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PART III

CONTRACT REVIEW- TECHNICAL
 
SUPPLY CONTRACTS

Review as to Basic Requirements:

1. Check whether the documentary requirements for review of supply contracts are submitted:

a. Approved Contract including Annexes and all documents referred to therein necessary for technical review;
b. Complete agency approved specifications including detailed plans and drawings;
c. Supplier's quotation including catalogues/brochures, where applicable; and
d. Detailed breakdown of contract amount showing the derivation of the cost.
2. Identify the mode of procurement from the contract documents submitted

Applicable Laws, Rules and Regulations

COA Memorandum No. 91-704 dated February 27, 1991, Documentary Requirements for the Review of the Technical Aspects of all Types of Government Contracts, Annex S

Checklist for Review of Supply/Delivery/Installation/Repair Contracts

a. Copy of duly approved contract
b. Complete bid documents
c. Abstract of Bids
d. Agency's Bids Evaluation Report
e. Individual bid quotations and catalogue/brochure showing complete specifications of items offered by each bidder
f. Complete agency approved specifications
g. Approved detailed plan, if applicable
h. Approved Agency estimate for fabrication, installation and repair contract
i. All other documents referred to in the contract necessary for technical evaluation

3. Check whether the other documentary requirements specific to the different procurement modes are submitted:

A. Public Bidding:

a. Complete bid documents-Invitation to Bid, Instruction to Bidders, Proof of Publication, General and Specific Conditions, etc.
b. Abstract of Bids
c. Agency's Bids Evaluation Report
d. Individual Bid Quotations and Catalogue/Brochure showing complete specifications of items offered by each bidder
e. Bid Security
B. Limited Source Bidding: a. Invitation to Bid and Quotation of Pre-selected bidders
b. Abstract of Bids
c. Agency's Bid Evaluation Report
d. Resolution for Award
C. Direct Contracting a. Request for Quotations
b. Suppliers' Price Quotations or Pro-forma Invoice
c. Resolution for Award
D. Shopping a. Request for Quotations
b. Supplier's Quotations
c. Abstract of Quotations
d. Resolution for Award
E. Negotiated Purchase: a. Certificate or Resolution indicating that there were two failed biddings, and the bid documents for the failed biddings
b. Certificate that the negotiated price is the most advantageous to the agency
F. Emergency Purchase: a. Certification by the head of agency or his authorized representative showing the nature of the purchase and that it was resorted to to avoid loss of or danger to life and/or property or to meet a project or activity which cannot be delayed without causing detriment to the public service
b. Canvass of prices from at least three bona fide suppliers, except if the amount involved is less than P=1,000.00
G. Personal Canvass: a. Canvass sheets
b. Abstract of Canvass
H. Thru Exclusive Distributor:
Certificate of exclusive distributorship issued by the principal
I. Repeat Order:
Original contract between the agency and the supplier to which the present contract is being referred
J. Direct Purchase from Duly Licensed Manufacturer:_
Certification that the supplier is a licensed manufacturer
4. Determine if the requirements and conditions for the mode of procurement are complied with/met:
A. Public bidding :

- publication in at least 2 newspapers of general circulation for at least 3 times within at least 2 consecutive weeks and posting of notices in conspicuous places
- bidders are pre-qualified
- bid security- not less than 2 1/2% of total bid price
- bidding procedures are regular/not rigged
- award is made to the contractor offering the most advantageous or the lowest evaluated cost.

Applicable Laws, Rules and Regulations

Executive Order No. 302, February 19, 1996

Sec. 3.3 As a general rule, awards of contracts shall be done after the open, competitive bidding unless a more appropriate method has been duly approved for adoption... Further, in line with COA Resolution No. 94-244, public bidding may be dispensed with for purchases of supplies, materials and equipment in an amount up to P 10,000.000 as long as the purchase is most advantageous to the government.

Sec. 4.2.1Invitation to Prequalify and to Bid for local competitive bidding, the minimum content of which are prescribed in Annex "E" shall be publicly advertised for at least three (3) times within at least two (2) consecutive weeks in at least two (2) newspapers of general circulation which have been regularly published for at least two (2) years prior to the date of issuance of such invitations. At the same time, copies thereof shall be posted at any conspicuous places at the office of the agency concerned.

Sec. 4.6.3The amount of the bid security shall not be less than two-and-one half percent (2-1/2%) of the total bid price. The security may be in the form of cash, cashier's check, manager's check, bank draft or guarantee against any reputable bank, letter of credit issued by a commercial bank, a surety bond callable on demand issued by a surety or insurance company accredited by the Office of the Insurance Commissioner, or any combination thereof.

Sec. 4.7.2The purpose of bid evaluation is to determine the cost of each bid to the Government in a manner that will permit a comparison of bids on the basis of evaluated cost. The responsive bid with the lowest evaluated cost, but not necessarily the lowest submitted price, shall be selected for award. The general guidelines to be followed in bid evaluation and comparison are given in Annex "G."

COA Resolution No. 95-244, May 18, 1995

By its very nature and characteristic, public bidding aims to protect the public interest by giving the public the best possible advantages thru open competition;

The conduct of public bidding entails the incurrence of expenses consisting of the cost of publication and documentation and man-hours utilized which sometimes exceed the amount of supplies, materials and equipment to be procured;

Ordinary practices reveal that the tediousness of the process and the expenses incurred let alone the fraud, collusion, simulation and rigging attending the conduct of public bidding are not commensurate with the desired objective to achieve the best possible advantage to the government;

In keeping with its avowed objective to be a partner in development and to ensure greater facility or flexibility in the procurement of supplies, materials and equipment in the face of continuous escalation of prices of these commodities, this Commission resolves, as it does hereby resolve to revoke Paragraph 4.1 (a) of COA Circular No. 85-55A dated September 8, 1995 prescribing the limit of P50,000.00 for purchases subjected to public bidding.

Local Government Code (R.A. 7160)

SEC. 364. The Committee on Awards- There shall be in every province, city, or municipality a committee on awards to decide the winning bids and questions of awards on procurement and disposal of property.

The Committee on Awards shall be composed of the local Chief Executive as chairman; the local treasurer, the local accountant, the local budget officer, the local general services officer, and the head of office or department for whose use the supplies are being procured, as members. In case a head of office or department would sit in a dual capacity, a member of the sanggunian elected from among its members shall sit as member. The Committee on Awards at the barangay level shall be the sangguniang barangay. No national official shall sit as a member of the committee on awards.

The results of the bidding shall be made public by conspicuously posting the same in the provincial capitol or city, municipal, or barangay hall.

SEC. 365. Rule on Awards. - Awards in the procurement of supplies shall be given to the lowest complying and responsible bid which meets all the terms and conditions of the contract or undertaking.

Illustrative Decisions

COA Decision No. 93-3435 dated December 2, 1993

The National Council for the Welfare of Disabled Persons (NCWDP) awarded a contract to Bookman Printing House for the printing of the publication entitled "Summary Technical Information (STI) in the Asia Pacific Region", for distribution to different countries in the Asia Pacific Region and some countries in Europe and in America. The Council availed of the services of private printers instead of the then Bureau of Printing, on the basis of an authority given by the Office of the President. The Auditor disallowed the amount of P12,090.00 from the total amount of P30,175.20 paid to Bookman Printing House for the reason that the award of printing job to the second highest bidder which resulted to an additional expenditure of P12,090.00 is not the most advantageous offer and appears to be irregular.

The CP found merit in the justifications submitted in support of the appeal, i.e., that the lowest bidder was not a complying bidder due to inadequate facilities needed for the printing of a two-color magazine like the STI. Considering that the subject disallowance covers a printing job that was contracted by the Council in the pursuit of its commitment and since the printing services were rendered to the satisfaction of the Council, the CP granted the request for the lifting of the disallowances.

