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5. Authority, legal responsibility and qualification of parties to enter into the contract

The signatories to every contract should be clothed with authority to bind the parties they represent. The authority of government officials to represent the government in any contract must proceed from an express provision of law or valid delegation of authority. Private parties entering into contract with the government must carry proper authorization from their principals.

As an incident of and as may necessarily be implied from its constitutional powers, the Government possesses the legal capacity to contract and to be contracted with and, having thus entered into a contract, to be bound thereby.

The respective charters of government-owned or controlled corporations invariably include in the enumeration of the powers of such entities the authority to contract and to be contracted with. So, too, every local government unit as a corporate body is empowered to enter into a contract.

Of necessity, since the Government is an artificial person, it can only enter into a contract and be contracted with through its duly qualified and authorized officers.

Applicable Laws, Rules and Regulations

Section 51, Chapter II, Book I, RAC - Who May Execute Contracts

Contracts in behalf of the Republic of the Philippines shall be executed by the President unless authority therefor is expressly vested by law or by him in any other public officer.

Contracts in behalf of the political subdivisions and corporate agencies or instrumentalities shall be approved by their respective governing boards or councils and executed by their respective executive heads.

Section 548, GAAM, Vol. I - Contractors for Government Projects

The following may become contractors for government projects:
a) Filipino contractors

  1. Citizens (single proprietorship)
  2. Partnerships & corporations at least seventy five percent (75%) of the capital stock of which belongs to Filipino citizens
b) Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that intend to be jointly and severally responsible for a particular contract, shall for purposes of bidding/tendering comply with LOI 630, and, aside from being currently and properly licensed by the Philippine Contractors Accreditation Board (PCAB), shall comply with the provisions of RA 4566, and its implementing rules and regulations, provided that joint ventures in which Filipino ownership is less than seventy five percent (75%) may be prequalified where the structures to be built require the application of techniques and/or technologies which are not adequately possessed by a Filipino entity

c) Foreign contractors for internationally bid foreign-assisted projects as may be required by foreign financial institutions.

Section 515, GAAM, Volume I - Levels and Limitations of Authority on Approval of Government Contracts

All government infrastructure and non-infrastructure contracts shall be approved by the following officials:

a) Infrastructure contracts. The Secretaries of all Departments and Governing Boards of government- owned or controlled corporations can enter into publicly bidded contracts regardless of amount. In case of negotiated contracts, the maximum amount which the Secretaries of Public Works and Highways and of Transportation and Communications can approve/award is P100 million while the Secretaries of other departments and governing boards of government corporations is up to P=50 million. The President is the approving authority when the above ceilings are exceeded (Sec. 1, EO 380, s.1989).

b) Non-infrastructure contracts. Department Secretaries and governing boards of government corporations are authorized to enter into bidded or negotiated contracts of any amount without the prior approval of higher authorities for the procurement of supplies, materials, equipments, and public services, provided said negotiated contract is justified under any of the grounds provided in Sec. 1, Executive Order No. 301, series of 1987, and subject to availability of funds and to the jurisdiction of the Commission on Audit in accordance with existing rules and regulations.

Section 516, GAAM, Volume I - Delegation of Authority to Approve Infrastructure Contracts

The Secretaries of Public Works and Highways and of Transportation and Communication are authorized to delegate to the governing boards of government-owned or controlled corporations, which are attached to or under the administrative supervision of their respective departments, the authority to approve contracts for infrastructure projects entered into by said corporations involving amounts which are within the approving authority of the Secretaries concerned. In case of government corporations which are attached to or under the Office of the President, the delegation shall be made by the Executive Secretary (Sec. 4, EO 164).

Section 57, Chapter 13, Book IV, RAC - Conveyance and Contracts to Which the Government is a Party

Any deed, instrument or contract conveying title to real estate or to any other property the value of which does not exceed fifty million pesos (P50,000,000) awarded thru public bidding, and five million pesos (P5,000,000) awarded through negotiation, shall be executed and signed by the respective Secretary on behalf of the Government of the Philippines. Where the value of the property exceeds the aforesaid ceilings, such deed, instrument or contract shall be executed and signed by the President of the Philippines on behalf of the Government.

