When Contractors Overstate Work: COA's Audit Power and Quantum Meruit in Government Projects

The Supreme Court recently affirmed the Commission on Audit's (COA) authority to determine the actual value of work accomplished by a government contractor and to recover overpayments, even where the contractor had been paid in good faith. 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, underscoring important principles on the finality of judgments, the scope of COA's audit powers, and the equitable limits of quantum meruit.

The Case: A Construction Project Funded by the Wrong Appropriation

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 first partial payment to Lotrim.

However, COA later 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 the General Appropriations Act. The contract was void for lack of a valid appropriation.

The Dispute: How Much Was Actually Accomplished?

Lotrim claimed it had accomplished 80.67% of the project, or about PHP 13.8 million. COA's technical office inspected the site and found only 36.90% accomplishment, worth PHP 6,347,826.73. Lotrim then hired a third-party firm that reported 64.15% accomplishment.

COA Proper upheld the disallowances but, applying the principle of quantum meruit, allowed Lotrim to be compensated for the actual value of its work. Upon recomputation, however, COA found that the BOC had actually overpaid Lotrim by PHP 408,859.16, and ordered the contractor to return that amount.

The Court's Ruling: Procedural and Substantive Hurdles

The Supreme Court dismissed Lotrim's 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. The filing of a motion for reconsideration interrupts this period, but if denied, the petitioner has only the remaining period (not less than five days) to file. Here, Lotrim had three days left when it filed its motion, so it had only five days from notice of denial—until September 5, 2023. It filed 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.

Second, even on the merits, the petition failed.

• Due process was not violated. The essence of due process is the opportunity to be heard. Lotrim actively participated in the proceedings before COA, filed appeals, and submitted its own evidence. COA's technical office, being an internal support unit, was not required to furnish the contractor a copy of its inspection report.
• COA's audit power is broad. Citing Yap v. Commission on Audit (633 Phil. 174 [2010]), the Court held that COA is not limited to the grounds initially cited by an auditor. It is duty-bound to make its own assessment of disallowed disbursements.
• The contractor was estopped from raising CIAC jurisdiction. Lotrim raised the Construction Industry Arbitration Commission's jurisdiction only after nearly eight years of participating in COA proceedings. Under Tijam v. Sibonghanoy (131 Phil. 556 [1968]) and related cases, a party who actively participates in a forum and seeks affirmative relief cannot belatedly challenge its jurisdiction.

Quantum Meruit Cuts Both Ways

The Court clarified that quantum meruit—literally "as much as he deserves"—is an equitable principle that protects contractors from government unjust enrichment. But it is not a shield for retaining overpayments. As the Court explained, the principle obliges the government to pay for benefits actually received while also safeguarding public funds by allowing recovery of excess payments.

The Court deferred to COA's expertise in determining the amount due, noting that administrative findings supported by substantial evidence are generally given finality.

Practical Takeaways

• Government contractors must verify that a project has a valid appropriation before accepting a contract. A contract funded by the wrong source may be void, and payments under it may be disallowed.
• COA's audit power extends beyond the initial grounds of disallowance. COA may independently assess the merits of a case, adjust amounts, and even identify additional liable persons.
• Contractors should maintain accurate, verifiable accomplishment reports. Overstated claims may result in findings of overpayment and demands for refund.
• Procedural deadlines are strictly enforced. A late petition for certiorari under Rule 64 is fatal, and the doctrine of immutability of judgment will bar review.
• Jurisdictional objections must be raised promptly. Participating in proceedings and seeking relief from a forum may constitute a waiver of the right to later challenge its jurisdiction.
• Quantum meruit is a two-way equitable remedy. It protects contractors from unjust enrichment of the government, but it equally protects public funds by allowing recovery of overpayments.

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