COA Decision No. 93-3370, October 26, 1993

This is a request of Mr. Antonio M. Flores, et al., officers and employees of the Department of Public Works and Highways - Negros Oriental Highway Engineering District (DPWH-NOHED), Dumaguete City, for reconsideration of the adverse decision of the Auditor disallowing the payments of hand tools supplied to the DPWH-NOHED on the ground of "excessive payment."

The Everwealth Fabricators supplied the tools after being awarded the contract as the lowest bidder in a public bidding held for the purpose. The Auditor's re-canvass however showed an overprice of P786,187.78.

The DPWH-NOHED officials/employees assail the finding of an alleged "overprice" or "excessive payment", alleging, inter alia, that the prices in question were obtained thru a public bidding conducted after due publication in the local newspaper and that the price differences cited were derived from the comparison of prices between highly fabricated materials and mere garden tools.

The CP ruled thus:

"This Commission holds that subject disallowance is in order. It suffices to state that the determination as to the reasonableness or regularity of prices, besides being a necessary phase of audit, rests largely in the discretion of the Auditor as a representative of this Commission. Such being the case, the matter of "overprice" is a factual conclusion which is entitled to respect in the absence of a manifest arbitrariness in the determination thereof. Otherwise stated, the deference to the Constitutional authority to protect government funds from irregular, unnecessary, excessive, or extravagant expenditures or uses and the need to exercise restraint for this purpose, require that payments involving transactions covering overpriced items should be disapproved, at least, insofar as what is deemed excessive."

The issue raised herein actually addresses itself to the provision in Section 2 (paragraph 1), Art. IX-D of the Constitution, vesting this Commission with "the power, authority, and duty to examine, audit, and settle all accounts pertaining to the x x x expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, x x x." The same section (paragraph 2) also vests in this Commission the "exclusive authority, x x x, to define the scope of its audit and examination, establish the technique and methods required therefor, and 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 funds and properties."

If, as the Constitution so provides, this Commission is authorized to promulgate rules and regulations preventing irregular, unnecessary, excessive or extravagant expenditures or uses of government funds, there can be no question about its power to determine ultimately what expenditures or uses of government funds are irregular, unnecessary, excessive or extravagant.

The fact that the hand tools were placed on bid should not mean as sacrificing thereby the object of public bidding. Public biddings are held for the protection of the public, and to give the public the best possible advantages by means of open competition between the bidders. (Caltex (Phil.), Inc. et al., v. Delgado, et al., L-5439, Dec. 29, 1954) Favis, et al., v. Municipality of Sanbangan, etc., L-26522, Feb. 27, 1969) Public bidding aims to secure the lowest possible price and obtain the better bargains for the government. It is based on the principle that under ordinary circumstances, fair competition in the market tends to lower prices. (Fernandez, Jr., B.C., A Treaties On Government Contracts Under Philippine Law, 1985, p. 171) Records however disclose that the prices quoted by Everwealth were by far higher, if not the highest, as compared with the quotations of other suppliers in the business locality. As the situation would be that the government would be paying Everwealth for the hand tools in question at a higher price, this could not be said of a benefit, but only a disadvantage to the government as it failed to obtain the "lowest and best price" of hand tools in the market. The salutary effect on the government is undoubtedly the paramount consideration with which the Auditor should be concerned about towards achieving, and against the defeat of, the objectives and purposes of a public bidding.

COA Decision No. 93-3203 dated September 1, 1993

The City Government of Cotabato conducted public bidding for the purchase of one (1) unit spring front for the repair of a Dump Truck with Plate No. SAB-870. The abstract of bids show that the contract was awarded to LCT Hardware for P400.00, being the lowest bidder. However, LCT Hardware refused to deliver the article upon receipt of the purchase order notifying the City Treasurer that there was an error in the price quotation of the article and offered, instead, a new price quotation of P4,000.00 for which a new purchase order was prepared and the article delivered.

The City Auditor disallowed the payment on the ground that no rebidding was conducted when LCT Hardware refused to deliver the article based on its bid price. Hence, this request for reconsideration.

The CP granted the request for reconsideration. It is clear that there was a plain and simple error in the quotation of the bid price from P4,000.00 to P400.00. The two (2) other bidders (Elena Co and Union Hardware) offered P4,600.00 and P4,500.00, respectively, for the same item. Even the within letter of Felipe Quesada, City Treasurer, to the City Mayor, disclosed the error when he indicated therein that the selling price at even P4,000.00 by LCT Hardware for the same article is still the lowest prevailing in the area. Hence, the clerical error is discernible and it cannot be made the basis for rebidding since the intention of the law requiring the bidding has been substantially complied with. It is not the letter but the spirit of the law and the intent of the legislature that is important.

B. Limited Source Bidding
This mode applies only to procurement of any of the following:

- highly specialized type of equipment;
- small additions to an existing fleet of equipment;
- major plant components;
- goods involving small amounts of P 500,000.00 or less.

Applicable Laws, Rules and Regulations

IRR of Executive Order No. 302, February 19, 1996, Annex C

1. Limited Source Bidding (a.k.a.., selective bidding) is a procedure that involves direct invitation to bid by the concerned Agency from a set of pre-selected manufacturers/suppliers/distributors with known experience and proven capability on the requirements of the particular contract. The PBAC of the concerned Agency shall directly send to the Pre-selected bidders the invitation to bid, which shall already indicate the relevant information required to enable the bidders to prepare their bids as prescribed under the pertinent provisions of these IRR. Limited source bidding may be employed by concerned Agencies under any of the following conditions:

a) Procurement of highly specialized types of equipment where only a few manufacturers/suppliers/distributors are available who could maintain a competitive position, such that resorting to the open competitive bidding method will not likely result in any additional manufacturers/suppliers/distributors participating in the bidding;

b) Procurement of relatively small additions to an existing fleet of equipment where a few manufacturers/suppliers/distributors are well-established and who provide satisfactory after-sales services;

c) Procurement of major plant components where it is deemed advantageous to limit the bidding to known qualified bidders in order to maintain uniform quality and performance of the plant as a whole; and

d) Procurement of goods involving relatively small amounts, i.e., amounts involving P500,000.00 or less, such that the cost and time of publicly advertising the bidding is not justifiable.

C. Direct Contracting
Any of the following conditions must exist:

- Procurement of items of proprietary nature
- Purchase from an exclusive dealer or manufacturer
- Procurement of critical plant components from a specialist manufacturer/supplier/distributor
- Maintenance of standards
- Emergency purchase

Applicable Laws, Rules and Regulations

IRR of Executive Order No. 302 February 19, 1996, Annex C

2. Direct Contracting (a.k.a., single source procurement) procedure does not require elaborate bidding documents. The selected manufacturer/supplier/distributor is simply asked to submit a price quotation or a pro-forma invoice together with the conditions of sale. It is resorted to under any of the following conditions:

a) Procurement of items of proprietary nature which can be obtained only from the proprietary source, i.e., when patents, trade secrets, and copyrights prohibit others from manufacturing the same item;

b) Those sold by an exclusive dealer or manufacturer which does not have sub-dealers selling at lower prices and for which no suitable substitute can be obtained at more advantageous terms to the Government;

c) When the procurement of critical plant components from a specialist manufacturer/supplier/distributor serves as a precondition of a contractor responsible for the erection of the project for his guarantee of project performance;

d) For purposes of maintaining standards, such as a purchase involving a small addition to an already existing fleet of equipment; and

e) In emergencies where procurement must immediately be accomplished regardless of cost. Emergencies shall be defined as those situations where there is imminent danger to life and/or property as determined by the Head of Agency concerned.

