Government Procurement: Contract Splitting, Shopping, and Good Faith Liability

The Supreme Court recently addressed critical questions in government procurement: when does dividing purchases into smaller contracts constitute prohibited contract splitting, and when are public officers personally liable for disallowed payments? In Cabreros v. Commission on Audit (G.R. No. 266713, July 30, 2024), the Court clarified the rules on contract splitting under Republic Act No. 9184 (Government Procurement Reform Act), the proper use of shopping as an alternative procurement method, and the liability of officers who act in good faith.

The Facts of the Case

In February 2003, the Philippine Army's Army Support Command received six Procurement Directives from the Assistant Chief of Staff for Logistics for Combat Clothing and Individual Equipment (CCIE) items. These were needed for upcoming celebrations including Philippine Army Day, Veterans Week, and Independence Day. The six directives totaled PHP 5,103,000.00.

The Bids, Negotiations and Acceptance Committee (BNAC) decided to procure the items through shopping due to supposed urgency. After canvassing, the committee selected Dantes Executive Menswear as the supplier. Six separate Purchase Orders were issued on the same date, for similar items, and in favor of the same supplier.

The Commission on Audit (COA) later disallowed the entire payment, finding that the procurement constituted prohibited contract splitting to avoid public bidding. The COA held several officers, including the petitioners, solidarily liable to return the disallowed amount.

The Issue

The consolidated petitions raised two main questions: First, whether the COA committed grave abuse of discretion in disallowing the payment. Second, whether the petitioners—members of the BNAC and its Secretariat—should be held personally liable to return the disallowed amount despite claims of good faith.

The Ruling on Contract Splitting

The Court upheld the disallowance, confirming that the procurement violated procurement laws. Under the implementing rules of Republic Act No. 9184, splitting of government contracts means dividing contracts into smaller quantities or amounts to evade or circumvent the requirements of public bidding or the conditions for alternative procurement methods.

The Court noted that COA Circular No. 76-41 identifies three forms of splitting: (1) non-consolidation of requisitions for items needed at about the same time; (2) issuance of two or more purchase orders based on separate requisitions for similar items at about the same time; and (3) making multiple payments for items covered by one purchase order.

Here, the splitting was initiated by a senior officer who sent six separate Procurement Directives for items needed for the same events. The BNAC then compounded the violation by resorting to shopping without valid justification.

When Is Shopping Allowed?

The Court emphasized that shopping is an exception to public bidding and must be strictly construed. Under the implementing rules of RA 9184, shopping is allowed only in limited instances: when there is an unforeseen contingency requiring immediate purchase subject to a specified amount threshold, or for ordinary or regular office supplies not available in the Procurement Service, also subject to an amount threshold and provided the procurement does not result in contract splitting.

The petitioners argued that urgency justified shopping because the events were only a month away. The Court rejected this, ruling that urgency alone is not a valid justification to forego public bidding. The BNAC's failure to plan ahead did not constitute an unforeseen contingency under the law.

Liability of Public Officers

Despite upholding the disallowance, the Court excused the petitioners from personal liability. Applying the guidelines from Torreta v. Commission on Audit, the Court distinguished between ministerial and discretionary functions.

The BNAC Secretary performed purely ministerial functions—facilitating the bidding process, taking custody of documents, and serving as the communication channel. Since the Secretary did not participate in the decision to use shopping, he was excused from liability.

The BNAC members exercised discretion in choosing the procurement mode and selecting the supplier. However, the Court found they acted in good faith. The Sandiganbayan had acquitted them of criminal charges for lack of corrupt intent. The Court of Appeals likewise found no bad faith, noting the government did not sustain losses since the items were actually delivered and used for their intended purposes.

Under the Administrative Code of 1987, approving and certifying officers who act in good faith, in the regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return disallowed amounts. Liability attaches only upon a clear showing of bad faith, malice, or gross negligence.

Practical Takeaways

• Consolidate similar purchases. Procuring items needed at about the same time through multiple purchase orders may constitute prohibited contract splitting, even if each order is below the bidding threshold.
• Urgency is not a magic word. The unforeseen contingency exception for shopping requires a genuine, unexpected event—not mere poor planning or a tight deadline.
• Respect the shopping thresholds. Shopping is limited to specific amount thresholds depending on the circumstances, subject to periodic adjustment by the Government Procurement Policy Board.
• Document good faith. Officers who can show they acted without corrupt intent, did not profit, and that the government received value may be excused from personal liability even when a disallowance is upheld.
• Ministerial vs. discretionary roles matter. Secretariat staff performing purely administrative functions are generally not liable for procurement irregularities they did not participate in deciding.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.