COA Overpayment Recovery Upheld: Quantum Meruit in Government Construction Contracts

The Supreme Court recently affirmed the Commission on Audit's (COA) authority to recover overpayments made to government contractors, even when the contractor acted in good faith. In Lotrim Construction, Inc. v. Commission on Audit (G.R. No. 270295, April 29, 2026), the Court En Banc dismissed a contractor's petition challenging a COA disallowance, clarifying important principles on quantum meruit, administrative due process, and the strict application of procedural rules. The ruling provides valuable guidance for businesses dealing with government agencies and underscores the high standards expected in public procurement.

The Case: A Construction Project and Disallowed Payments

The case arose from a 2013 contract between the Bureau of Customs (BOC) and Lotrim Construction, Inc. for the expansion of the BOC Port of Davao building. After the BOC made advance and partial payments totaling over PHP 6.2 million, COA disallowed these disbursements. The grounds: the BOC misappropriated funds from its Maintenance and Other Operating Expenses (MOOE) to finance the project, in violation of the Government Auditing Code (Presidential Decree No. 1445) and other budget rules.

COA later determined that Lotrim's actual work accomplishment was only PHP 6,347,826.73—far less than the amounts already paid. After applying the principle of quantum meruit (literally, "as much as he deserves"), COA found that the BOC had actually overpaid Lotrim by PHP 408,859.16 and ordered its return.

The Issues Raised by the Contractor

Lotrim raised three main arguments before the Supreme Court:

1. Violation of due process: The contractor claimed it was not notified when COA's technical team inspected the project, depriving it of the chance to contest the findings.
2. COA lacked jurisdiction: Lotrim argued that determining the extent of work accomplished was a construction dispute that should have been referred to the Construction Industry Arbitration Commission (CIAC) under Republic Act No. 9184.
3. Separate audit procedures: The contractor insisted that COA should have issued a separate Audit Observation Memorandum and Notice of Disallowance for the accomplishment issue, rather than resolving it within the existing disallowance proceedings.

The Court's Ruling: Procedural and Substantive Hurdles

The Supreme Court dismissed the petition on two independent grounds.

First, the petition was filed out of time. Under Rule 64 of the Rules of Court, a petition for certiorari must be filed within 30 days from notice of the COA decision. While a motion for reconsideration interrupts this period, the remaining time to file must not be less than five days. Here, the contractor received the COA decision on October 16, 2018, and filed its motion for reconsideration 27 days later—leaving only three days. When the motion was denied, the contractor had only five days from notice of denial (until September 5, 2023) to file its petition. It filed on October 2, 2023—almost a month late. The Court applied the doctrine of immutability of judgment: a final decision may no longer be modified, even to correct errors.

Second, even on the merits, the petition failed.

On due process, the Court held that the essence of due process is the opportunity to be heard. The contractor actively participated in the proceedings before COA, filed appeals, and submitted its own independent assessment report. COA even evaluated that report against its own technical findings. The Court also noted that COA's technical office is an internal body answerable only to COA, and no rule requires it to furnish contractors with copies of its inspection reports.

On jurisdiction, the Court acknowledged that CIAC generally has jurisdiction over construction disputes. However, the contractor was estopped from raising this issue after actively participating in COA proceedings for nearly eight years and seeking affirmative relief (payment under quantum meruit) from COA. Raising the jurisdictional challenge only after receiving an adverse ruling constituted an unreasonable delay and implicit waiver.

Quantum Meruit Cuts Both Ways

The Court's most significant clarification concerns quantum meruit. This equitable principle protects contractors by ensuring they are compensated for the reasonable value of work actually performed, preventing the government from being unjustly enriched. However, the Court emphasized that the doctrine "cannot be distorted into a shield for contractors to retain payments in excess of what is legally or contractually due." Its equitable nature cuts both ways: it obliges the government to pay for benefits received, but it also safeguards public funds by allowing recovery of overpayments.

The Court also reaffirmed that COA's factual findings are entitled to great respect and finality, given its specialized expertise. Courts will not substitute their judgment for COA's unless there is a clear showing of grave abuse of discretion.

Practical Takeaways

• Government contractors must monitor COA proceedings closely. The reglementary periods under Rule 64 are strict; missing a deadline can bar review even if the merits favor the contractor.
• Participating in a forum's proceedings can waive objections to its jurisdiction. Contractors should raise jurisdictional challenges early, not after an adverse ruling.
• Quantum meruit is not a blank check. Contractors are entitled to payment for work actually performed, but they must return any amounts exceeding the reasonable value of that work.
• COA's technical findings are highly persuasive. Contractors should document their accomplishments thoroughly and seek to participate in inspections when possible, even if COA is not required to notify them.
• COA may resolve related issues within a single disallowance proceeding. It is not required to issue separate audit notices for every aspect of a transaction.

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