Facts:
1. On May 9, 2011, Power Sector Assets and Liabilities Management (PSALM) Corporation requested the concurrence of the Commission on Audit (COA) and the Office of the Government Corporate Counsel (OGCC) to hire Mr. John T.K. Yeap and Atty. Michael B. Tantoco as legal advisors for privatizing National Power Corporation’s (NPC) generation assets and Independent Power Producer (IPP) contracts.
2. The terms of engagement were detailed in the request: Mr. Yeap, as an international legal advisor, and Atty. Tantoco, as a Philippine legal advisor, were to assist PSALM in various legal capacities related to privatization. The proposed term was six months.
3. PSALM emphasized that the legal services did not include court representation, which was reserved for the OGCC. The engagement was necessary for PSALM’s mandated privatization projects under Republic Act No. 9136 (Electric Power Industry Reform Act of 2001 or EPIRA).
4. PSALM requested a response by May 30, 2011, citing the urgency.
5. The OGCC issued Contract Review No. 161 on May 31, 2011, approving the proposed contracts as generally in order.
6. COA failed to respond by May 30, 2011. Despite this, PSALM waited until August 29, 2011, before proceeding to engage the legal advisors.
7. On November 6, 2014, COA’s Legal Services Sector-Office of the General Counsel denied PSALM’s request for concurrence, citing non-compliance with COA circulars requiring prior approval.
8. PSALM filed a motion for reconsideration, arguing that the urgent need for the advisors justified the engagement without prior COA concurrence. The motion was denied on July 6, 2017.
9. PSALM pursued further reconsideration but was denied again on January 30, 2019, leading to their petition to the Supreme Court.
Issues:
1. Is the required prior concurrence of COA a form of pre-audit? If so, is this imposition ultra vires?
2. Are the contracts of engagement subject to the COA concurrence requirement under COA Circulars Nos. 86-255 and 95-011?
3. Did COA commit grave abuse of discretion by acting on PSALM’s request after three years?
4. Are the approving PSALM officers personally liable for the advisors’ payments?
Court’s Decision:
1. **Pre-audit Nature of COA Concurrence:**
– The Court determined that COA’s required prior written concurrence is essentially a form of pre-audit. This pre-audit aims to ensure reasonableness and regulatory compliance before disbursing public funds. The COA’s role in vetting the engagement rates for legal services underscores this pre-audit function.
– Although COA has discretion in audit measures, COA’s concurrence requirement aligns with pre-audit principles to avoid wasteful public spending.
2. **Applicability of COA Circulars:**
– The Court affirmed that Circular Nos. 86-255 and 95-011, requiring COA’s prior written concurrence for hiring private counsel, apply to PSALM’s engagement of advisors. The circulars pertain not just to court representations but also to advisory services, given the intention to regulate public fund disbursement prudently.
3. **COA’s Inordinate Delay:**
– COA’s three-year delay in acting on PSALM’s request violated PSALM’s right to a prompt decision. The excessive delay amounted to grave abuse of discretion. The COA failed to render its decision within the constitutionally and statutorily mandated periods, as seen under PD No. 1445 and the COA’s Rules of Procedure.
– PSALM’s action was justified due to COA’s prolonged inaction, prioritizing the EPIRA’s urgent implementation deadlines.
4. **Personal Liability of PSALM Officers:**
– The Court ruled the PSALM officers who approved the advisors’ contracts acted in good faith within the scope of their official duties. No personal liability should attach to them for the advisors’ payments. The legal advisors duly performed and completed their contractual services benefiting the government’s privatization goals, entitling them to payment.
Doctrine:
1. The requirement for COA’s prior concurrence is a pre-audit mechanism meant to uphold public fund expenditure integrity.
2. COA rules necessitate its prior written concurrence for both court and advisory legal services rendered by private counsel to government entities.
3. Delays by administrative bodies violating statutory periods can constitute grave abuse of discretion.
Class Notes:
– **Pre-audit:** An examination of transactions before completion (e.g., ensuring funds are available, expenditure is lawful and reasonable).
– **Grave Abuse of Discretion:** Conduct that evades positive duty or acts whimsically, beyond jurisdictional bounds.
– **EPIRA Objectives:** Ensure privatization and regulatory reform in the power sector.
– **Circular No. 86-255 (Amended):** Necessitates COA, OGCC/OSG concurrence for engaging private legal services in government entities.
Historical Background:
This case is situated within the context of the Philippine government’s efforts to reform the power sector. The Electric Power Industry Reform Act (EPIRA) of 2001 mandates privatizing NPC generation assets to ensure competition and maintain a stable power supply. PSALM’s role in this context was to manage and privatize these assets, contributing to sectoral efficiency improvements. The case highlights the friction between administrative regulatory oversight and the exigency of public sector reform mandates.
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