PLARIDEL M. ABAYA, COMMODORE PLARIDEL C. GARCIA (RETIRED) AND PMA ’59 FOUNDATION, INC., REP. BY ITS PRESIDENT, COMMODORE CARLOS L. AGUSTIN (RETIRED), PETITIONERS, VS. HON. SECRE…

Abaya versus the Executive Secretary

The Case

This is a petition for certiorari and prohibition under Rule 65, filed by Plaridel Abaya, a former lawmaker and taxpayer, Commodore Plaridel Garcia, retired, and the PMA Fifty-Nine Foundation, against the Executive Secretary and the Secretaries of Public Works and Highways, Budget and Management, and Finance, together with the Treasurer of the Philippines, and impleading China Road and Bridge Corporation as private respondent. The petitioners ask the Court to nullify the resolution of the Bids and Awards Committee of the Department of Public Works and Highways recommending the award to China Road and Bridge Corporation of the contract for the improvement and rehabilitation of a long stretch of the Catanduanes Circumferential Road, and to annul the contract later signed pursuant to that resolution. The case matters because it fixes the boundary between the Government Procurement Reform Act and procurement financed by foreign loans, and because it tells us when a bid that exceeds the approved budget for the contract is disqualified outright.

Procedural History

This was an original action in the Supreme Court. The petitioners went directly to the Court by petition for certiorari and prohibition under Rule 65, seeking to set aside the resolution of the Bids and Awards Committee and to annul the contract, and praying for a preliminary injunction or a temporary restraining order to stop implementation and the disbursement of public funds. There were no prior rulings of a trial court or of the Court of Appeals recited in the decision. The Court resolved the petition on its merits.

Facts

By an Exchange of Notes dated December 27, 1999, the Governments of Japan and the Philippines reached an understanding on Japanese loans to promote the country's economic stabilization and development. The notes provided for two loans, and the first, Loan I, was to be extended by the Japan Bank for International Cooperation in an amount up to seventy-nine billion eight hundred sixty-one million yen. The list attached to the notes included the Arterial Road Links Development Project, Phase IV, with a maximum allocation of fifteen billion three hundred eighty-four million yen. The notes also provided that the Philippines would ensure that products and services are procured in accordance with the guidelines for procurement of the Bank, which set forth the procedures of international tendering.

Pursuant to this, the Philippines and the Bank concluded Loan Agreement Number PH-P204 dated December 28, 1999, for an amount not exceeding fifteen billion three hundred eighty-four million yen, to finance the Arterial Road Links Development Project, Phase IV. The Catanduanes Circumferential Road formed part of that project and was divided into four contract packages. Contract Package One, the San Andres to Virac to Junction Bato to Viga road, seventy-nine point eight one eight kilometers long, is the package in dispute.

The Department of Public Works and Highways published an invitation to prequalify and to bid in two national newspapers in November and December 2002. Twenty-three contractors responded, eight were prequalified with the concurrence of the Bank, one withdrew, and seven submitted bids. Before the bids were opened, it was announced that the approved budget for the contract was seven hundred thirty-eight million seven hundred ten thousand five hundred sixty-three pesos and sixty-seven centavos. The lowest bidder was China Road and Bridge Corporation, whose original bid of nine hundred ninety-three million one hundred eighty-three thousand nine hundred four pesos and ninety-eight centavos was corrected, upon its letter clarification, to nine hundred fifty-two million five hundred sixty-four thousand eight hundred twenty-one pesos and seventy-one centavos. Even as corrected, the bid exceeded the approved budget. The project manager recommended the award to China Road and Bridge Corporation as the lowest complying bidder, and the Bids and Awards Committee, with the approval of the Acting Secretary, issued the assailed resolution dated May 7, 2004 recommending the award. On September 29, 2004, the Department and China Road and Bridge Corporation signed the contract.

