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2. Execution of Contract/Purchase Order/Job Order

A contract in legal contemplation is a meeting of the minds between two persons whereby one binds himself with respect to the other to give something or to render some service ( Article 1305, New Civil Code).

A government contract is one entered into by a public officer acting for or on behalf of the government within the scope of the authority and in his official capacity in which the people are interested, the subject matter of which is of public concern and affects private rights when its provisions are carried out by the officer to whom it is confided to perform (Sec. 511, GAAM, Vol I).

Government contracts consist generally of (a) purchases of supplies, equipment and capital assets such as land, buildings and structures, and acquisition of services, (b) prosecution of infrastructure and other construction projects, and (c) disposal of assets (COA Circular 86-257 dtd. 3/31/86).

Contracts and conveyances may be executed for and in behalf of the Government or of any of its branches, subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations, whenever demanded by the exigencies of the service, as long as the same are not prohibited by law (Sec. 47, Book 1, Revised Administrative Code).

In this jurisdiction, the authority of government officials to execute contracts for and in behalf of the Philippine government or any of its branches, subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations, is expressly provided for by law.

Applicable Laws, Rules and Regulations

Article 1318, NCC - Essential Requisites of a Contract

There is no contract unless the following requisites concur:
a. Consent of the contracting parties;
b. Object certain which is the subject matter of the contract;
c. Cause of the obligation which is established.

Section 512, GAAM, Volume I - Terms of Reference

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy (Art. 1306, NCC).

COA Circular No. 78-84 dated August 1, 1978 - Information to be Included in a Contract

The following shall clearly appear in every contract or order for furnishing the supply requirements of the Government, aside from other requirements prescribed by existing laws and regulations:

  1. Office to which the account shall be charged and the requisition number;
  2. Name and address of the contractor/supplier;
  3. Office from which payment shall be collected;
  4. Complete descriptions and specifications of the supplies and all other information and data needed to enable the supplier, agency officials, COA property inspectors and others concerned to determine the nature and quality of the items purchased;
  5. Quantity and unit price of the supplies;
  6. Period of delivery;
  7. Shipping terms and directions and other conditions of delivery;
  8. Provisions on penalties for late or no deliveries;
  9. Conditions regarding importation, if any; and
  10. Date of effectivity and termination of the contract.
In addition, all pertinent provisions of supply rules and regulations and standard specifications in force, including tolerance, shall be deemed an integral part of the contract or order.

For the protection of the Government, Heads of agencies, subdivisions, or instrumentalities shall invariably incorporate a penalty clause or provision for liquidated damage in case of late delivery in an amount equivalent to not less than (minimum) one tenth of one (1) percent of the total value of the contract, or if the contract has been partially fulfilled within the stipulated time, the total value of undelivered purchase thereof. Likewise, a provision on the liability of the supplier or contractor in case of failure to deliver the items called for shall be included in the order or contract.

COA Circular No. 96-010 dated August 15, 1996 - Basic Data which should invariably appear in the P.O.
The existing forms of the purchase order or other contract used by the agencies may be continued, provided that it shall contain all the following data or information:

  1. Purchase Order Number
  2. Date of Purchase Order
  3. Complete name of supplier
  4. Complete address of supplier
  5. Information whether the supplier is a manufacturer or exclusive distributor; registered with SEC, DTI or both
  6. Telephone and fax number of supplier, if any
  7. Date of delivery
  8. Complete item name
  9. Complete detailed item specification, including accessories i.e., narrative description, size/dimension/ volume, model, use of item, color, capacity, horsepower, voltage, watts, gauge, kind of equipment where spare part is to be used, whether replacement or original (for spare parts), part number of spare parts, type and classification of material, brand new or second hand, etc.
  10. Price (individual unit price; if lot price any document showing the detailed breakdown of the cost should likewise be submitted)
  11. Unit of measure when it is not universally accepted indicate numbers or weight, or lineal measure; i.e., if stated as per "roll", indicate the number of yards/meter per roll; if per "box" state number/pcs. contents; if per bag how many pounds or kilos
  12. Quantity or number of units
  13. Brand name. If no brand, state "none"
  14. Country of manufacture or origin of item; i.e., local (or RP), or if foreign origin, specify country.
  15. Terms; i.e., COD, n/30 days, etc.
  16. Mode of procurement; i.e., public bidding, canvass, negotiated sale, and such other authorized modes. If "repeat order" indicate previous Purchase Order and date which was used as basis.
  17. Taxes paid by agency; i.e., VAT, etc. If taxes are paid by supplier, do not indicate.
Section 47. Book I, RAC - Execution of Contracts

Contracts and conveyances. - Contracts or conveyances may be executed for and in behalf of the Government, or of any of its branches, subdivisions, agencies or instrumentalities, including government owned or controlled corporations, whenever demanded by the exigency or exigencies of the service and as long as same are not prohibited by law.

Section 4(5), Presidential Decree 1445 - Approval of Disbursements

Disbursements or disposition of government funds or property shall invariably bear the approval of proper officials.