D. Shopping
The following are required:

- quotations from at least 3 suppliers
- applicable only to the following procurements

a) readily available off-the-shelf goods not greater than P500,000.00
b) ordinary/regular office supplies and equipment not exceeding P 500,000.00

Applicable Laws, Rules and Regulations

IRR of Executive Order No. 302, February 19, 1996, Annex C

4. Shopping is a method of procurement whereby the purchaser simply requests for the submission of price quotations for the goods to be procured directly from manufacturers/suppliers/ distributors of known qualifications. This method of procurement shall be employed only in the following cases, and to ensure competitive prices, the PBAC concerned shall obtain quotations from at least three (3) manufacturers/suppliers/distributors:

a) procurement of readily available off-the-shelf goods or standard specifications goods that are small in value, i.e., amounts involving P500,000.00 or less.

b) procurement of ordinary/regular office supplies and equipment involving an amount not to exceed P500,000.00. At the discretion of the Head of Agency concerned, the procurement of ordinary/regular office supplies and equipment involving an amount not exceeding P 500,000.00 may be handled by the respective Administrative Staff/Department/Division of the Agency instead of the PBAC.

E. Negotiated Purchase:
It is resorted to only in any of the following cases:

- there must be failure of public bidding for the second time;
- existing contract has been terminated;
- goods are to be used for a project that cannot be delayed without causing detriment to the public service;
- purchase from another government agency.

Applicable Laws, Rules and Regulations:

IRR of Executive Order No. 302 , February 19, 1996, Annex C:

5. Negotiated Procurement. As distinguished from direct contracting, negotiated procurement is resorted to only for convenience rather than anything else, even if broader tendering would have been possible. Negotiated procurement may be employed by Agencies only in the following cases as determined by the Head of Agency concerned:

a. where there has been failure of competitive bidding for the second time as provided under rule 4.8 hereof;

b. where the existing contract has been terminated in accordance with the pertinent provisions of these IRR and existing laws, rules and regulations;

c. whenever the goods are to be used in connection with a project or activity which cannot be delayed without causing detriment to public service; and

d. whenever the purchase is to be made from another Agency of the Government. One special negotiated procurement scheme which government agencies may consider is the procurement through the Procurement Service of the Department of Budget and Management. Such mode of procurement should, however, conform to Executive Order No. 359 which prescribes the guidelines in the implementation of Executive Order No. 285 regarding the operation of a government-wide procurement system for common-use office supplies, materials and equipment.

Local Government Code

SEC. 369. Negotiated Purchase - (a) 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 sanggunian concerned. Delivery of purchase orders or utilization of repair orders pursuant to this Section shall be made within seven (7) days after placement of the same. Immediately after the negotiated purchase or repair order is made, the local chief executive concerned shall draw a regular requisition to cover the same which shall contain the following:

1) A complete description of the supplies acquired or the work done or to be performed;
2) By whom furnished or executed;
3) Date of placing the order and the date and time of delivery or execution;
4) The unit price and the total contract price;
5) Certification of the provincial or city general services or the municipal or barangay treasurer, as the case may be, to the effect that the price paid or contracted for was the lowest at the time of procurement;
6) A certification to the effect that the price paid or contracted for was the lowest at the time of procurement; and
7) A certification of the local budget officer as to the existence of appropriations for the purpose, the local accountant as to the obligation of the amount involved, and the local treasurer as to the availability of funds.

F. Emergency Purchase:
- this mode is allowed in cases where the need for the materials is exceptionally urgent or absolutely indispensable to prevent immediate danger to or loss of life or property, or the materials to be purchased are to be used in connection with a project or activity which cannot be delayed without causing detriment to the public service. A certification by the head of agency shall be required as to the actual situation, quantity to items, and period in which they are to be used.

- price must be the lowest from the offers of at least three "bona fide" suppliers, except when the amount involved is less than P1,000.

Bona fide suppliers:

a) duly licensed and registered with appropriate bodies;
b) not "blacklisted" by any government agency at the time of canvass
c) it should be in business for at least 6 months.
- amount should not exceed the limitations under the GAA, or resolution.

 Applicable Laws, Rules and Regulations

Local Government Code:

SEC. 368. Emergency Purchase - In cases of emergency where the need for the supplies is exceptionally urgent or absolutely indispensable and only to prevent imminent danger to, or loss of life or property, local government units may, through the local chief executive concerned, make emergency purchase or place repair orders, regardless of amount, without public bidding. Delivery of purchase orders or utilization of repair orders pursuant to this Section shall be made within ten (10) days after placement of the same. Immediately after the emergency purchase or repair order is made, the chief of office or department making the emergency purchase or repair order shall draw a regular requisition to cover the same which shall contain the following:

a) A complete description of the supplies acquired or the work done or to be performed;
b) By whom furnished or executed;
c) Date of placing the order and the date and time of delivery or execution;
d) The unit price and the total contract price.
e) A brief and concise explanation of the circumstances why procurement was of such urgency that the same could not be done through the regular course without involving danger to, or loss of, life or property.
f) A certification of the provincial or city general services officer or the municipal or barangay treasurer, as the case may be, to the effect that the price paid or contracted for was the lowest at the time of procurement; and
g) A certification of the local budget officer as to the existence of appropriations for the purpose, the local accountant as to the obligation of the amount involved, and the local treasurer as to the availability of funds.

The goods or services procured under this Section must be utilized or availed of within fifteen (15) days from the date of delivery or availability.

Without prejudice to criminal prosecution under applicable laws, the local chief executive, the head of department, or the chief of office making the procurement shall be administratively liable for any violation of this Section and shall be a ground for suspension or dismissal from service.

G. Personal Canvass:
- award must be made to the supplier offering the lowest price from among at least three responsible suppliers in the locality.

 Applicable Laws, Rules and Regulations

Local Government Code:

SEC. 367. Procurement through Personal Canvass. - Upon approval by the Committee on Awards, procurement of supplies may be effected after personal canvass of at least three (3) responsible suppliers in the locality by a committee of three (3) composed of the local general services officer or the municipal or barangay treasurer, as the case may be, the local accountant, and the head of office or department for whose use the supplies are being procured. The award shall be decided by the Committee on Awards.

Purchases under this Section shall not exceed the amounts specified hereunder for all items in any one (1) month for each local government unit:

Provinces and Cities and Municipalities within the Metropolitan Manila Area:

First and Second Class- One hundred fifty thousand pesos (P150,000.00)
Third and Fourth Class- One hundred thousand pesos (P100,000.00)
Fifth and Sixth Class-Fifty thousand pesos (P50,000.00)

Municipalities:

First Class-Sixty thousand pesos (P60,000.00)
Second and Third Class -Forty thousand pesos (P40,000.00)
Fourth Class and Below -Twenty thousand pesos (P20,000.00)

Illustrative Decisions

COA Decision No. 93-3227 dated September 3, 1993

The Telecommunications Office (TELOF), Region VII, procured thru canvass three (3) sets of safety belts for the use of Tagbilaran Telephone Exchange sometime in November, 1990 at P12,800/set.

The Auditor disallowed the said transaction after referring the same to the Technical Services Office (TSO) of the Commission on Audit. Based on the findings of the TSO, a price variance of P 6,720 was found computed, as follows:

Purchase price

(P12,800/set x 3 sets)                       = P38,400

COA computation
(based on TSO findings

P9,600/set x 3 sets)                           = P28,800

10% allowable variance - 2,880.00   =  31,680

                                        Difference P= 6,720

Other irregularities were also noted by the Auditor viz:

a) The canvass was made by a private individual who was a relative of one of the employees of the TELOF;
b) The person who signed the canvass papers was the same person who claimed the check for payment of the items;
c) The goods were delivered just one day after the sealed canvass was opened.

