Fernando v. Commission on Audit
REITERATIONFacts
The Antecedents: This case concerns a contract awarded by the Metropolitan Manila Development Authority (MMDA) to William L. Tan Construction (WLTC) for the design and construction of 14 steel pedestrian bridges. The contract, valued at P196,291,834.71, stipulated a completion period of 120 calendar days. During the project, WLTC assigned parts of the work to third-party contractors and received several suspension and resumption orders from the MMDA. The MMDA paid WLTC P161,903,009.85, retaining P9,052,570.48 and withholding P5,861,078.43 as liquidated damages for the project's delay. Procedural History: Following a post-audit, the Commission on Audit (COA) issued a Notice of Suspension due to unsubmitted required documents and concerns raised by COA engineers regarding the contract cost being excessive and the liquidated damages being insufficient. Subsequently, a Notice of Disallowance was issued, holding WLTC, its subcontractors, and several MMDA officials liable. The MMDA appealed to the COA-National Government Sector (NGS) Cluster-B, which lifted the disallowance except for a portion of the liquidated damages. This decision was elevated to the COA Proper, which disapproved the NGS decision, modified the disallowance to P37,255,307.46 (later reduced to P22,341,658.55), and held WLTC and responsible MMDA officials liable for both liquidated damages and contract cost variance. The Petition: This petition for review on certiorari under Rule 64, in relation to Rule 65, of the Rules of Court, assails the COA Proper's decision. The petitioners, MMDA officials, argue that WLTC bears sole liability for the project's delay and the additional costs incurred to expedite its completion, asserting that these issues were entirely WLTC's fault. They question whether the MMDA and/or its concerned officers can be held liable for the liquidated damages and contract cost variance. The Supreme Court, however, denied the petition, finding no grave abuse of discretion on the part of the COA and upholding the disallowance, affirming the liability of WLTC and the responsible MMDA officials.
Issue(s)
Whether the MMDA and/or its concerned officers can be held liable for the liquidated damages and/or contract cost variance. Whether the suspension orders (SOs) and extensions of contract time were validly issued and granted. Whether the contract cost variance was a legitimate expense to be borne by the government.
Ruling
The petition is denied. The assailed Decision of the Commission on Audit is affirmed.
Ratio Decidendi
On the liability of MMDA officials for liquidated damages and contract cost variance: The Court affirmed the COA's ruling that the MMDA officials are solidarily liable with WLTC for the disallowance. The officials' admission that WLTC was at fault for the delay and for violating contract provisions against subcontracting demonstrates their negligence in disbursing payments. As stewards of government funds, public officers must exercise ordinary diligence or the diligence of a good father of a family, observing relevant laws and rules, and exercising ordinary care and prudence in disbursing public funds. Their failure to do so renders them liable for disallowed amounts. The MMDA, as the project owner, had the obligation to ensure the contractor paid liquidated damages in case of breach, which is mandatory under the law. The alleged additional costs for manpower and equipment to expedite the project were not legitimate expenses to be borne by the government, especially since they were incurred after WLTC entered into subcontract agreements in violation of its contract with the MMDA. The officials' patent disregard of rules and the contract provisions, despite their claimed good faith, amounts to gross negligence, making them liable for the refund. On the validity of suspension orders (SOs) and extensions of contract time: The Court agreed with the COA that the initial SO and RO, dated March 23 and April 21, 2004, respectively, were invalid. The SO was issued before the contract was executed on March 24, 2004, meaning there was no project to suspend yet. Furthermore, the SO was signed by Ramon S. Ona, who the COA Proper initially held did not have the authority to bind the government. Even if Ona had the authority, the subsequent extension of contract time was not covered with the required performance security under Republic Act (RA) No. 9184. The reasons for the subsequent SOs in July and November 2004 were also found to be inherent risks that a contractor assumes. The claimed extension of contract time to March 2, 2005, based on WLTC's letter and MMDA's approval, was also found to be without valid justification and, crucially, was not covered by a performance security. The Court found that the original effectivity and expiry of the contract must stand, rendering the succeeding SOs and extensions invalid. On the contract cost variance: The Court upheld the COA's disallowance of the contract cost variance of ₱19,101,958.83. WLTC claimed this was for additional manpower and equipment to expedite completion. However, the COA found that the project was only halfway done by February 2005, necessitating the hiring of additional subcontractors. The Court agreed that these alleged additional costs were not for additional or extra work but rather to expedite an already overdue project, and thus should not be borne by the government. Moreover, these costs were incurred by WLTC after entering into subcontract agreements, which was a violation of its contract with the MMDA. Therefore, the MMDA should not have allowed the disbursement for this alleged contract cost variance.
Main Doctrine
Government officials who approve or authorize transactions involving the expenditure of government funds and uses of government properties are liable for all losses arising out of their negligence or failure to exercise the diligence of a good father of a family, especially when they have knowledge of facts and circumstances that would render the disbursements illegal.