DECISION NO.

2020-039
January 10, 2020

Subject: Appeal of former Mayor Edward S. Hagedorn, et al., all of the City Government of
Puerto Princesa, Palawan, from Commission on Audit Special Audit Notice of
Disallowance No. 2014-06-050 (2008/2009) dated June 23, 2014, relative to the
payment for the reclamation of Coastal Development Phase IV-A, in the total amount
of P18,522,542.41

DECISION

FACTS OF THE CASE

Before this Commission is the appeal1 filed by Mr. Edward S. Hagedorn, former Mayor; Mr. Gaspar T. Heredero, former
Quality Control Engineer; Mr. Armando D. Abrea, former City Treasurer; Ms. Nanette A. Dario, former City Accountant; Ms.
Maria Corazon A. Abayari, former Assistant City Treasurer (now incumbent City Treasurer); Mr. Enrico L. Gabayan, Project
Engineer; the members of the Bids and Awards Committee (BAC), namely: Mr. Agustin M. Rocamora, former City
Administrator/BAC Chairman; Mr. Vicente C. Licerio, Jr., former City Engineer/BAC Vice-Chairman; Mr. Sergio S. Tapalla,
former Head, BAC-Technical Working Group; Mr. Ruben J. Francisco, former City Budget Officer; and Mr. Alfredo L. Sy, all of
the City Government of Puerto Princesa, Palawan, from Commission on Audit (COA) Special Audit Notice of Disallowance (ND)
No. 2014-06-050 (2008/2009) dated June 23, 2014, relative to the payment to A.R. Lustre, Jr. Construction for the reclamation of
Coastal Development Phase IV-A, in the total amount of P18,522,542.41.

Ms. Abayari, one of the appellants, received the ND on August 14, 2014. 2 On December 17, 2014,3 or 124 days from its
receipt, she, together with the other persons liable, filed a joint appeal before the then Fraud Audit and Investigation Office
(FAIO) [now Fraud Audit Office (FAO)], Special Services Sector (SSS), this Commission. Hence, the appeal was filed within the
six months reglementary period prescribed under the pertinent rules.4

Pursuant to COA Office Order Nos. 2009-537 dated July 23, 2009 and 2009-537A dated August 18, 2009, the then FAIO
constituted a Special Audit Team (SAT) to conduct a special audit/investigation of the last tranche of the 2008 fund release of
P2.4 Billion to the Province of Palawan, pertaining to the oil and gas royalties of the Malampaya project.

One of the projects audited by the SAT was the Reclamation of Coastal Development Phase IV-A located at Barangay
Mandaragat, Puerto Princesa City, that entailed a 278.96 meter, embankment/revetment. The project was implemented in 2008 and
2009 for a contract amount of P39,882,401.04 5 funded out of the P270 Million subsidy of the national government to the city. 6 At
the time of audit, the project was 49.60% accomplished.

In its Inspection Report dated May 11, 2010,7 the Technical Audit Specialist (TAS) noted the following:

1. The project exists at its designated location, except that a 45.5 m length was constructed in another
location due to problems with the informal settlers; and

2. The project was suspended from April 21, 2008 to April 16, 2009 and on June 11, 2009, due to the
presence of informal settlers on the location.

On June 23, 2014, the SAT issued ND No. 2014-06-050 (2008/2009) dated June 23, 2014,8 covering the payment to A.R.
Lustre, Jr. Construction in the amount of P18,522,542.41, based on the following grounds:

1. The Invitation to Apply for Eligibility and to Bid (IAEB) for the project was not posted in the
Philippine Government Electronic Procurement System (PhilGEPS),9 in violation of Section 8 of
Republic Act (RA) No. 9184, 10 and its Implementing Rules and Regulations (IRR), particularly
Sections 8.2.1 and 21.2.1 thereof; and

2. The 45.5 m length constructed on a different site cannot be considered as part of the accomplished
work, resulting in overstatement of the reported accomplishment in the Statement of Work
Accomplished (SWA) for an overpayment equivalent to P4,880,281.38.