Section 60, Chapter 13, Book IV, RAC - Approval of Consultancy Contracts

All purely consultancy contracts relating to infrastructure projects, regardless of amount shall be approved by the Secretaries concerned in accordance with the Guidelines on the Hiring of Consultants to be promulgated by the National Economic Development Authority (NEDA). Provided, that the NEDA shall be furnished by the departments, agencies or government corporations concerned, copies of all consultancy contracts entered into by them involving an amount in excess of P1 million for monitoring purposes.

Section 65, Chapter 13, Book IV, RAC - Approval of Other Types of Government Contracts

All other types of government contracts which are not within the coverage of this Chapter shall, in the absence of a special provision, be executed with the approval of the Secretary or by the head of the bureau or office having control of the appropriation against which the contract would create a charge. Such contracts shall be processed and approved in accordance with existing laws, rules and regulations.

Section 369, RA 7160 - Approval of Contracts in Local Governments

In cases where public biddings have failed for two (2) consecutive times and no suppliers have qualified to participate or win in the biddings, local government units may, through the local chief executive concerned, undertake the procurement of supplies by negotiated purchase, regardless of amount, without public bidding: Provided, however, That the contract covering the negotiated purchase shall be approved by the sangguniang concerned.

Section 380, RA 7160

Property no longer needed may also be disposed of at a private sale at such price as may be determined by the Committee on Awards, subject to the approval of the COA or its duly authorized representative when the acquisition or transfer cost of the property exceeds Fifty thousand pesos (P50,000.00) in the case of provinces and cities, and Twenty five thousand pesos (P25,000.00) in the case of municipalities and barangays.

Sections 389, 444, 455 & 465, RA 7160

For efficient, effective and economical governance, the purpose of which is the general welfare of the local government unit (LGU) and its inhabitants pursuant to Section 16 of this Code, the local chief executive may negotiate, enter into, and sign contracts for and in behalf of the LGU, upon authorization of the local sanggunian.

Illustrative Decisions

COA Decision No. 1364 dated June 15, 1990 - Sangguniang Panlunsod no power to give monetary assistance that would promote the private interests of certain individuals only

It is not within the powers of the Sangguniang Panlungsod of Cebu to provide, either under the general welfare clause or even on humanitarian grounds, monetary assistance that would promote the economic condition and private interests of certain individuals only. The giving away of public funds to a bereaved family in the form of financial assistance has definitely no causal relation to the general welfare of the inhabitants of the community. In fact, no real or substantial relation to the public health, morals, or general welfare of the community can be perceived from the act of giving subject financial assistance.

COA Decision No. 2367 dated June 22, 1992 - Corporation without contractor's license and not 75 percent Filipino-owned not qualified to participate in government construction projects

The mayor of Zamboanga City and Reichert Company, Inc. entered into a contract for the supply and installation of synthetic surfacing of the race tract oval and rubberized coating of playcourts in Zamboanga City. It turned out, however, that Reichert and Company, Inc. had no contractor's license. Moreover, it is a corporation which is not 75 percent Filipino- owned. Could it be legally awarded the subject contract?

From the extant records, particularly the Invitation to Bid, and being an infrastructure project, it is indubitable that the provisions of the Implementing Rules and Regulations (IRR) of P.D. 1594, as amended, should have governed the bidding in question. In order to be pre-qualified to participate in any bidding of government construction projects, the prospective contractor must be duly licensed pursuant to Republic Act No. 4566, otherwise known as the "Contractor's License Law." Additionally, under IB 5.6, IRR of P.D. 1594, as amended, the legal requirements that a prospective contractor should meet in order that he may be pre-qualified to offer his bid or tender for such a project is that he must have been duly licensed as a contractor for the current year pursuant to law, has paid his privilege tax to practice or engage in the contracting business for the current year, and must have complied with other existing pertinent laws, rules and regulations.

