COA Overpayment Recovery Upheld: Quantum Meruit in Government Contracts

The Supreme Court recently affirmed the Commission on Audit's (COA) authority to order a government contractor to return overpayments, even when the contractor acted in good faith. The case of Lotrim Construction, Inc. v. Commission on Audit (G.R. No. 270295, April 29, 2026) clarifies how the principle of quantum meruit applies to government contracts and underscores the importance of timely appeals in audit cases.

The case arose from a Bureau of Customs (BOC) project to expand its Port of Davao Administration Building. Lotrim Construction won the public bidding with a contract price of PHP 17.2 million. However, COA later discovered that the project was funded through misappropriated funds, rendering the contract void.

The Disallowances and Dispute

COA issued two Notices of Disallowance against the BOC's payments to Lotrim. The first covered the 15% advance payment, and the second covered the first partial payment. The grounds included violations of the Government Auditing Code (Presidential Decree No. 1445) and the General Appropriations Act, since the BOC unlawfully used funds meant for maintenance and operating expenses to finance construction.

Despite the irregularities, both the COA Cluster Director and COA Proper agreed that Lotrim was entitled to compensation under quantum meruit — a principle that allows a party to recover the reasonable value of services rendered, even without a valid contract, to prevent unjust enrichment.

The dispute centered on how much Lotrim had actually accomplished. Lotrim claimed 80.67% completion, but COA's technical team found only 36.90% actual accomplishment, valued at PHP 6,347,826.73. After recomputation, COA determined that the BOC had actually overpaid Lotrim by PHP 408,859.16 and ordered the contractor to return that amount.

Procedural Missteps Prove Fatal

The Supreme Court dismissed Lotrim's petition primarily because it was filed late. Under Rule 64 of the Rules of Court, a petition for certiorari must be filed within 30 days from notice of the COA decision. Lotrim had only three days remaining after filing its motion for reconsideration, which meant it had five days from the denial notice to appeal. Instead, it filed over a month late.

The Court applied the doctrine of immutability of judgment: a decision that has attained finality can no longer be modified, even if the modification would correct errors of fact or law.

COA's Broad Audit Powers

The Court also rejected Lotrim's claim that it was denied due process when COA's technical team inspected the project without prior notice. The Court emphasized that the essence of due process is the opportunity to be heard, and Lotrim had ample opportunity to present its case through appeals and motions.

Citing Yap v. Commission on Audit, the Court held that COA is not limited to reviewing only the grounds initially cited in a disallowance. As the constitutional guardian of public funds, COA has exclusive authority to define the scope of its audit and examination. It may independently assess the merits of a case, adjust amounts, and even identify additional liable persons.

Quantum Meruit Cuts Both Ways

The Court clarified an important point about quantum meruit: while it protects contractors from being uncompensated, it also protects the government from overpaying. The principle cannot be used as a shield for contractors to retain payments in excess of what is legally due.

The Court also noted that COA's factual findings are entitled to great respect and finality due to its specialized expertise. Courts will not substitute their judgment for COA's findings when these are supported by substantial evidence.

Practical Takeaways

• Timely appeals are critical. A party challenging a COA decision must strictly observe the 30-day reglementary period under Rule 64. Late filings are fatal, and the doctrine of immutability of judgment will apply.
• COA's audit powers are broad. COA may go beyond the initial grounds of a disallowance and make its own assessment of the merits, including determining the extent of work accomplished.
• Quantum meruit protects both sides. While contractors may recover for work done under void government contracts, they must also return any overpayments. The principle prevents unjust enrichment on either side.
• Contractors should document accomplishments carefully. Since COA's technical findings are given great weight, contractors should ensure their accomplishment reports and billing statements accurately reflect the work performed.
• Jurisdictional objections must be raised early. A party that actively participates in proceedings before COA cannot belatedly invoke arbitration or another forum after receiving an adverse ruling.

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