The following persons were held liable for the disallowance:

Persons Liable Position/Designation Nature of Participation in the

Transaction
Edward S. Hagedorn Former Mayor Approved payment of the
transactions
 Vicente C. Licerio, Jr. City Engineer/BAC Vice- Recommended approval of the
Chairman payment; failed to post the IAEB
in the PhilGEPS
Enrico L. Gabayan Project Engineer Certified that the work
accomplishment was 49.60%
completed
Gaspar T. Heredero Quality Control Engineer Certified that the required
materials passed the materials
test for 49.60% accomplishment
Nanette A. Dario Former City Accountant Certified the availability of cash
III and the completeness of the
supporting documents
Atty. Agustin M. Former City Failed to post the IAEB with the
Rocamora Administrator/BAC PhilGEPS as members of the BAC
Chairman
Armando D. Abrea Former City
Treasurer/BAC member
Sergio S. Tapalla Asst. City Engineer/BAC
member
Ruben J. Francisco City Budget Officer/ BAC
member
Alfredo L. Sy Former Executive
Assistant/BAC member
Maria Corazon A. Former Assistant City Signed the disbursement voucher
Abayari Treasurer (now incumbent
City Treasurer)
Armando R. Lustre, Jr. Owner of A.R. Lustre, Jr. As payee
Construction

Aggrieved, Mayor Hagedorn, et al., filed this appeal11 based on the following grounds:

1. The failure to comply with posting requirement in PhilGEPS was brought about by the circumstance
that the information technology infrastructure or internet connectivity of the city was still being
developed when the project subject of the ND was implemented in Fiscal Year 2008;

2. The city did not blatantly disregard the rules on procurement as it resorted to other means of ensuring
widest dissemination through posting the IAEB in several public conspicuous places in the city and
advertising the IAEB in a newspaper of general circulation;

3. The alleged findings of overstatement on the accomplished works in the amount of P4,880,281.38,
should have been addressed, had the SAT at least taken into consideration the comments embodied
in their letter dated June 9, 2011 (Annex “CC” of FAIO Report No. 2012-004), and the merits of the
following documents:

a. Justification/Explanation of the assigned Government Project Engineer, dated May 11,

2011;12

b. Site Instruction No. 1 dated April 20, 2009;13

c. As Built/Actual Plan of the project;

4. Ms. Abayari should be excluded from persons liable as the reason for the ND is not within her duties
and responsibilities.

In their Answer, 14 the SAT maintained its stand in disallowing the payment to A.R. Lustre, Jr. Construction on the
following grounds:

1. The non-posting of the IAEB in the PhilGEPS rendered the procurement of the project illegal, for
violating relevant provisions of RA No. 9184 and its IRR. In the same vein, the non-posting of the IAEB
in the PhilGEPS relative to the same project renders the same void and of no effect;

2. Site Instruction No. 1 cannot substitute a Change Order; and

3. Ms. Abayari cannot be exempted from liability as she failed to exercise proper management of the fund.
ISSUE

The issue to be resolved is whether or not the appeal is meritorious.

DISCUSSION

This Commission finds the appeal partly meritorious.

Section 21.2.1 of the Revised IRR of RA No. 9184 provides:

Except as otherwise provided in Sections 21.2.2 and 54.2 of this IRR and for the procurement of
common-use goods and supplies, the Invitation to Bid/Request for Expression of Interest shall be:

a). Advertised at least once in one (1) newspaper of general nationwide circulation which has
been regularly published for at least two (2) years before the date of issue of the
advertisement;

b). Posted continuously in the PhilGEPS website, the website of the procuring entity concerned,
if available, and the website prescribed by the foreign government/foreign or international
financing institution, if applicable, for seven (7) calendar days starting on date of
advertisement; and

c). Posted at any conspicuous place reserved for this purpose in the premises of the procuring
entity concerned for seven (7) calendar days, if applicable, as certified by the head of the
BAC Secretariat of the procuring entity concerned.

