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C. Conduct of Canvass/Referral to Proper Government Officials

In keeping with the Constitutional mandate for the Commission on Audit to "promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties," it becomes imperative for the auditor to see to it that payments made in pursuance of a contract are not irregular, unnecessary, excessive, extravagant or unconscionable.

We will limit our discussion here on excessive expenditures or uses of funds or properties in so far as they relate to contracts.

COA Circular No. 85-55A dated September 8, 1985 defines excessive expenditures as that which signifies unreasonable expense or expense incurred at an immoderate quantity and exorbitant price. It also includes expenses which exceed what is usual or proper as well as expenses which are unreasonably high, and beyond just measure or amount.

The term "excessive expenditure" pertains to the variables of price and quantity. The price is considered excessive "if it is more than the 10 percent allowable price variance between the price paid for the item bought and the price of the same item per canvass of the auditor."

The price is, likewise, deemed excessive "if the discounts allowed in bulk purchases are not reflected in the price offered or in the award in the purchase/payment document.

Payment for the repair of government equipment cost exceeding 30 percent of the current market price of the same or similar equipment is an example of an excessive expenditure.

One of the more acceptable methods of determining the reasonableness of prices per contract is by means of conducting a canvass from reputable and duly accredited suppliers, manufacturers or contractors.

Applicable Laws, Rules and Regulations

Item 2, COA Circular No. 76-34 dated July 15, 1976 - Conduct of Canvass

In case of doubt as to the reasonableness of the price of the items purchased, the unit or agency auditor shall conduct a canvass thereof or, in his discretion, refer the matter to the proper government agencies.

Illustrative Decisions

COA Decision No. 65 dated February 15, 1977 - Where prices are excessive, the contracting parties should negotiate for a lower price

The engineer of the Technical Advisory Staff of COA estimated the unit cost, including the breakdown, of the galvanized locally made guard rails (2.6 mm x .355 m x 3.66 m or Gage 12 x 14" x 12') and guard rail ends (2.6 mm x .355 x 0.76) delivered by the J.D. Daylo & Sons to the Highway District Engineer, Sta. Cruz, Laguna, for purposes of the Lumban-Caliraya-Cavinti Road Project to be P214.90 and P43.20, respectively. Compared to the unit cost of P333.60 and P135.00, respectively, reflected in the invoice issued by J.D. Daylo & Sons, subject claimant's price is clearly overpriced.

JSB Metal Works corporation, a reputable local manufacturer of guard rails in its letter dated February 1, 1977 quoted a unit price of P120.00 (materials and labor) for ungalvanized guard rails with specifications 2.8 mm. x 14" x 12', where 2.8 mm. is thicker than 2.6 mm. The J.D. Daylo & Sons also submitted a breakdown of the production and sales price of P334.00 for a galvanized guard rail measuring 2.6 mm x14" x 12'. If the amount of P60.00 appearing therein as cost of galvanizing is adopted and the same is added to the P120.00 unit price of JSB Metal Works Corporation, then the unit cost of a galvanized guard rail would be only P180.00.

Also, the certification dated November 17, 1976 of the C. Itoh & Co., LTD., a Japanese supplier showed that the price per piece for guard rails and guard rail ends, whose measurements are almost the same as those delivered by the J.D. Daylo & Sons, is equivalent to P187.16 and P72.22, respectively, including cost and freight (Cagayan de Oro City).

The foregoing computations and price quotations demonstrate beyond doubt the excessiveness of the unit price of P333.60 for the guard rails and P135.00 for the guard rail ends delivered to the Office of the Highway District Engineer, Laguna. Accordingly, the contracting parties concerned should negotiate for a lower price that conforms more or less to the price computations/quotations adverted to above.

COA Decision No. 87 dated March 28, 1977 - Price should be reduced to the price per canvass of COA

The proposed purchase of 25 pieces of H-bearing piles in the total amount of P42,000.00 from Dionisio Industrial Supply was allegedly due to emergency brought about by floods which weakened the spans of the Lagalag and Lamutan Bridges. The Secretary of Public Highways, pursuant to Administrative Order No. 335 dated August 1, 1972 of the President, approved the proposed purchase. However, the proposed purchase can no longer be made pursuant to the authority granted to the Secretary of Public Highways under said Administrative Order because Section 25 of P.D. 1050 limits emergency purchase up to P=5,000.00 per month and that Section 45 of same Decree also provides that "all laws, rules and regulations inconsistent with this Decree are hereby repealed or modified."

Following the above opinion, the purchase price of subject piles should be reduced by P525.05 a piece or a total of P13,126.25, which is the result of the canvass made by the Price Monitoring Staff of COA, otherwise, the said contract should be referred to the Committee created under Executive Order No. 323 for appropriate action.

COA Decision No. 208 dated March 13, 1979 - Price allowable only to the extent of that provided for in the COA Price Monitoring Bulletin

A canvass conducted by the Gingoog Emergency Hospital for the purchase of autoclave sterilizer, showed that Sarabosing Medical Supplies offered the lowest price of P21,000.00 including delivery and installation. The same price quotation appeared under the COA Price Monitoring Bulletin (January - February 1978 issue) for an autoclave sterilizer.

An inspection made by the Administrative Officer and the Bookkeeper of the hospital showed that the sterilizer contemplated to be delivered by Sarabosing Medical Supplies was of inferior quality and did not meet the required specification thus, another purchase order was issued to Esphar Medical Center, Inc. whose price quotation of P=24,000.00, F.O.B. Gingoog City, appeared the second lowest offer.

The City Auditor, Gingoog City allowed only the payment of P21,000.00 to Esphar Medical Center, the price quoted under the COA Price Monitoring Bulletin and considered the difference of P3,000.00 as excessive even for the actual cost of freight and handling. The claim of Esphar Medical Center, on the other hand, was based on its price quotation of "F.O.B. Manila - P21,000.00 and F.O.B. Gingoog City - P24,000.00" as stated in its letter dated May 22, 1978.

It appearing that the price quotation under the COA Price Monitoring Bulletin is P21,000.00 F.O.B. Manila, which is the same price quoted, and further reiterated by the claimant in its letter dated May 22, 1978, the claim of Esphar Medical Center may only be allowed in the amount of P21,000.00 plus the additional cost for actual freight and handling, pursuant to COA Circular No. 77-59 dated August 31, 1977, subject to the availability of funds and the usual audit.

COA Decision No. 323 dated October 3, 1983 - Reduction of excessive price in order

The original contract price for the clearing and removal of the waterlilies from the San Fernando River, Pampanga, having been found to be excessive, the action of the Regional Director, COA Region No. III in recommending a reduction thereof, based on the estimated output of waterlilies cleared per man-hour, is in order.

COA Decision No. 363 dated July 29, 1985 - Price variance between contract price and COA computed cost considered excessive

In a Contract Review Report of the Regional Engineering and Property Inspection Division (REPID) of the NCR, it was disclosed that the contract cost was found to be 14.99 percent higher that the COA computed cost despite the fact that the freight, transportation and handling charges of the subject electrical materials were already taken into account. Thus, the variance between the total contract price of P12,706.36 and the COA computed cost of P11,049.51 was considered excessive.

COA Decision No. 94-043 dated February 2, 1994- Award of contract at a price more than 60 percent of the items' market value constitutes negligence

In evaluating offers, the PBAC should not merely confine itself to the prices offered. It should keep an eye of the prices prevailing in the local market to insure that the government obtains the most advantageous terms. The fact that the ESFS PBAC awarded the contract at a price which is more than 60 percent of the items' market value manifests negligence on the part of its members.