Dissension in the Court: March 2011

The following is a summary of a recent decision promulgated by the High Court in March 2011 where one Justice felt compelled to express her dissent from the decision penned by the ponente.

1. An Uncooperative Audit (Villarama vs. Sereno)

The case of Verzosa vs. Carague involves the Cooperative Development Authority (CDA) and an uncooperative Commission of Audit (COA).

Sometime almost twenty years ago, the CDA conducted a public bidding for the supply to the CDA of computer equipment and peripherals. The three entities that took part were Tetra Corporation-Trigem Computers (Tetra), Microcircuits Co. (Microcircuits), and Columbia Computers (Columbia).

Following the bidding, the evaluation (which also included a technical evaluation made by the Development Academy of the Philippines (DAP) at the request of the CDA) and the ensuing approval given by Candelario L. Versoza, Jr. as the CDA’s Executive Director, in December 1992, Tetra was awarded the supply contract for the total amount of P2,285,279.00, which was eventually paid by the CDA to Tetra.

Months after the purchase, the COA Resident Auditor assigned to the CDA sought the assistance of the Technical Services Office (TSO) of the COA to determine the reasonableness of the prices of the purchased computers.   The TSO found that the purchased computers were overpriced/excessive by a total of P881,819.00. Among other things, the TSO noted that: (1) no volume discount was given by the supplier, considering the number of units sold; (2) as early as 1992, there were so much supply of computers in the market so that the prices of computers were relatively low already; and (3) when the CDA first offered to buy computers, of the three qualified bidders, Microcircuits offered the lowest bid price while Tetra offered the highest bid.  The Resident Auditor thus issued a Notice of Disallowance in November 1993, for the amount of P881,819.

The CDA sought a reconsideration and provided its basis as to why, on the whole, the purchase from Tetra was justified.

Unconvinced, the COA issued its decision affirming the disallowance thereby upholding the comparison process undertaken by the Resident Auditor and the TSO. The CoA held that CDA should not have awarded the contract to Tetra but to the other competing bidder, whose bid is more advantageous to the government. In addition, the COA held Verzosa personally and solidarily liable for the disallowed amount of P881,819 on account of his having acted in bad faith.

The CDA therefore petitioned the High Court to reverse the COA’s rulings.

The Supreme Court, in the main decision penned by Justice Martin S. VIllarama, Jr., ruled in favor of the COA.

The ponente noted at the outset that acting on its constitutional mandate to “promulgate accounting and auditing rules, and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties,” the COA promulgated certain amended rules which included provisions relating to excessive expenditures which shall be determined by place and origin of goods, volume or quantity of purchase, service warranties, quality, special features of units purchased and the like.  Under those rules, price is considered “excessive” if it is more than the 10% allowable price variance between the price paid for the item bought and the price of the same item per canvass of the auditor.  And in determining whether or not the price is excessive, several stated factors may be considered by the COA.

Accordingly, in this case, the issue that had to be resolved was whether the computer units bought by the CDA from Tetra were overpriced.

The majority observed that the records showed that while the COA found nothing wrong per se with the criteria adopted by the CDA in the overall evaluation of the bids, the conduct of the technical aspect was seriously doubtful. In particular, the final technical evaluation report was apparently manipulated to favor Tetra, which offered a Korean-made brand as against Microcircuits which offered a US-made brand said to be more durable, at a lower price.

Although the DAP, in a letter, confirmed to the CDA that based on their evaluation in compliance with the “grading system” specified by CDA, the units of Tetra were best suited to the needs of CDA.  However, Justice Villarama took note that upon investigation, it was discovered that there was an earlier report from the DAP which actually stated a contrary finding but that a representative from CDA gave further instructions to the DAP regarding “penalty points” that should be applied for deviation in hardware specifications, thus resulting in the affirmative letter mentioned earlier that gave Tetra the highest ranking.

