ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO ALI AND MARY ANNE L. SUSANO, PETITIONERS, VS. THE HONORABLE COMMISSION ON ELECTIONS, RESPONDENT.

Capalla versus Commission on Elections

The Case

This is Archbishop Fernando Capalla, Omar Solitario Ali and Mary Anne Susano, together with other concerned citizens and civic groups, against the Commission on Elections and Smartmatic-TIM Corporation. The petitioners ask the Supreme Court to strike down as illegal and unconstitutional the Comelec resolutions and the transactions by which the Comelec extended its option to purchase the precinct count optical scan machines, then bought them for the coming elections. The case matters because it fixes the test for when an amendment to a publicly bidded government contract is a substantial amendment that requires a new public bidding, and when it is a valid amendment that the Court will sustain.

Procedural History

The petitioners filed separate original petitions for certiorari, prohibition and mandamus directly before the Supreme Court, claiming that the Comelec issuances and the transactions entered into under them were illegal and unconstitutional. On June 13, 2012, the Supreme Court rendered a Decision dismissing the petitions and upholding the assailed resolutions and transactions. The petitioners then filed separate motions for reconsideration, insisting that the option period had already expired, that the extension was a substantial amendment requiring public bidding, and that the extension was not advantageous to the public. The Court resolved those motions in the decision now before us, denying them for lack of merit.

Facts

On July 10, 2009, the Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated Election System for the May 2010 synchronized national and local elections. The contract was one of lease with an option to purchase the goods listed in it, including the precinct count optical scan machines, both software and hardware. Under the contract, the Comelec had until December 31, 2010 within which to exercise the option. It did not exercise the option within that period, except for 920 machines with the corresponding canvassing and consolidation system for special elections in certain areas of Basilan, Lanao del Sur and Bulacan.

In March 2012, the Comelec issued a series of resolutions. It resolved to seriously consider exercising the option subject to certain conditions, then resolved to exercise the option in accordance with the contract. It accepted Smartmatic-TIM's offer to extend the period to exercise the option until March 31, 2012, and an Extension Agreement was signed on March 30, 2012. Finally, the Comelec approved the Deed of Sale between itself and Smartmatic-TIM for the purchase of the machines to be used in the 2013 elections, and the Deed of Sale was executed.

Claiming that these issuances and transactions were illegal and unconstitutional, the petitioners went to the Supreme Court. The Court dismissed their petitions, and they moved for reconsideration, arguing among others that the extension of the option period, however short, was a substantial amendment to a publicly bidded contract that required a new public bidding.

Issues

• Whether or not the period of the option to purchase had already expired when the Comelec exercised it.
• Whether or not the extension of the option period was a substantial amendment to the bidded contract that required a new public bidding.
• Whether or not the extension of the option period was advantageous to the public.

Applicable Provisions

Article 2.2 of the Automated Election System Contract provides:

The Term of this Contract begins from the date of effectivity until the release of the Performance Security, without prejudice to the surviving provisions of this Contract including the warranty provision as prescribed in Article 8.3 and the period of the option to purchase.

This is the provision the Court construed to decide whether the contract was still alive and could still be amended when the option period was extended.

Article 8 of the same contract, on the release of the performance security, provides:

Within seven (7) days from delivery by the PROVIDER to COMELEC of the Over-all Project Management Report after successful conduct of the May 10, 2010 elections, COMELEC shall release to the PROVIDER the above-mentioned Performance Security without need of demand.

Because the performance security had not been released, the Court held that the entire contract, and not merely its surviving provisions, remained effective and open to amendment.

Ruling

On the first issue, the Court held that the option period had not lapsed in a way that barred its extension. Under Article 2.2, the contract takes effect from the date of effectivity until the release of the performance security, without prejudice to the surviving provisions, including the warranty and the period of the option to purchase. The performance security may be released even before December 31, 2010, and once released the contract would have ceased to exist. But since the performance security had not been released, the contract was still effective, and not only the option and warranty provisions survived but the entire contract as well. The parties were therefore free to amend it, including the period within which to exercise the option, and there was no prohibition on extending that period provided the contract was still effective.

On the second issue, the Court held that the amendment of a previously bidded contract is not per se invalid. For it to be nullified, the amendment must be substantial, such that the other bidders were deprived of the terms and opportunities granted to the winning bidder after it won, and it must be prejudicial to public interest. The Court quoted its own standard from the Agan case:

While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon, such changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or financial proposals previously submitted by other bidders. The alterations and modifications in the contract executed between the government and the winning bidder must be such as to render such executed contract to be an entirely different contract from the one that was bidded upon.

Measured against that test, the Court found the amendment not substantial. No additional right was made available to Smartmatic-TIM that was not previously available to the other bidders. Except for the extension of the option period, the exercise of the option remained subject to the same terms and conditions, such as the purchase price and the warranty provisions. The Court distinguished the San Diego case, where the extension pertained to the period of the main contract of lease itself, a vital and essential particular, and where the lessee enjoyed the lease under the same terms for a longer period while the municipality was deprived of income. Here, the extension referred not to the main contract of lease but to the period within which to exercise the option to purchase.

On the third issue, the Court held that the extension was advantageous to the Comelec and to the public. With the extension, the Comelec had more time to determine the propriety of exercising the option, and it acquired the machines under the same terms and conditions earlier agreed upon, using its meager budget and applying the rentals already paid for the 2010 elections as part of the purchase price. What the law prohibits are modifications or amendments which give the winning bidder an edge over the other bidders, or which make the signed contract unfavorable to the government. The Court stressed that the advantage to the government as a justification could only be used under similar circumstances, and that time and budget constraints, the rules on valid amendment of government contracts, and the successful conduct of the May 2010 elections were among the factors considered.

Doctrine

An amendment to a publicly bidded government contract is not per se invalid. It is void only if it is substantial, meaning the contract taken as a whole would contain substantially different terms and conditions that would have altered the technical or financial proposals of the other bidders, or would have deprived them of the opportunity to bid on the same terms, or if it is prejudicial to public interest. An amendment that grants the winning bidder no advantage over the other bidders and that favors the government is valid. Where the contract itself authorizes amendment and remains effective because the performance security has not been released, the parties may validly extend the period for exercising an option to purchase, and the exercise of the option within the extended period is valid.

Disposition

The motions for reconsideration were denied for lack of merit, so the Comelec and Smartmatic-TIM prevailed and the June 13, 2012 Decision upholding the assailed resolutions and transactions stood.

Remember This

Memorize the rule that an amendment to a bidded contract is void only if it is substantial, that is, it alters the contract as a whole or deprives other bidders of the same terms, or is prejudicial to public interest. Examiners use this case to test the substantial amendment test in government procurement, and to contrast it with San Diego, where the extension touched the main lease itself.