The CP affirmed the disallowance due to the above, notwithstanding the agency's contention that the basis of the Auditor in the determination of the reasonableness of the price is not fair since the supplier who quoted the price for TSO did not participate in the bidding.

COA Decision No. 93-3076 dated August 25, 1993

The Philippine International Trading Corporation (PITC) purchased typewriters from Trade Gate Enterprises who offered the lowest quotation of P23,500.00 on a canvass made by the Agency.

The PITC Auditor disallowed the transaction contending that "Tradegate Enterprises x x x is primarily engaged in the repair of typewriters. A visit to the location of Tradegate revealed that it was actually a repair shop without any signboard identifying its business name."

The CP reversed the Auditor's decision because the records do not show any evidence that would disqualify Tradegate Enterprises, the winning bidder, as supplier pursuant to Item 4.1, b)-3 of COA Circular No. 85-55-A dated September 8, 1995. The requirements to be a bona fide supplier are complied with by the Tradegate Enterprises, viz:

1. It should be duly licensed and registered with appropriate bodies;
2. It is not "blacklisted" by any government agency at the time of canvass; and
3. It should be in the business for at least six (6) months.

COA Decision No. 93-3336 dated October 14, 1993

This is a request for reconsideration of the disallowance due to overpricing of purchases by the Pablo Borbon Memorial Institute of Technology, Batangas City.

The canvass sheet containing the canvassed price of the machines in question was not signed by the supplier's representative, as appearing from the Memorandum, dated July 24, 1992, of the Director, Technical Services Office (TSO). The CP decided that the same cannot be considered as sufficient basis for comparison with the prices obtained by the BAC, Southern Polytechnic Colleges.


H.Thru Exclusive Philippine Agent or Distributor :

- the supplier must be the exclusive distributor of the items purchased. A Certificate of Exclusive Distributorship shall be issued by the principal.
- there are no other distributors or other suppliers offering the same or similar items at lower prices.

Applicable Laws, Rules and Regulations

Local Government Code:

Sec. 371. Procurement from Exclusive Philippine Agents or Distributors. - Procurement may, in the case of supplies of foreign origin, preferably be made directly from the exclusive or reputable Philippine distributors or agents, subject to the following conditions:

a) That the Philippine distributor has no subdealers selling at lower prices; and
b) That no suitable substitutes of substantially the same quality are available at lower prices.

Illustrative Decision

COA Decision No. 93-3403 dated November 15, 1993

the Provincial Health Office, Daet, Camarines Norte, purchased medical supplies in the total amount of P296,000.00. The Auditor disallowed in post-audit the amount of P221,220.00 due to overpricing.

The CP affirmed the decision of the Auditor due to the following:

a) The mode of procurement used by the agency was exclusive distributorship. However, for the items purchased in this case, there were a lot of substitutes in the open market which were comparable in quality.

b) Compliance with all the requirements of a purchase does not preclude the COA from determining the reasonableness of prices of items purchased.

I. Repeat Order:
- The price must be the same as or lower than the original price paid for the same items.
- The repeat order should not exceed the quantity in the original order.
- The repeat order, if resorted to, will not result to splitting of requisitions, purchase orders, contracts, and payments.
- Use of repeat order may be availed of only within the 6 (six) month-period from the date of original purchase order.

 Applicable Laws, Rules and Regulations

IRR of Executive Order No. 302, February 19, 1996, Annex C.

3. Repeat Order. Under this method, acquisition is made on additional quantities from the manufacturer/supplier/distributor who provided the same items under a previously bid contract. Repeat orders may be resorted to by Agencies only in cases where the manufacturer/supplier/ distributor who was selected in the previous bidding is clearly superior to the other bids not only in terms of the price quoted but also in terms of equipment reliability, availability of spare parts, after-sales service and delivery period, among others. Repeat orders shall likewise be subject to the following conditions:

a. Prices must be the same as or lower than those in the original contract;
b. The repeat order will not result in splitting of requisitions or purchase orders;
c. Repeat orders may be availed of only within a six (6) month period from the date of the original purchase; and
d. The repeat order shall not exceed the quantity in the original contract."

Local Government Code

Sec. 369 b: In case of repeat orders for regular supplies, procurement may be made by negotiated purchase: Provided, that the repeat order is made within three (3) months from the last procurement of the same item: Provided, further, that the same terms and conditions of sale are obtained for the said repeat order.

Illustrative Decision

COA Decision No. 93-3166 dated Sept. 1, 1993

The Auditor, Bacolod City, disallowed purchases of concrete mix covered by five Purchase Orders all in favor of D.K. Jocson Construction Corporation, amounting to P11,921,363.00 which were done through repeat orders on the ground of being irregular inasmuch as the supplier was not the original winning bidder during the public bidding held on March 4, 1992, for the supply and delivery of concrete mix.

The CP affirmed the disallowances, stating thus: "Additionally, on the issuance of the repeat orders, the allegation of the absence of a copy of COA Circular No. 85-55A, supra, and being not familiar with the provision thereof is untenable. Article 3 of the New Civil Code states thus: "Ignorance of the law excuses no one from compliance therewith". The rule is based on public interest and is designed precisely to avoid abuse through a mere allegation that the law has not come to the knowledge of a party. Likewise, Section 369 (b) of R.A. No. 7160, presupposes that the repeat orders referred to therein were issued to the original supplier or winning bidder.

J. Direct Purchase from a Duly Licensed Manufacturer
Applicable Laws, Rules and Regulations

Local Government Code:

Sec. 370. Procurement from Duly Licensed Manufacturer: Procurement may be made directly from duly licensed manufacture in cases of supplier of Philippine manufacture or origin and in case there are two or more manufacturers of the supplies desired, canvass of known manufacturers should be made to obtain the lowest price for the quality of supplies desired.

K. Procurement From other Government Entities
Applicable Laws, Rules, Regulations:

Local Government Code:

SEC. 372.Procurement from Government Entities. - Procurement may be made directly from government entities producing the required supplies, including units or agencies of foreign governments with which the Philippines maintains diplomatic relations. In the latter case, prior authority from the Office of the President shall be required.

Government Accounting and Auditing Manual:

Sec. 444. Coverage - With the abolition of the General Services Administration under Executive Order No. 285, dated July 27, 1987, the functions of the Supply Coordination Office have been transferred to the Procurement Service, under the Department of Budget and Management (DBM), with respect to:

a. Operation of a government-wide procurement system for common-use office supplies; and

b. Monitoring of prices for common-use supplies, materials and equipment.

Executive Order 359, dated June 2, 1989, prescribes the guidelines and procedures in the implementation of Executive Order No. 285 in the operation of a procurement system for common-use office supplies, materials and equipment. Section 3 of the Executive Order provides that all national government agencies, including state universities and colleges and government-owned or controlled corporations and their subsidiaries, that require common-use supplies, materials and equipment are covered by the Executive Order. The central procurement system may be availed of by local government units on a voluntary basis.

Agencies are, however, allowed to procure directly for emergency needs whenever there is a significant delay in the delivery of urgently needed supplies by the Procurement Service, subject to existing accounting and auditing rules and regulations

To carry out this mandate, the DBM shall establish regional depots as part of the regular organization structure of the Procurement Service from which government agencies may locally purchase their common-use supplies, materials and equipment requirements.