Issues

• Whether or not the petitioners have standing to file the petition.
• Whether or not the petitioners are entitled to a writ of certiorari setting aside the resolution of the Bids and Awards Committee recommending the award to China Road and Bridge Corporation.
• Whether or not the contract agreement between the Department of Public Works and Highways and China Road and Bridge Corporation is void from the beginning.
• Whether or not the petitioners are entitled to a writ of prohibition permanently prohibiting the implementation of the resolution and the contract, and the disbursement of public funds for that purpose.
• Whether or not the petitioners are entitled to a preliminary injunction or a temporary restraining order.

Applicable Provisions

Section 31 of the Government Procurement Reform Act provides:

Section 31. Ceiling for Bid Prices. The ABC shall be the upper limit or ceiling for the Bid prices. Bid prices that exceed this ceiling shall be disqualified outright from further participating in the bidding. There shall be no lower limit to the amount of the award.

This is the provision the petitioners invoke, and its reach over a foreign-funded project is the heart of the case.

Section 5 of the same Act defines the approved budget for the contract:

Section 5. Definition of Terms. (a) Approved Budget for the Contract (ABC). refers to the budget for the contract duly approved by the Head of the Procuring Entity, as provided for in the General Appropriations Act and or continuing appropriations, in the case of National Government Agencies; the Corporate Budget for the contract approved by the governing Boards, pursuant to Executive Order Number 518, series of 1979, in the case of Government-Owned and or Controlled Corporations, Government Financial Institutions and State Universities and Colleges; and the Budget for the contract approved by the respective Sanggunian, in the case of Local Government Units.

This definition supplies the ceiling that Section 31 makes mandatory.

Article 1409 of the Civil Code provides:

Article 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law.

The petitioners use this provision to argue that a contract awarded in violation of the ceiling is void from the beginning.

Ruling

On standing, the Court held that the petitioners may sue as taxpayers and concerned citizens. They assert a right and duty to question the expenditure of public funds on illegal acts, and the Government allocates a peso counterpart for the package that is appropriated by Congress in the General Appropriations Act, so the funds partake of the character of taxpayers' money. The Court also treated the petition as one of transcendental importance, warranting a liberal stance on standing.

On the merits, the Court held that the approved budget for the contract is the upper limit or ceiling for bid prices, and that a bid exceeding it is disqualified outright. The Court read Section 31 as mandatory and as leaving no lower limit to the amount of the award. Since the corrected bid of China Road and Bridge Corporation exceeded the approved budget for the contract, the award to it could not stand.

On the contract, the Court held that a contract executed in violation of the ceiling is void from the beginning under Article 1409 of the Civil Code, because it is expressly prohibited or declared void by law. The Court rejected the argument that the foreign character of the funding insulates the procurement from the Government Procurement Reform Act, holding that the Act applies to procurement regardless of funding source, whether local or foreign.

On prohibition and injunctive relief, the Court held that the petitioners are entitled to the writ of prohibition against the implementation of the void resolution and contract and against the disbursement of public funds for that purpose. The prayer for a preliminary injunction or temporary restraining order was rendered moot by the resolution of the merits.

Doctrine

First, the approved budget for the contract is the upper limit or ceiling for bid prices, and a bid that exceeds it is disqualified outright from further participating in the bidding. Second, the Government Procurement Reform Act applies to the procurement of goods, supplies and materials, infrastructure projects and consulting services regardless of funding source, whether local or foreign. Third, a contract awarded in violation of the ceiling is void from the beginning under Article 1409 of the Civil Code, as one expressly prohibited or declared void by law. Fourth, taxpayers and concerned citizens have standing to question the expenditure of public funds on illegal acts, especially where the matter is of transcendental importance.

Disposition

The Court granted the petition, set aside the resolution of the Bids and Awards Committee, declared the contract void from the beginning, and issued the writ of prohibition against its implementation and against the disbursement of public funds for that purpose.

Remember This

Memorize this line: the approved budget for the contract is a ceiling, and a bid above it is disqualified outright, whatever the funding source. Examiners use this case on taxpayer standing, on the scope of the Government Procurement Reform Act over foreign-funded projects, and on the void-from-the-beginning character of a contract awarded beyond the ceiling.