In this case, the project was properly advertised on March 10 and 17, 2008 15 in The Manila Times, a newspaper of general
circulation and was posted in the City Hall Building, BJT Building and City Coliseum Building from March 6 to April 7, 2008. 16
Considering that two out of the three requirements for publication were met, this Commission notes that there was substantial
compliance with the requirement of advertisement.

I n Agan vs. Piatco,17 the Supreme Court explained that the aim of competitive public bidding is to protect the public
interest by giving the best possible advantages through open competition. The three principles of competitive public bidding are
the presence of: (1) the offer to the public; (2) the opportunity for competition; and (3) a basis for the exact comparison of bids.

As mentioned earlier, the project was advertised twice in a newspaper of general circulation and was posted in three
conspicuous places for one month. Hence, it cannot be said that the project was not offered to the public or that there was no
competitive public bidding.

This Commission holds that the disallowance of the entire project cost is not warranted. However, this decision does not
preclude the filing of appropriate administrative cases against the persons responsible for not complying with the provisions of
RA No. 9184 on publication.

As to the overpayment/overstatement of the works accomplished in the amount of P4,880,281.38, the only issue involved is
whether Site Instruction No. 1 dated April 20, 2009 is a valid variation/change order.

Section 1.1 of Annex “E” of the Revised IRR of RA No. 9184 provides:

Variation Orders may be issued by the procuring entity to cover any increase/decrease in quantities,
including the introduction of new work items that are not included in the original contract or
reclassification of work items that are either due to change of plans, design or alignment to suit actual
field conditions resulting in disparity between the preconstruction plans used for purposes of bidding
and the "as staked plans" or construction drawings prepared after a joint survey by the contractor and
the Government after award of the contract, provided that the cumulative amount of the positive or
additive Variation Order does not exceed ten percent (10%) of the original contract price . The
addition/deletion of works under Variation Orders should be within the general scope of the project as
bid and awarded. The scope of works shall not be reduced so as to accommodate a positive Variation
Order. A Variation Order may either be in the form of either a change order or extra work order.
(Underscoring supplied)

Site Instruction No. 1 is a form of variation order as it introduces a new work not included in the original project. From the
above provision, it is clear that a variation order should not exceed 10% of the original contract. In this case, the variation
amounted to P4,880,281.38 which is 12.24% of the total project cost.

Moreover, Site Instruction No. 1 was not approved by the Head of the Procuring Entity, in this case, Mayor Hagedorn, as
required under Section 3.1. of Annex “E” of the Revised IRR of RA No. 9184, thus:

Under no circumstances shall a contractor proceed to commence work under any Change Order or Extra
 Under no circumstances shall a contractor proceed to commence work under any Change Order or Extra
Work Order unless it has been approved by the Head of the Procuring Entity or his duly authorized
representative. x x x

Hence, the disallowance on the basis of overpayment should be sustained.

As to the request for exclusion of Ms. Abayari, Section 16.1 of the Rules and Regulations on Settlement of Accounts, 18
provides:

The liability of public officers and other persons for audit disallowance/charges shall be determined on
the basis of (a) the nature of the disallowance/charge; (b) the duties and responsibilities or obligations
of officers/employees concerned; (c) the extent of their participation in the disallowed/charged
transaction; and (d) the amount of damage or loss to the government, x x x.

Suffice it to state that Ms. Abayari’s involvement in the transaction has no bearing or relevance on the posting of the IAEB
in the PhilGEPS and the inspection of the actual work accomplishment, which were the grounds for the disallowance. These were
the functions of the BAC and the Project Engineer. The duty of an Assistant Treasurer is to assist the Treasurer and perform such
duties as the latter may assign to the former. 19 Under the Manual on the New Government Accounting System for the Local
Government Unit, the Treasurer or the Assistant Treasurer, as the case may be, verifies claims and certifies the cash availability
before forwarding the same to the approving officer.