Sec. 445 Operating procedures of purchases through the Procurement Service. The operating procedures of the procurement system which shall be prescribed by the Procurement Service shall cover, among others, the following:

a. Preparation and submission of the annual agency procurement programs for brand-new supplies, materials and equipment which are covered by the procurement system.

b. The appropriations for the annual procurement programs of agencies shall be identified in their annual Work and Financial Plan. This Plan shall serve as the basis of the DBM in the release of the agency's quarterly allotments and monthly funding warrants.

The agencies shall remit in advance to the Procurement Service the funds needed to service their requirements for supplies, materials and equipment as reflected in said Work and Financial Plan.

c. Adoption of simplified bidding procedures as authorized under Item 12 of LOI 755 by a Procurement Service Bids and Awards Committee whose composition shall be determined by the Procurement Policy Board.

d. In the evaluation of supplies, materials and equipment, the applicable standards as to specifications and test methods of the Bureau of Products Standards shall be strictly followed; where otherwise not available, the appropriate international and/or trade standards, whichever is more beneficial to the government, shall apply. Evaluation of items which are highly technical in nature shall in all cases be attended by the technical experts of the end-user agency and representatives of professional associations under whose field of expertise the items may be covered.

Sec. 446 Purchase from Other Philippine government agencies.

Procurement may be made direct from government entities producing supplies to fill the needs of the government. (Sec. 372, RA 7160).

Thus, school desks and office furniture may be procured from government schools of arts and trades or vocational schools or the Bureau of Prisons.

For standard and accountable forms of national, provincial, city, and municipal governments, including government corporations, the printing, binding, and distribution thereof shall be undertaken by the National Printing Office. (Sec.6, EO 285 s, 1987)

Review as to Clarity/Specificity :

4. Determine if the specifications of the items subject of the contract are clear and unambiguous - would not give an option to the supplier to deliver any item other than that actually required.

Applicable Laws, Rules and Standards

COA Manual on Property and Supply Management

The description of the items to be procured should be clear and unambiguous, leaving no room for interpretation during performance. The specifications may be classified into:

a. purchase description - specifications that identify the item by a brand name;

b. design specifications - contain precise measurements, tolerance, materials in process and finished product tests, quality control and inspection requirements;

c.  performance specifications - contain performance characteristics for the desired items.

In interpreting specifications, the basic rule is to follow the normal rules of contract interpretation. In case of ambiguity, the contractor must demonstrate that the ambiguity was not so patent that he was aware of it at the time his bid was submitted. Otherwise, he is deemed to have assumed the risk of a patent ambiguity if he does not request clarification.

Review as to Confluence:

5. Determine if the specifications of the items indicated in the supplier's offer are similar to the specifications of the items required/needed by the agency.

The RIV/ Purchase Request/ Agency Estimate, etc., are some of the documents that indicate the agency requirements.

6. Ascertain that the specifications indicated in the contract are similar to those indicated in the offer of the winning supplier. If not, validate deviations from the supporting documents.

Moreover, the specifications indicated in the contract should conform with the minimum standard specifications prescribed by the Bureau of Product Standards.

Applicable Laws, Rules and Regulations

Government Accounting and Auditing Manual

SEC. 424. Annual procurement program - In the national government agencies, an annual procurement program showing itemized quantity, description and estimated cost of supplies/materials/equipment required for a fiscal year shall be prepared by all agencies of the national government. Such program shall be made an integral part of supporting documents of the agency's Work and Financial Plan required to be submitted to the Department of Budget and Management on or before the end of every November pursuant to NBC 415 dated January 19, 1990.

In the local government units, on or before the fifteenth (15) day of July each year, the local chief executive shall prepare an annual procurement program for the ensuing fiscal year which shall contain an itemized list of the estimated quantity of supplies needed for such year, a complete description thereof as to kind, quantity and quality, the estimated costs, and the balance on hand. However, the total estimated cost of the approved annual procurement program shall not exceed the total appropriations authorized for the acquisition of supplies. The local government units may augment the supplies and equipment provided by the Supreme Court to the lower courts located in their respective jurisdictions.

Except in emergency cases or where urgent indispensable needs could not have been reasonably anticipated, no purchase of supplies shall be made unless included in, or covered by, the approved procurement program.

Local Government Code

SEC. 373. Annual Procurement Program -

(a) On or before the fifteenth (15th) day of July each year, the local chief executive shall prepare an annual procurement program for the ensuing fiscal year which shall contain an itemized list of the estimated quantity of supplies needed for such year, a complete description thereof as to kind, quality, estimated cost, and balance on hand: Provided, however, that the total estimated cost of the approved annual procurement program shall not exceed the total appropriation authorized for the acquisition of supplies. The local government units may augment the supplies and equipment provided by the Supreme Court to the lower courts located in their respective jurisdictions.

(b) Except in emergency cases or where urgent indispensable needs could not have been reasonably anticipated, no purchase of supplies shall be made unless included in, or covered by, the approved procurement program.

(c) The conversion of excess cash into supplies stock is hereby prohibited except to the extent of the kind and quantity specified in the approved annual procurement plan.

A violation of this Section shall be a ground for suspension or dismissal of any official or employee responsible therefor.

Review as to Necessity:

7. Determine if the items ordered and quantity thereof are necessary, moderate, and not luxurious.

a. For supplies to be carried in stock, it should not exceed three-months' requirement, except where the exigencies of the service demand otherwise but in no case to exceed current year's needs.

b. Purchase of computers should be in line with the Information Systems Development Plan (ISDP) of the agency which has been earlier approved by the Department of Budget and Management. LGUs however are given the autonomy to plan for the Information Technology direction in their locality.

Applicable Laws, Rules and Regulations:

COA Circular 85-55A

Definition: The term pertains to expenditures which could not pass the test of prudence or the diligence of a good father of a family, thereby denoting non-responsiveness to the exigencies of the service. Unnecessary expenditures are those not supportive of the implementation of the objectives and mission of the agency relative to the nature of its operation. This would also include incurrence of expenditure not dictated by the demands of good government, and those the utility of which cannot be ascertained at a specific time. An expenditure that is not essential or that which can be dispensed with without loss or damage to property is considered unnecessary. The mission and thrusts of the agency incurring the expenditures must be considered in determining whether or not an expenditure is necessary.

Standards for "Unnecessary" Expenditures

A. Time of Need

1. The volume of purchases must be enough to fill the three (3) months' requirements of the agency except when circumstances or the exigencies of the service would demand otherwise. Purchases made in excess of three (3) months' requirements should not, however, exceed the current year's needs, except as herein provided.

2. November/December purchases shall be limited to three (3) months' supply only.

3. Three (3) months' supply is determined by computing the average monthly consumption of the agency for the last six (6) months plus 10% allowance for contingencies multiplied by three. However, the 10% allowance for increase may be exceeded when the circumstances call for additional procurement, such as but not limited to seminars, conferences and the like or in case where the activities cannot be delayed without causing detriment to the public service.

Formula for A.3: For arriving at one (1) month's supply

Let T = total consumption for the last 6 months

A = T/6 average consumption for the last 6 months

P = estimated one (1) month supply

P = A + (10%)A = (1.10) x A

Examples:

Monthtly Consumption

January P= 23,377.33
February    28,353.04
March         43,411.68
April           50,623.84
May            43,664.34
June            41,646.82
 Total P=    231,077.05

Average Consumption for one month will be:

             P = 231,077.05/6 +  (.1)( 231,077.05)/6

(one month supply)
                  = 38,512.84  + (.10) (38,512.84)
                  = 38,512.84  +   3 ,851.28
                  = 42,364.12

Note:To compute for the 3 months' consumption, multiply the P (estimated one month supply) by 3.

 4. Supplies bought or services rendered should be used or availed of before the utility of said items or services expires.

