Quantum Meruit in Government Contracts: COA Overpayment Recovery Upheld

The Supreme Court recently affirmed the Commission on Audit's (COA) authority to order a government contractor to return overpaid amounts, even where the underlying contract was void for lack of appropriation. In Lotrim Construction, Inc. v. Commission on Audit (G.R. No. 270295, April 29, 2026), the Court En Banc dismissed the contractor's petition on procedural and substantive grounds, clarifying important principles on quantum meruit, due process in administrative proceedings, and the finality of judgments.

The Case: A Construction Project Without Proper Appropriation

In 2012, the Bureau of Customs (BOC) invited bids for the expansion of its Port of Davao Administration Building, with an approved budget of PHP 20 million. Lotrim Construction, Inc. won the bidding with a bid of PHP 17,203,203.18 and entered into a contract with the BOC in March 2013. The BOC made an advance payment and a partial payment to Lotrim totaling over PHP 6.2 million.

However, COA disallowed these payments. 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 related budget laws. No amount had been specifically appropriated for the project in the General Appropriations Act.

The Issue: Can COA Recover Overpayments?

The central question was whether COA gravely abused its discretion in holding Lotrim liable to return PHP 408,859.16—the amount by which BOC's payments exceeded the value of Lotrim's actual work accomplishment, as determined by COA's technical inspection.

The Ruling: Petition Dismissed on Two Grounds

The Court dismissed the petition for two reasons: it was filed out of time, and COA committed no grave abuse of discretion.

Procedural bar. Under Rule 64 of the Rules of Court, a petition for certiorari must be filed within 30 days from notice of the challenged decision. Lotrim received the COA Proper decision on October 16, 2018, filed a motion for reconsideration on November 12, 2018 (leaving only three days of the reglementary period), and received the denial on August 31, 2023. The remaining period to file was five days, or until September 5, 2023. Lotrim filed only on October 2, 2023. The Court applied the doctrine of immutability of judgment: a final decision may no longer be modified, even to correct errors.

No grave abuse of discretion. Even on the merits, the Court found no reversible error. On due process, the Court held that the essence of due process is the opportunity to be heard. Lotrim actively participated in the COA proceedings, filed appeals, and submitted an independent assessment report, which COA even evaluated. The COA Technical and Information Technology Services (TechITS) was not required to furnish the contractor a copy of its inspection report—it is an internal office answerable only to COA.

On jurisdiction, the Court noted that while the Construction Industry Arbitration Commission (CIAC) generally has jurisdiction over construction disputes, Lotrim waived this by actively participating in COA proceedings for nearly eight years before raising the jurisdictional challenge. A party cannot belatedly invoke arbitration after seeking affirmative relief from another forum.

Quantum Meruit: A Two-Way Street

The Court's most significant clarification concerned quantum meruit. This equitable principle—literally "as much as he deserves"—allows a contractor to recover the reasonable value of services rendered despite the invalidity or absence of a written contract, preventing the government from unjust enrichment.

However, the Court emphasized that quantum meruit "cuts both ways." While it obliges the government to pay for benefits actually received, it also safeguards public funds by allowing recovery of overpayments. The principle cannot be "distorted into a shield for contractors to retain payments in excess of what is legally or contractually due."

The Court deferred to COA's expertise in determining the amount due. COA's findings, supported by substantial evidence and rendered pursuant to its specialized knowledge, are entitled to great respect and finality. The Court will only reverse COA upon a clear showing of grave abuse of discretion.

Practical Takeaways

• Government contractors must verify appropriations. A contract entered into without a valid appropriation is void, and payments thereunder may be disallowed by COA.
• Quantum meruit is not a blank check. Contractors are entitled to reasonable compensation for actual work accomplished, but must return any overpayment. The equitable principle protects both parties.
• Timely filing is critical. The 30-day period under Rule 64 is strictly enforced. A late petition is fatal, and the challenged decision becomes final and immutable.
• Participate actively, but know the consequences. Active participation in administrative proceedings may constitute a waiver of the right to later invoke another forum's jurisdiction, such as CIAC arbitration.
• COA's technical findings carry great weight. The Court respects COA's specialized expertise in auditing and valuation matters; contractors should present strong evidence to challenge COA's technical assessments.

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