Evident Bad Faith in Government Contracts: The Sarion Case on Price Escalation

The Supreme Court's 2021 ruling in Sarion v. People offers a sharp reminder to public officers: approving payments without verifying legal requirements can lead to criminal liability, even when subordinates prepared the documents. The case clarifies the fine line between routine procurement decisions and acts of evident bad faith or gross negligence.

Facts of the Case

Tito Sarion, then Municipal Mayor of Daet, Camarines Norte, approved a contract with Markbilt Construction for the Phase II construction of the Daet Public Market, worth over P71 million. The project was completed in 2006. Markbilt later claimed price escalation of about P5.2 million, a request the succeeding mayor refused to act on.

When Sarion was re-elected in 2007, Markbilt renewed its demand. Sarion directed the municipal administrator to find funds, leading to a supplemental budget that allocated funds for "Construction of Market." In April 2008, Sarion approved a disbursement voucher and signed a check releasing P1 million to Markbilt as partial payment for the escalation claim. He relied on certifications from municipal officials and a legal opinion from the Municipal Legal Officer.

The Ombudsman charged Sarion with violation of Section 3(e) of the Anti-Graft and Corrupt Practices Act (RA 3019) and Malversation of Public Funds under Article 217 of the Revised Penal Code. The Sandiganbayan convicted him on both counts.

The Issue

The central question was whether Sarion, by approving the payment without prior NEDA determination and GPPB approval, acted with gross inexcusable negligence or evident bad faith, making him criminally liable.

The Ruling

The Supreme Court affirmed the conviction. The Court held that price escalation under RA 9184, the Government Procurement Reform Act, is not automatically enforceable. Under Section 61 of RA 9184, any increase in contract price requires a prior determination by the National Economic Development Authority (NEDA) that extraordinary circumstances exist, and approval from the Government Procurement Policy Board (GPPB). The Court noted that NEDA certified it had received no request from the municipality for such approval.

The Court also found that the supplemental budget ordinance did not actually appropriate funds for price escalation. The ordinance allocated funds for "Construction of Market," which referred to future works, not payment for past claims. Under Sections 85 and 86 of PD 1445, the Government Auditing Code, no contract involving public funds may be entered into without a sufficient appropriation, and no disbursement may be made without a proper certification of available funds.

Why the Arias Doctrine Did Not Apply

Sarion invoked the Arias v. Sandiganbayan doctrine, which allows heads of offices to rely on subordinates' good faith. The Court rejected this defense. The Arias doctrine is not absolute; it cannot shield a public officer when circumstances should have prompted further inquiry. Here, several red flags existed: the project was completed years earlier, the previous mayor had refused the claim, and the amount sought exceeded the contract price. Sarion should have consulted the Municipal Engineer or referred the matter for study before approving payment.

Practical Takeaways

• Verify before you sign. A mayor or head of office who signs a disbursement voucher certifies that the expenses are lawful and the documents complete. Blind reliance on subordinates is not a defense when red flags exist.
• Price escalation requires prior approvals. Under RA 9184, contractors cannot claim price escalation without NEDA determination of extraordinary circumstances and GPPB approval. These are mandatory, not optional.
• Appropriations must be specific. A budget line for "construction" does not cover price escalation claims. Public funds may only be used for their specific appropriated purpose.
• The Arias doctrine has limits. It protects public officers who reasonably rely on subordinates, but not those who ignore obvious irregularities or unusual circumstances.
• Good faith is not a magic shield. In malversation cases, gross negligence can substitute for criminal intent. A public officer who fails to exercise due diligence may be held criminally liable.

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