B. Frequency/Nature of use

An expenditure is unnecessary if the item/object is not used according to normal usage/practice.

Ex. -A warehouse is used as pelota court.

C. Location

Item bought or service rendered is unnecessary when it is not needed or useful in the place where it is intended to be used.

Ex. - When an air-conditioner is bought in Baguio City or in a municipality where there is no electricity.

Situational cases of "unnecessary" expenditures or uses of funds and property:

A. Funds

2. Expenses for advertisements of anniversaries, etc. in newspapers, TV, or radio merely for publicity or propaganda purposes except when the nature of the agency's mission would require such expenses as in the case of promotion of trade and business

4.2 Stocking

Subject to availability of funds, agencies may be allowed to enter into contracts for the purchase of supplies and materials for one year subject to the condition that deliveries shall be made on a staggered basis, and the agencies three (3) months' supply requirements are not exceeded and payments shall be made after each delivery only.

NCC Memorandum Circular No. 93-3 as clarified by the Letter of the COA Chairman dated November 29, 1993 and Memorandum Order No. 237

Section 3. Mandatory submission for National Government Agencies and Government Owned and Controlled Corporations (GOCCS)

All Departments and their attached agencies, GOCCs, and Major Government Agencies, as listed in APPENDIX 1 and in the subsequent updates to be provided annually by the NCC, are hereby required pursuant to MO 237 to submit their 5-year ISP to the NCC for review and endorsement to the heads of the Agencies and the Department of Budget and Management for appropriate action.

Bureaus and other agencies not listed as Major Agencies shall nevertheless submit to their Departments their ISP for integration in the department-wise ISP.

Agencies listed in APPENDIX 1 with endorsed ISPs as of September 30, 1993, are required to convert their ISP into the new format, especially those whose ISPs are due for updating. This requirement is necessary to facilitate the ISP integration into the government-wide ISP, a major subset of the National Information Technology Plan.

Section 4. Optional IT Planning for Local Government Units (LGUs) and State Universities and Colleges

In line with the 1990 Local Government Code, LGUs are given the autonomy to plan for the IT direction in their locality. State Universities and Colleges are, also, henceforth required to develop their respective ISPs. NCC, however, stands ready to provide advisory services in the development or implementation of information systems, and use of IT.

Memorandum Order No. 237 dated May 23, 1989

Section 2. The acquisition of microcomputers and associated software and peripherals by a government agency or other entity shall not require prior individual clearance from the National Computer Center provided that this is in line with its Information System Development Plan which has been approved earlier by the Department of Budget and Management. The acquisition of minicomputer systems and mainframe computer systems shall, however, continue to require prior individual clearance from the National Computer Center.

Illustrative Decisions:

COA Decision No. 93-3415 dated November 16, 1993

The Auditor of the Cooperative Development Authority (CDA) disallowed in audit the purchase of 1,000 pieces of gift wrapper with CDA logo in the amount of P14,500.00 on the ground of being unnecessary since it can be dispensed with, without hampering the agency's mandated activities.

The CP affirmed the Auditor's action on the following grounds:

1) Incurrence of subject expenditure violates Sec. 163 of the GAAM which defines unnecessary expenditures as those not supportive of the implementation of the objectives and mission of the agency relative to the nature of the operation.

2) One of the standards for unnecessary expenditures under COA Circular No. 85-55A is that the volume of the purchase must be enough to fill the three (3) months requirements of the agency. The justifications of the CDA officials that the wrapper "will last for a considerable length of time" show that the expense does not meet the cited standard.

COA Decision No. 93-3335 dated October 14, 1993

This is a request for reconsideration of disallowances made by the Auditor-in-Charge, Camarines Sur National High School (CSNHS), Naga City, in the total amount of P=25,278.00 representing the purchase price of twenty-two (22) brand new units of ceiling fans, 36", Standard brand, intended for the SEDP session hall, charged to SEDP Funds.

The Auditor-in-Charge found the purchase price of the items to be excessive and unnecessary, considering that 12 units of ceiling fans were already installed at the session hall and were properly functioning; that the 22 units of brand new 36" ceiling fans were stored and unused since their delivery on May 21, 1990, facing the risk of being stolen, and also deterioration and use by unauthorized persons. The ceiling fans were not even utilized during the seminars as intended; hence, these did not serve the purpose for their purchase. The CP affirmed the disallowance, ruling thus "The purchase of the 22 units of ceiling fans was, indeed, excessive and unnecessary considering that these were not utilized during the SEDP Seminars conducted thereat, but instead were stored and left unused at the school's stockroom from the date of their delivery to the present time, hence, they did not serve the purpose for their purchase. Also, the existence at the SEDP Session Hall of 12 other units of ceiling fans further reveal the plain extravagance of subject purchase as these old units were already adequate for the hall and were, in fact, properly functioning during the said seminar sessions."

COA Decision No. 93-3052 dated August 25, 1993

Payment of the cost of printing/purchase of 3,500 pieces of 1990 Christmas cards with set envelopes bearing the name of the Philippine Coconut Authority (PCA) was disallowed in audit by the PCA Auditor on the ground that the said transaction was extravagant and unnecessary considering that 7,500 pieces of 1990 calendars costing P=49,500.00 were also purchased on this occasion for distribution to coconut farmers. Appeal was made by the agency.

The CP denied the appeal considering the above stand of the Auditor that the purchase was extravagant.

COA Decision No. 93-3106 dated August 25, 1993_

The Provincial Auditor of Rizal disallowed in post-audit the payment to Professional Promotion Group, Inc., for the publication of full page notices of the 3rd death anniversary of former Senator Benigno Aquino in seven (7) daily newspapers in the amount of P206,985.82.

The CP upheld the decision of the Auditor ruling, thus: "The expenditure in question is not essential and can be dispensed with, because the nature of the agency's mission does not require advertisement of the subject anniversary. Since it does not promote the general welfare of the Province and its inhabitants, it is not within the competence of the Sanggunian concerned to appropriate money for the purpose even under Section 208(f) of Batas Pambansa Blg. 337. "Evidently, the legislature is without power to appropriate public revenues for anything but a public purpose." (COA Decision NO. 1163, dated February 5, 1990, citing Pascual vs. Secretary of Public Works)."

Review as to Reasonableness:

8. Determine if the contract cost is most advantageous to the agency.

a. Public bidding - lowest evaluated bid

The following methods of evaluation may be adopted:

1. Lowest Price Analysis - based on the price alone such as for supplies, materials, and equipment where offers are for identical or comparable items.

2. Price Plus Other Factor Analysis - other relevant factors that are intrinsic to the purpose for which the goods are intended are also evaluated such as:

a) extra features, options, accessories, etc.
b) cost of inland transportation and insurance
c) delivery schedule
d) cost of spare parts

3. Life Cycle Cost Analysis - involves the assessment of the initial cost of the acquisition plus the follow-on cost of ownership.

4. Merit Point System - evaluation is made by assigning points or weights for price and other relevant factor.

b. Limited Source Bidding- lowest evaluated bid
c. Direct Contracting - Suppliers quoted price
d. Shopping - Lowest quotation
e. Negotiated - not higher than the lowest offer in the failed bidding, or the most advantageous price
f. Emergency - lowest-canvassed price
g. Personal canvass - lowest-canvassed price
h. Thru Exclusive Philippine -price offered by exclusive agent

Agent distributor or distributor

i. Repeat Order - price is lower or the same as the original price paid for the same items.
j. Direct Purchase from a duly licensed manufacturer - price offered by manufacturer
k. Procurement from Government Entities - Price offered by the Government entity.