The main decision therefore held that it was clear that “the conduct of public bidding in this case was not made objectively with the end in view of purchasing quality equipment at the least cost to the government.  The price difference far exceeded the 10% allowable variance in the unit bought and the same item’s price…”.

The Court affirmed that “the findings of quasi-judicial agencies, such as the COA, which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but at times even finality if such findings are supported by substantial evidence.  It is only upon a clear showing that the COA acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction that this Court will set aside its decisions or final orders.  We find no such arbitrariness or grave abuse on the part of the COA when it disallowed in audit the amount representing the overprice in the payment by CDA for the purchased computer units and peripherals, its findings are well-supported by the evidence on record.”

As for Verzosa’s personal liability, Justice Villarama affirmed that the COA had sufficiently established his bad faith when he prevailed upon the DAP to modify the initial results of their technical evaluation and accordingly, Section 103 of Presidential Decree No. 1445 (Government Auditing Code of the Philippines) which states:

SECTION 103. General liability for unlawful expenditures. —  Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.

should apply.

The sole dissent was supplied by the newest associate justice of the Supreme Court, Justice Maria Lourdes P. A. Sereno.

Justice Sereno raised five reasons why the COA’s ruling against the CDA should be overturned.

“First, the Commission on Audit (COA) cannot violate the same rules it imposes on all public offices regarding the manner of conducting canvasses.

The dissenter observed that the COA had taken issues with the manner by which the DAP conducted its technical evaluation, finding deficiencies in the manner by which the competing bidders and their respective products were compared. However, Justice Sereno cites the COA for having itself conducted a questionable methodology in comparing products and prices, including among others, that the COA’s own evaluation was based only on alleged undocumented telephone price canvass by a COA auditor.

“Second, the COA auditor, who admitted that she is not a computer technology expert, cannot substitute her own discretion for that of the CDA by denying the CDA’s right to prefer the … the required specifications for the computers CDA intended to purchase for its own use …”

“Third, the amount of disallowance has no basis in fact, is grossly disproportionate to the total purchase price, and is in the nature of punitive damages.”

“Fourth, this Court relies on the allegation that there were instances of manipulation during the bidding process. However, the records show that this allegation was belatedly raised by respondents.”

Justice Sereno pointed out that this issue was not raised before the COA and therefore, the petitioner was not afforded due process to rebut these allegations while the case was still pending with the COA.

“Fifth, there is no legal basis to make the CDA Executive Director personally liable for the return of the disallowance.”

The dissenter took the view that Verzosa’s act of signing the purchase documents was only ministerial, as the Pre-qualification Bids and Awards Committee (PBAC) and the Board of Administrators (BOA) acted on them.

According to Justice Sereno, “[t]here is a clear, bright line that the [COA] must not cross. The powers that the 1987 Constitution granted it are only to “define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance or irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties.” This does not include the substitution of preference of government agencies. Nor does this allow COA to trample on the due process rights of government auditees.”

She added that the decision to hold Versoza personally liable engendered the following detrimental consequences:

(i) the bidding process is rendered inutile if we hold that government agencies should always award purchase contracts in favor of the lowest bidder; or even worse, that they should simply purchase equipment from the suppliers offering the lowest prices, regardless of brand or quality.

(ii) the discretionary power of government agencies to determine criteria and the features of equipment or supplies becomes irrelevant; because the COA’s preference in determining the criteria and the features or characteristics of the equipment or supplies is held as superior to that of any other government agency.

(Candelario L. Verzosa, Jr. vs. Guillermo N. Caraque, et al. March 8, 2011, G.R. No. 157838.  See dissenting opinion here.)

(author’s note: to the mind of this author, a degree of leeway should be given to government agencies to determine the precise specifications of equipment they need as they would likely be more competent to know these matters. Having said that, even if the CDA in fact knows more about what it wants and needs, if the CDA indeed manipulated the process to prefer one bidder over the rest, then the COA did its job and should be upheld. Hmm… how would Heidi Mendoza have decided?)