COA's Power to Audit Public Contracts: Lessons from Lotrim v. Commission on Audit

The Supreme Court recently dismissed a petition filed by Lotrim Construction, Inc. against the Commission on Audit (COA), affirming COA's authority to determine overpayments in government contracts and underscoring the importance of procedural compliance. The case, decided on April 29, 2026, offers valuable lessons for government contractors and public officials alike.

The Facts of the Case

In 2012, the Bureau of Customs (BOC) awarded a construction contract to Lotrim Construction for the expansion of its Administration Building in the Port of Davao. The contract price was PHP 17,203,203.18. The BOC made an advance payment and a partial payment to Lotrim in 2013.

However, COA issued Notices of Disallowance against these payments, finding that the BOC had misappropriated funds meant for Maintenance and Other Operating Expenses (MOOE) to finance the construction project, in violation of the Government Auditing Code and other budget laws. The project was not covered by a valid appropriation in the General Appropriations Act.

After an inspection, COA's technical team found that Lotrim's actual accomplishment was only PHP 6,347,826.73, not the PHP 13,878,362.71 reported by the contractor. COA Proper eventually ruled that while Lotrim was entitled to payment under the principle of quantum meruit (meaning "as much as he deserves"), the government had actually overpaid the contractor by PHP 408,859.16. Lotrim was ordered to return this amount.

The Issue Before the Court

Lotrim elevated the case to the Supreme Court, raising three main arguments: (1) that it was denied due process because COA's technical inspection was conducted without notice to it; (2) that COA should have issued a separate audit notice for the accomplishment issue; and (3) that the dispute should have been referred to the Construction Industry Arbitration Commission (CIAC), not COA.

The Court's Ruling

The 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 judgment or resolution. Since Lotrim had only three days left of the reglementary period when it received the denial of its motion for reconsideration, it had five days from that notice—until September 5, 2023—to file its petition. It filed only on October 2, 2023. 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 ruled that Lotrim's right to due process was not violated. The essence of due process is the opportunity to be heard, and Lotrim actively participated in the proceedings before COA—it appealed to the COA Cluster Director and filed a motion for reconsideration before COA Proper. Both were resolved on the merits.

The Court also clarified that COA's audit powers are broad. Under Article IX-D of the Constitution, COA has exclusive authority to define the scope of its audit and examination. Citing the case of Yap v. Commission on Audit, the Court held that COA is not limited to the grounds initially cited by a government agency's auditor. It is duty-bound to make its own assessment of disallowed disbursements.

On the issue of CIAC jurisdiction, the Court ruled that while CIAC generally has jurisdiction over construction disputes, this jurisdiction can be waived. Lotrim actively participated in the COA proceedings for nearly eight years before raising the CIAC issue. The Court applied the doctrine of estoppel, barring Lotrim from belatedly challenging COA's jurisdiction.

Finally, the Court upheld COA's determination of the overpayment. Citing Torreta v. Commission on Audit, the Court reiterated that factual findings of administrative agencies like COA are generally given great respect and finality, especially when supported by substantial evidence. The principle of quantum meruit protects contractors from government unjust enrichment, but it also protects public funds by allowing recovery of overpayments.

Practical Takeaways

• Observe procedural deadlines strictly. The belated filing of a petition for certiorari is fatal, and the doctrine of immutability of judgment applies once a decision becomes final.
• COA's audit powers are broad and not limited to initial findings. COA may independently assess disallowed disbursements and identify additional liable persons.
• Due process in administrative proceedings means the opportunity to be heard. Active participation in proceedings satisfies this requirement.
• Jurisdictional objections must be raised promptly. Waiting years before challenging COA's jurisdiction may constitute a waiver through estoppel.
• Quantum meruit cuts both ways. While it protects contractors from unjust enrichment, 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.