The above functions give the Treasurer the discretion, within the bounds of law, to review, scrutinize, or countercheck the
supporting documents before facilitating the payment of public funds. However, it may not be reasonable to expect her to know
the intricacies of the project implementation as she had no direct hand on the project and she is not an engineer. She can only rely
on the documents submitted before her by the City Project Engineer, who certified that the project was 49.60% completed. Hence,
the disallowance cannot be attributed to her.

RULING

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. Accordingly, Commission on Audit Special
Audit Notice of Disallowance No. 2014-06-050 (2008/2009) dated June 23, 2014, relative to the payment for the reclamation of
Coastal Development Phase IV-A, in the total amount of P18,522,542.41 is REDUCED from P18,522,542.41 to P4,880,281.38.
Maria Corazon S. Abayari is EXCLUDED from liability for the disallowance.

Concurring and Dissenting Opinion

(SGD.) MICHAEL G. AGUINALDO

Chairperson

(SGD.) JOSE A. FABIA (SGD.) ROLAND C. PONDOC

Commissioner Commissioner

Attested by:

(SGD.) NILDA B. PLARAS

Director IV
Commission Secretariat

Copy furnished:

Mr. Edward S. Hagedorn

Former City Mayor

Ms. Nanette A. Dario

Accountant III

Ms. Maria Corazon S. Abayari

Former Assistant City Treasurer

Mr. Enrico L. Gabayan

Project Engineer
Mr. Gaspar T. Heredero
Quality Control Engineer

Mr. Vicente C. Licerio, Jr.

Mr. Agustin M. Rocamora
Mr. Armando D. Abrea
Mr. Ruben J. Francisco
Mr. Alfredo L. Sy
Bids and Awards Committee Members

All of the City Government of Puerto Princesa

Province of Palawan

The Audit Team Leader

The Supervising Auditor
City Government of Puerto Princesa
Province of Palawan

The Audit Team Leader

The Audit Team Supervisor
Fraud Audit Office
Special Services Sector

The Director
Fraud Audit Office
Special Services Sector

The Director
Information and Technology Office
Systems Technical Services Sector

The Assistant Commissioners

Local Government Sector
Special Services Sector
Commission Proper Adjudication and
Secretariat Support Services Sector

ESZ/LED/ERD/JDGD/RGA
CMIS 2016-0564
COA CP Case No. 2016-0842

1 Pursuant to Commission on Audit (COA) Resolution No. 2015-015 dated April 13, 2015, the appeal from the Notice of Disallowance issued by the Fraud Audit Office
shall be forwarded to the Commission Proper, this Commission, for resolution.
2 As alleged in the Appeal Memorandum; rollo, p. 16.
3 Original Receipt No. 2482458 for the filing fee.
4 Section 8, Rule IV of the 2009 Revised Rules of Procedure of the Commission on Audit (RRPC) and COA Resolution No. 2015-015 dated April 13, 2015.
5 Attached as Annex S4 to the Fraud Audit and Investigation Office (FAIO) Report No. 2012-004.
6 Sourced from the Special account in the General Fund, Presidential Decree No. 910, Automatic Appropriation (Gas-Malampaya Collection), per Special Allotment
Release Order (SARO) No. ROCS-08-01416 dated February 6, 2008.
7 Rollo, pp. 25-28.
8 Rollo, p. 10.
9 G-EPS and Philippine Government Electronic Procurement System (PhilGEPS) are the same as provided in Section 5(x) of the Revised Implementing Rules and
Regulations of the Republic Act No. 9184.
10 otherwise known as the Government Procurement Reform Act.
11 Rollo, pp. 11-16.
12 Attached as Annex “3” of the appeal; rollo, pp. 4-5.
13 Attached as Annex “4” of the appeal; rollo, p. 3.
14 Rollo, pp. 35-51.
15 See Annex “G” of FAIO Report No. 2012-004.
16 Ibid. See Annex “I”.
17 G.R. No. 155001, May 5, 2003.
18 COA Circular No. 2009-006 dated September 15, 2009.
19 Section 471, Article II of Republic Act No. 7160.