On the issue of the percentage of ownership of capital stock, IB 1(2) IRR, supra, requires that only "partnership or corporation duly organized under the law of the Philippines, and at least seventy-five percent (75%) of the capital stock of which belongs to Filipino citizens" is qualified to become a contractor for government construction projects. Likewise, under Letter of Instruction No. 630, the percentage of ownership capital stock of Filipino citizens of Filipino corporations participating as contractors is fixed at not less than 75 percent.

Clearly, since Reichert and Company, Inc. had no contractor's license and that 75 percent of its capital stock does not belong to Filipino citizens, its bid for the aforesaid project cannot be lawfully considered. Besides it is not qualified to undertake the project in question since it is only a manufacturing, importing, exporting, etc., firm and not a duly licensed construction company to do government infrastructure projects. Thus Reichert and Company, Inc. should not have been awarded the contract.

COA Decision No. 93-2899 dated June 16, 1993 - Agreement entered into without proper authority cannot bind the Province

Resolution No. 828 of the Sangguniang Panlalawigan of Biliran authorized Gov. Gonzales alone to enter into subject contract in behalf of the Province. Since the car rental agreement was entered into by and between Special Board Member Colasito and car owner Felix Gaviola, its provisions bound only these two parties. The concurrence of Gov. Gonzales in the said contract is of no moment; the Sanggunian did not grant Dr. Colasito the authority to represent Gov. Gonzales or the Province in the contract. Moreover, Dr. Colasito's receipt of transportation allowance during the period of his availment of the car is already sufficient ground for disallowing his expenses for the car rental.

COA Decision No. 93-3378 dated October 27, 1993 - Contract without the required approval of the President null and void

Petitioner apparently has overlooked the provisions of LOI No. 620 dated October 2, 1977 requiring the approval of the President of the Philippines in all contracts of national government offices, agencies and instrumentalities including government-owned or controlled corporations involving two million pesos (P2,000,000.00) and above. Without such approval, as in the instant case, the contract is null and void and of no force and effect.

COA Decision No. 2547 dated October 15, 1992 - Approval of the Board of Trustees of which DECS Secretary is Chairman deemed sufficient

Considering that the negotiated contract awarded to Dakay Construction and Development Corporation for the construction of the Multi-Purpose Bldg. II-Phase II of the Cebu State College was approved by the Board of Trustees, with the DECS Secretary as its Chairman, and in view of the opinion of the Assistant Executive Secretary for Budget and Corporate Affairs, Office of the President, to the effect that the DECS Secretary is authorized by Sec. 1, EO 380 to enter into negotiated infrastructure contracts costing not more than P50 million, the suspension of the payment of the said contractor may now be lifted.

COA Decision No. 2577 dated July 10, 1992- Ratification by the Board of Directors considered sufficient

The amount of P12,000.00 representing down payment on the seminar fee of the President of PCIC was disallowed mainly due to the finding that there was an excess in the exercise of his delegated authority or an ultra vires act committed by him under PCIC rules. It is the contention of the President that his then actuations were impelled not by a "conscious violation of law and/or regulation" but with complete good faith; hence no liability should be attributed to him under the premises. He stressed further that by virtue of Board Resolution No. 91-055 dated October 2, 1991 of the PCIC Board of Directors, any defect in the transactions with the Center for Research and Communication (CRC) had thus been ipso facto cured by such issuance.

The Commission found the grounds relied upon by the President to be impressed with merit. It is well-settled that the act of the President in the premises was merely a voidable act which may be corrected by ratification such that "contracts entered into by the President of a corporation which are not ultra vires or against public policy, in order to be binding on the corporation, must be executed within the scope of any authority previously granted, or subsequently ratified, expressly or by necessary implication, by the Board of Directors." For "the power to make corporate contracts resides primarily in the company's Board of Directors; but the board may ratify an unauthorized contract made by an officer of the corporation. Ratification, in this case, is held to have occurred when the Board, with knowledge that the contract had been made, adopted a resolution recognizing the existence of the contract and directions that steps be taken to enable the corporation to utilize its benefits." Thus, the disallowance is lifted.