Sections 1 & 2, Republic Act 665 - Unskilled and Skilled Labor Requirements

Section 1 - All private contractors including subcontractors to whom awards are made for the undertaking of national and local public works projects funded by either the National Government or any local government unit including foreign assisted projects must hire at least 50% of the unskilled and 3% of the skilled labor requirements from the unemployed bonafide and actual residents in the province, city and municipality who are ready, willing and able as determined by the governor, city mayor or municipal mayor concerned where the projects are to be undertaken.

Section 2 - Public works projects referred to include national, provincial, city, municipal and barangay projects, including but not limited to roads, schools, power and water systems, piers, airports, and similar projects.

All contracts to be entered into by and between the national, provincial, city and municipal government and the contractor shall include a provision to carry out the foregoing requirements.

Section 108 of PD 1445 - General Liability for Unlawful Expenditures

Expenditures of Government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.

Illustrative Decisions

COA Decision No. 345 dated June 6, 1984 and COA Decision No. 395 dated May 18, 1987 - The protection against impairment of contracts must yield to the valid exercise of police power

The contract is the law between the parties. It is impaired when its value is diminished. But when the price agreed upon in a government contract is found to be excessive, the Commission on Audit is authorized to reduce it pursuant to its power under the Constitution to promulgate rules and regulations including those for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of public funds.

COA Decision No. 134 dated September 29, 1977 - No obligation to pay if delivery is not in accordance with specifications
The Amalgamated Motors (Phil.), Inc. delivered six (6) units model trucks with "151" wheelbase basic unit instead of "181" wheelbase basic unit as mentioned and specified in the proforma invoices; Resolution No. 599 dated September 30, 1976 of the Iloilo City Local Committee on Award; and Resolution No. 445, s. 1976, of the Sangguniang Bayan of Iloilo City. In view thereof, the City Engineer, who is the requisitioning officer, refused to accept the equipment delivered.

Wheelbase is the distance between the front and rear wheel axle of a vehicle when the steering is set ahead. Manifestly, the length of the wheelbase will affect the size and load capacity of a vehicle. Specification as to the length of the dump trucks is an essential part of the contract and non-compliance therewith is a ground for rejection or non-acceptance of delivery.

Contracts, which are the private laws of the contracting parties, should be fulfilled according to the literal sense of their stipulation if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what their form may be, whenever the essential requisites for their validity are present.

It appearing that the City Engineer of Iloilo City refused acceptance of the dump trucks which are not in accordance with the specifications agreed upon, the obligation to pay on the part of the Iloilo City never arose and the City can assert its rights to have the contract rescinded in accordance with Article 1191 of the Civil Code, hereunder quoted:

"Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible."

Case No. OMB-0-92-1409- Active participation of parties signify conformity

There was no valid basis for the grant of recomputation because the parties (complainant and respondent) had actively participated in the computation made on November 25, 1985 and in fact complainant, to signify its conformity thereon, signed the agreement without objection.

COA Decision No. 2231 dated February 20, 1992 - Liability of government representative on illegal contract

The Auditor of the Department of Public Works and Highways (DPWH), Digos, Davao del Sur disallowed the total amount of P71,163.85 relative to the rental of a diesel pile hammer used in the construction of Balatukan Bridge in Matanao, Digos, Davao del Sur.

On the principal ground that a certificate showing appropriation to meet the contract was not attached and made an integral part of the said contract as provided in Section 86 of PD 1445, the transaction/contract is deemed void. Moreover, the contract contains as one of its terms and conditions the advance payment of the rental which is violative of Section 88 of the same law.

The representative of the lessee, DPWH Acting District Engineer Felipe Fernandez, may be held jointly and severally liable for entering into a contract which is contrary to law and regulations. His being negligent in communicating the deplorable condition of the diesel pile hammer adds to his liability. Thus, in case the lessor fails to refund the advance payment, Mr. Fernandez may be required to refund said amount in accordance with Section 103 of PD 1445.

COA Decision No. 94-204 dated August 2, 1994 - Penalty clause, when enforceable

Imposition of penalty charges due to delayed payments is valid as this is embodied in the contract. In view hereof, COA cannot give due course to the instant request for waiver/condonation of penalty charges imposed on Kenver Lightings Corp.

COA Decision No. 94-051 dated February 15, 1994 - Liability on a void contract

Although there was a patent violation of the mandatory rules on public bidding, thereby rendering subject security service contract void ab initio, it is equally true that the said contract was a fully executed agreement, the parties consequently binding themselves both to the expressed stipulations therein and to all the consequences thereof. The PFDA accepted benefits actually rendered by the security agency particularly during the period March 16 to May 15, 1986. To this extent was the government enriched and to this extent must it now compensate NSA on the basis of quantum meruit.

COA Decision No. 2641 dated January 7, 1993 - Novation of contract

Article 1291 of the New Civil Code allows parties to a given contract to rectify the same provided the novation is not contrary to law, morals, public order, public policy. The additional repair which allegedly had the verbal approval of the former DILG secretary represents a novation of the original contract. If a creditor orally directs his debtor to pay a third party and the third party eventually agrees to do so, it is a novation. (Cotle vs. Persons, 117 Fed. 844, 54 c.c.c. 133 cited in Bouvier's Law Dictionary, 3rd Edition, Vol. 2, p. 2377). Thus, if an oral novation is considered valid, there is more reason to conclude that a post-written approval by the incumbent DILG Secretary will suffice to correct any defect in the approval of the additional work.