Protecting Contractors: Quantum Meruit and COA Disallowances in Government Projects

The Supreme Court recently had occasion to clarify the rights of private contractors who perform work for the government under a contract later found to be void for lack of appropriation. In Lotrim Construction, Inc. v. Commission on Audit (G.R. No. 270295, April 29, 2026), the Court En Banc affirmed the Commission on Audit's (COA) power to determine the amount due to a contractor under the equitable principle of quantum meruit, even as it underscored the strict procedural rules that govern appeals from COA rulings.

The case arose from a 2013 contract between the Bureau of Customs (BOC) and Lotrim Construction for the expansion of the BOC Port of Davao's Administration Building. COA disallowed the payments made to Lotrim because the project was funded from the BOC's Maintenance and Other Operating Expenses (MOOE) allotment, which was not appropriated for construction. The contract was thus void for lack of a valid appropriation under Presidential Decree No. 1445, the Government Auditing Code.

The Contractor's Right to Payment

Despite the contract's invalidity, both the COA Cluster Director and COA Proper agreed that Lotrim was entitled to compensation for work actually accomplished under quantum meruit. This principle, meaning "as much as he deserves," allows a person to recover the reasonable value of services rendered to prevent unjust enrichment. The Supreme Court reiterated that this doctrine protects private contractors who have rendered services to the government, ensuring the State does not benefit from their labor without paying for it.

However, the Court stressed that quantum meruit "cuts both ways." While it obliges the government to pay for benefits actually received, it also safeguards public funds by allowing the recovery of overpayments. In this case, COA's technical inspection revealed that Lotrim's actual accomplishment was only PHP 6,347,826.73, not the PHP 13,878,362.71 it claimed. Since the BOC had already paid more than this amount, COA ordered Lotrim to return the overpayment of PHP 408,859.16.

COA's Broad Audit Powers

Lotrim argued that COA violated its right to due process by conducting the technical inspection without notice and by ruling on the extent of work accomplished, which it claimed was a separate construction dispute. The Court rejected these arguments.

The Constitution vests COA with exclusive authority to define the scope of its audit and examination. Citing Yap v. Commission on Audit, the Court held that COA is not limited to the grounds initially cited by an auditor in disallowing disbursements. It is "duty-bound to make its own assessment of the merits of the disallowed disbursement." The Court also noted that COA's Technical and Information Technology Services (TechITS) is an internal office answerable only to COA, and is not required to furnish private contractors with copies of its inspection reports.

The Cost of Delay

Ultimately, the Petition was dismissed primarily because it 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 judgment or resolution. While a motion for reconsideration interrupts this period, the remaining period—which cannot be less than five days—is reckoned from notice of the denial. Lotrim filed its Petition 27 days after the denial of its motion, well beyond the five-day remaining period. The Court applied the doctrine of immutability of judgment, which holds that a final decision may no longer be modified.

The Court also barred Lotrim from belatedly raising the jurisdiction of the Construction Industry Arbitration Commission (CIAC). Having actively participated in the COA proceedings for nearly eight years and sought affirmative relief, Lotrim was estopped from challenging COA's jurisdiction on appeal.

Practical Takeaways

• Contractors must verify funding sources. A contract entered into without a valid appropriation is void, regardless of the contractor's good faith. Confirm that the government agency has a specific appropriation for the project before bidding or commencing work.
• Quantum meruit is a limited remedy. While contractors can recover the reasonable value of work actually performed on void government contracts, recovery is based on the government's actual benefit, not the contractor's claimed accomplishment. Overstated accomplishments will be corrected.
• COA findings are highly persuasive. Courts generally respect COA's factual findings due to its specialized expertise. Contractors should expect COA's technical inspection to be given great weight.
• Raise jurisdictional objections early. A party cannot participate in proceedings before one forum and later challenge its jurisdiction after an adverse ruling. Raise all objections, including arbitration clauses, at the earliest opportunity.
• Strictly observe appeal deadlines. The 30-day period under Rule 64 is mandatory. A late filing is fatal and renders the COA decision final and immutable.

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