Quantum Meruit and COA Disallowances: What Contractors Must Know

When a government contract is void for lack of appropriation, can the private contractor still get paid? The Supreme Court recently answered this in Lotrim Construction, Inc. v. Commission on Audit (G.R. No. 270295, April 29, 2026), a case that clarifies how the principle of quantum meruit applies to government construction projects and what happens when a contractor overstates its accomplishments.

The case also serves as a warning about procedural deadlines and the consequences of raising jurisdictional objections too late.

The Facts of the Case

In 2012, the Bureau of Customs (BOC) awarded a contract to Lotrim Construction, Inc. for the expansion of its Port of Davao Administration Building. The contract price was PHP 17,203,203.18. The BOC made an advance payment and a partial payment to Lotrim.

However, the Commission on Audit (COA) later disallowed these payments. COA found that the BOC had 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. Because the project had no valid appropriation, the contract was void.

COA ordered the return of the disallowed amounts. But recognizing that Lotrim had actually performed work, COA allowed payment under quantum meruit—a principle that lets a party recover the reasonable value of services rendered. After an inspection, COA determined that Lotrim's actual accomplishment was only PHP 6,347,826.73. Since the BOC had already paid more than this, COA ordered Lotrim to return the overpayment of PHP 408,859.16.

The Issue Before the Court

Lotrim argued that COA committed grave abuse of discretion. It claimed that (1) it was denied due process because COA's technical inspection was conducted without notice to it; (2) COA exceeded its authority by determining the extent of work accomplished, which should have been a separate audit matter; and (3) the dispute should have been referred to the Construction Industry Arbitration Commission (CIAC) under the contract's arbitration clause.

The Court's Ruling

The Supreme Court dismissed the petition on two 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 decision. A motion for reconsideration interrupts this period, but if denied, the petitioner has only the remaining period—not less than five days—to file. Lotrim had three days left when it received the denial of its motion. It should have filed within five days, or by September 5, 2023. It filed on October 2, 2023—almost a month late. The Court held that the belated filing was fatal, and the COA rulings had already become final and immutable.

Second, even on the merits, the petition failed. The Court explained that the essence of due process is the opportunity to be heard. Lotrim was given that opportunity: it appealed to the COA Cluster Director, filed a motion for reconsideration, and submitted its own independent assessment from a third-party construction firm. COA even evaluated that report against its own findings.

The Court also rejected the argument that COA exceeded its authority. Citing Yap v. Commission on Audit, the Court held that COA is not limited to the grounds initially cited by an auditor. COA has broad constitutional power to define the scope of its audit and to independently assess disallowed disbursements.

Finally, the Court barred Lotrim from raising CIAC jurisdiction at that late stage. While arbitration clauses generally apply to construction disputes, a party who actively participates in proceedings and seeks affirmative relief cannot belatedly challenge jurisdiction after an adverse ruling. The Court noted that Lotrim raised the CIAC issue only after nearly eight years of participating in COA proceedings.

Quantum Meruit Cuts Both Ways

The Court emphasized that quantum meruit is grounded in equity. It protects contractors from being unpaid for work actually done, and it prevents the government from being unjustly enriched. But it also protects public funds: a contractor cannot use the principle to keep payments in excess of what is legally due.

Because COA has special expertise in determining the value of government projects, its factual findings are given great respect and finality—unless there is a clear showing of grave abuse of discretion. Here, there was none.

Practical Takeaways

• Respect COA's procedural deadlines. A petition under Rule 64 must be filed within 30 days, and the remaining period after a denied motion for reconsideration is strictly enforced. Late filings are fatal.
• COA can go beyond the initial grounds of a disallowance. COA has broad audit power to assess the full merits of a case, including determining the actual value of work performed.
• Due process means the opportunity to be heard. Contractors may not be entitled to advance notice of COA's technical inspections, but they must be given a chance to contest findings in the proceedings.
• Raise jurisdictional objections early. Participating in a forum and seeking relief there can waive the right to later claim that another tribunal should have jurisdiction.
• Quantum meruit protects both sides. It ensures contractors are paid for actual work, but it also allows the government to recover overpayments.

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