Applicable Laws, Rules and Regulations

IRR of Executive Order No. 302, February 19, 1996, Annex H

 "Specific Evaluation Procedures"

The PBAC of the concerned agency may employ any of the following specific evaluation procedures for the determination of a bid's evaluated cost that it deems appropriate for the requirement of a particular contract and shall be so indicated in the bidding documents. The use of any such procedure shall be subject to the prior approval of the Head of Agency concerned or his duly authorized representative.

1. Lowest Price Analysis. In procuring simple equipment, tools, supplies, and raw or semi-finished raw materials, as well as ordinary/regular office supplies and equipment, or where there is a strong possibility that offer will be for identical or comparable materials, evaluation of the bids on the basis of the price alone may be appropriate. In these cases, foreign bids shall be evaluated on the basis of the cost, insurance and freight (CIF) port of entry prices while domestic or local bids shall be evaluated on the basis of the ex-factory price. For local bidders offering wholly imported goods, the bids shall be evaluated on the basis of the off-the-shelf price which shall include customs duties paid on the imported goods by the firm.

2. Price Plus Other Factors Analysis. In the procurement of durable goods such as engines, pumps, vehicles, highway equipment and other similar equipment, it is more appropriate to evaluate each bid on the basis of the price quoted and other relevant factors that are intrinsic to the purpose for which the goods are intended. The probable costs of these factors shall, where possible and appropriate, be quantified in monetary terms to facilitate comparison. The major considerations and general outline to be considered under this procedure may include the following, among others:

a) Extra features, options, accessories, etc., where a bidder failed to provide a quotation for a particular item called for in the bidding document, but where such omission is not serious enough to warrant rejection of the bid, then the price of that omitted item based on available catalogue prices or the average of the responsive bids corresponding item shall be added to the bidder's total bid for purposes of comparison. Such addition shall however be made only on items specifically called for under the bidding documents. An addition shall not be made to a bid for the sole purpose of making it comparable to another bid who has offered an extra item not included in the specifications.

b) Cost of inland transportation and insurance. When the comparison of bids is to be made on the basis of the delivered cost, expenses for inland transportation and other expenditures incidental to the handling, transportation and delivery of goods to the project site shall be considered in the evaluation.

c) Delivery schedules. As much as possible, procurement shall be initiated early enough so that delivery schedules normally prevailing in the market are acceptable and no premium has to be given for early deliveries. However, in cases where the required goods are urgently needed, the Government may opt to provide premium for early deliveries. In such cases, the bidding documents shall explicitly state so and the evaluation methodology or additional weights to be given shall likewise be disclosed. The additional credits shall be based on the proportionate benefit to be earned by the government as a result of such delivery.

d) Cost of spare parts. In certain procurement, the cost of the initial and subsequent spare parts may be very important if they add up to a substantial part of the maintenance cost. In such cases, the cost of spare parts should be considered in the evaluation.

3. Life Cycle Cost Analysis. Evaluation of bids through these procedures involves the assessment of the initial cost of the acquisition plus the follow on cost of ownership. This method is most suitable in the procurement of major industrial plants or equipment where the follow-on costs for operation and maintenance are quite substantial so much so that a difference in the initial quoted price between competing bidders can easily be outweighed by the difference in the follow-on costs. For purposes of bid comparison, follow-on-costs shall be discounted at a discount rate to be prescribed in the bidding documents to their present values. Likewise, the bidding documents shall clearly outline the methodology for the quantification of the follow-on costs and also the precise information required to be submitted by the bidders.

4. Merit Point System. In some procurement, selection of the most advantageous bid on the basis of price alone may be inadequate while adoption of the life cycle cost procedure is either impractical or too time consuming to warrant its use. In these cases, the evaluation of bids may be made by simply assigning points or weights for price and other relevant factors. The allocation of points or weights must be in accordance with the relative relevance of the different factors to be considered.

9. If the mode of procurement is thru direct contracting , shopping, negotiation, emergency, canvass or exclusive distributor, evaluation of the contract price shall be made thru canvass in the open market or by reference to established price and cost data as follows:

1. COA Price Monitor Bulletin
2. CIAP Prices of Construction Materials
3. PS Price Bulletin

The following documents are necessary for evaluation of the reasonableness of the contract price:

1. Purchase Order
2. Sales Invoice
3. Approved drawings/specifications
4. Detailed breakdown of contract cost
5. Individual unit prices of the items, etc.

Applicable Laws, Rules and Regulations:

COA Memorandum No. 91-704

Price Reasonableness Review Evaluation Checklist

a) Clear copy of the duly accomplished purchase documents (P.O. or equivalent) with date and complete name and address of the supplier

b) Clear copy of the Sales Invoice/Delivery Receipts and Inspection Report

c) Approved drawing/sketch with corresponding description/ specifications and materials used, if applicable

d) Detailed breakdown of contract cost

e) Individual unit prices of the items

f) Sample and brochures/photographs, if applicable

g) Complete specification such as but not limited to:

- narrative description of the item and accessories, brand, unit of measurement, make, country of origin, 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, packing (quantity per pack), substance, speed, kind of service/job rendered

For imported items:

a) Consular Invoice/Proforma Invoice of the foreign supplier with details
b) Home Consumption Value of the items
c) Breakdown of the expenses incurred in the importation

COA Circular No. 85-55A

3.3  "Excessive" Expenditures

Definition:The term "excessive expenditures" signifies unreasonable expense or expenses 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. They also include expenses in excess of reasonable limits.

Standards for "Excessive" Expenditures

The term "excessive expenditures" pertains to the variables of  Price  and Quantity.

1. Price - The price is excessive if it is more than the 10% allowable price variance between the price paid for the item bought and the price of the same item per canvass of the auditor.

2.Volume - The price is deemed excessive if the Discount discounts allowed in bulk purchases are not reflected in the price offered or in the award or in the purchase/payment document.

3.Factors to - In determining whether or not be considered the price is excessive, the following factors may be considered.

A - Supply and demand forces in the market.

Ex. -  Where there is a supply shortage of a particular product, such as cement or GI sheets, prices of these products may vary within a day.

B - Government Price Quotations

C - Warranty of Products or Special Features

The price is not necessarily excessive when the service/item is offered with warranty or special features which are relevant to the needs of the agency and are reflected in the offer or award.

D - Brand of Products

Products of recognized brand coming from countries known for producing such quality products are relatively expensive.

Ex. - Solingen scissors and the like which are made in Germany are more expensive than scissors which do not carry such brand and are not made in Germany.

Situational Cases of "Excessive" Expenditures - (application to NLC sectors)

1. Overpricing of purchases, characterized by grossly exaggerated or inflated quotations, in excess of the current and prevailing market price by a 10% variance from the purchased item are considered excessive expenditures.

2. Expenditures for supplies and materials in quantities beyond that required herein and that needed by the agency for a determinable period resulting in overstocking is excessive.

3.4 "Extravagant" Expenditures

Definition: The term "extravagant expenditure" signifies those incurred without restraint, judiciousness and economy. Extravagant expenditures exceed the bounds of propriety. These expenditures are immoderate, prodigal, lavish, luxurious, wasteful, grossly excessive, and injudicious.

Standards for "Extravagant" Expenditures

Factors such as the nature of the agencies' operations, agency missions, profitability of their past operational performance, and availability of financial resources derived from income or retained earnings must be taken into account in the matter of determining whether or not an expenditure is extravagant. The term "extravagant expenditure" pertains to the variables of quality relative to the level or rank of the user and the purpose for such expenditure.

