretation and professional practice standards. The Court found the contract term “construction cost” ambiguous regarding the inclusion of built-in equipment. To ascertain the parties’ intent, parol evidence was admissible. Affidavits from former GSIS Hospital Committee members established that the agreed architect’s fees were based on the total cost, inclusive of built-in equipment. This demonstrated the parties’ mutual understanding that such equipment was part of the calculable base.
Furthermore, the Court emphasized the standard practice in the architectural profession. Citing an opinion from the Chairman of the Board of Architecture, it held that built-in equipment, when its capacity and specifications are determined by the architect in relation to the building’s design and purpose, forms part of the construction cost. The disputed items were not “package type” units sold independently but were procured through public bidding based on specifications prepared by the petitioner, integral to making the hospital a “complete building” as defined in the architecture law. The inapplicability of the foreign case was noted, as it addressed a different context. Thus, COA’s disallowance was set aside for being contrary to the contractual intent and professional standards.