Situational Cases of Extravagant Expenditures - (applicable to NLC sectors)

1. Purchase of luxurious and expensive office furnishings for office buildings (e.g., rugs, carpets, draperies, wall decors, utensils, desks, chairs, lamps) is extravagant, except for the Offices of the President of the Philippines; Prime Minister; Justices of the Supreme Court, Intermediate Appellate Court and other courts of equivalent rank; Speaker of the Batasang Pambansa and Members of Parliament; Heads and Members of the Constitutional Commissions; Ministers; Governors; Mayors; Bureau Directors and their equivalents in government corporations and other agencies; as warranted by their resources.

2. Luxurious furnishings for government buildings are extravagant except those intended for showcase, trade and commerce, promotion of arts and culture and use of dignitaries.

3. Purchase of expensive cars is extravagant, except for the following level of users:

a) The President of the Philippines, Prime Minister, Speaker of Batasang Pambansa, Justices of the Supreme Court, and Heads of Constitutional Commissions - Mercedes Benz or its equivalent kind.

b) The Members of Parliament, Members of the Constitutional Commissions, Ministers, Heads of agencies, Governors of Class A provinces, Mayors of Class A cities and municipalities, Justices and Judges of Lower Courts - Heavy and Medium cars.

4. Installation of highly sophisticated outdoor signs, billboards and neon signs advertising the office is extravagant, except for banks, trading corporations, hotels, or buildings used for culture and arts.

5. Purchase of wines, liquors, cigars and cigarettes is extravagant, except when served to foreign dignitaries during state functions and government-sponsored international conferences and conventions.

6. Payment for rent of expensive halls or rooms in luxury hotels or restaurants used for meetings and other official functions is extravagant except when such hotels or restaurants are used for government-sponsored international conventions, meetings and the like.

Illustrative Decisions

COA Decision No. 93-3438 dated December 2, 1993

The Department of Trade and Industry (DTI), Central Office, Makati, Metro Manila, conducted a public bidding for the purchase of computers. Six (6) bidders participated in the said bidding wherein Electroworld quoted the lowest bid of P45,641.68 per unit. The result of the bidding was made known to all DTI Regional Offices. In the case of Region V, the purchase orders were prepared and approved by the DTI Central Office with instructions to deliver the computers to DTI Region V. Computers were then purchased and delivered to DTI Region V. Upon post audit by the Auditor, DTI-Region V, the said purchases of computers were disallowed on the ground of overpricing. The Auditor used the COA-TSO price findings as basis for the audit disallowance.

The CP lifted the disallowance on the following grounds.

"In determining price reasonableness, we just do not compare Metro Manila prices with those in places outside of Metro Manila and consider the difference as the excess price representing overpricing." The Auditor should have considered adding to the TSO canvassed price of P35,600.00 the 10% allowable price variance under COA Circular No. 85-55A and the cost of freight and handling, among other factors, to determine the reasonable purchase price thereof."

COA Decision No. 93-3223, September 1, 1993

The Telecommunications Office, Regional Office No. VII, Cebu City, purchased from T. R. Salonga Trading in Manila, assorted radio tubes for a consideration of P64,350 for the use of the Cabancalan Receiving Station, Subangdaku Transmitting Station and other field stations. The Auditor disallowed the amount of P42,975 as follows:

Agency's TSO Canvased Price  - Auditor's

Purchase Price       Canvassed Price  purchase

Price as Price as Price as of 11/90
of 01/91 of 07/91
 
Price Items
 Qty.
Purchased Price Per Unit 
TSO Canvassed Price Per Unit 
Auditor's Canvassed Price Per Unit
Difference 
Total
VT6K7
10
P 520
P 150
P 150
P 370
P 3,700
 VT6L7 
 10 
 420 
150
 150 
  270 
 2,700 
VT6SG7
10
425
 150
150
275
2,750
VT807
 5 
1,750 
250 
250 
1,500 
7,500 
VT6V6
 10
430 
 110 
95
335
3,350
VT6C5 
10
 320 
250 
150 
170 
1,700
VT6F6 
10 
430
75
70 
360 
3,600
VT6N6 
10 
320 
120 
120 
200
2,000
VT6R7 
430 
150
150 
280
1,400 
 T68K7
 10 
730 
150 
150 
580
5,800 
VT  - 
8
I3 5
3,500 
850
-2,650
- 13,250
         
Total
 P= 47,750
Less: 10% allowable price variance pursuant to COA Circular No. 85-55A dated September 8, 1988                              4,775
                                                                                    Total disallowed amount                                                           P= 42,975

The CP Affirmed the disallowance stating, "The TSO and the Auditor's price findings have sufficient basis of comparison with that of the prices of the items quoted by T. R. Salonga so as to definitely support its finding of overpricing. Accordingly, the total disallowance of P42,975 is hereby affirmed."

COA Decision No. 93-3378

The Auditor, DECS , Region II, disallowed the amount of P1,037,940.25, for the overpriced purchase of scientific/laboratory supplies and equipment worth P2,000,000.00. The finding of overpricing was based on the evaluation/re-canvass of the price reasonableness of subject purchase conducted by the Technical Services Office, this Commission.

Reconsideration of the disallowance was made upon the following grounds, among others:

1. The prices reported by the Technical Services Office were not made known to the agency;
 2. The purchases were made from an exclusive distributor.

The CP decided, thus:

"Petitioner's contention that the prices reported by the Technical Services Office were not made known to her is meritless. She could have done no less than ascertain the reasonableness and regularity of prices of the supplies/items to be purchased which was her legal obligation to do, so as to ensure that the price stipulated in the contract was "most advantageous to the Government".

What is more, the prices of subject supplies/items cannot be based upon the prices set by the DBM Procurement Service Division as the latter prices particularly refer to imported science equipment and supplies of the "Griffin and George brand, made in England". It is remarkable to note that upon inspection, the Auditor found that the scientific supplies/items delivered to one of the recipient barangay high schools (Mannarian Barangay High School) were not of the Griffin and George brand (Cf. 3rd Indorsement, dated September 13, 1990)."

COA Decision No. 93-3038, August 25, 1993

The National Children's Hospital (NCH) purchased 35 boxes and 20 boxes of "em hematocrit Capillary tubes" in 1989 and 1990, respectively, from the Dispo Phils., Inc.. It appears that the agency purchased said item at P1,785.00 per box which is 172% higher than the price offered to the Philippine Children's Medical Center (Lungsod ng Kabataan) by the same dealer at only P656.00 per box. The Auditor, NCH disallowed the amount of P52,990.00 comprising the overpricing.

The Auditor likewise observed that purchases by other government hospitals were lower than those of NCH from the same supplier.

The CP held:

"In conclusion, it shows that the procurement of these items made by the National Children's Hospital and also for those of the Rizal Medical Center and East Avenue Medical Center is very much higher compared to other hospitals. The Dispo Phils., Inc., should have made it a point to sell its products at the same price to all government hospitals, and agency heads should buy its medical needs at a price most advantageous to the government.

COA Decision 93-3116 dated August 25, 1993

The Auditor, Paglaum State College, Talisay, Negros Occidental, disallowed the amount of P14,143 representing the price difference between the TSO canvass in Metro Manila and the purchase price.

The CP ruled:

"The instant request for reconsideration is impressed with merit. It should be underscored that the basic consideration here is the circumstance that the equipment in question were purchased thru public bidding, a mode of procurement which is designed to secure the lowest possible price and obtain the better bargains for the Government. In the absence of any irregularity in the bidding procedure, the outcome thereof deserves faith and credence. Furthermore, there appears to be no sufficient basis for comparison between the TSO price findings and the prices of the equipment in question so as to arrive at its conclusion of price variance or overpricing. Factors such as the place where the canvass was made, the quality of the equipment, the point of origin and other allied standards/indicators may bring about higher prices which the TSO price analyses failed to consider, are valid standards for determining reasonableness of price."