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The Supreme Court recently affirmed the Commission on Audit's (COA) authority to determine the extent of a contractor's work and order the return of 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 important principles for private contractors dealing with government agencies: COA's audit powers are broad, the doctrine of quantum meruit cuts both ways, and procedural deadlines are strictly enforced.

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 project had an approved budget of PHP 20 million, and Lotrim won the bidding with a bid of PHP 17,203,203.18.

The BOC paid Lotrim a 15% advance payment and a first partial payment. However, COA issued Notices of Disallowance against these payments, finding 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 laws.

When COA's technical team inspected the project, it found that Lotrim's actual accomplishment was only 36.90%, or PHP 6,347,826.73—far less than the PHP 13,878,362.71 that Lotrim claimed. After recomputation, COA determined that the BOC had actually overpaid Lotrim by PHP 408,859.16, and ordered the contractor to return the excess.

The Issue Before the Court

Lotrim raised three main arguments: (1) it was denied due process because COA's technical inspection was conducted without notice; (2) COA had no jurisdiction to determine the extent of its work, as this was a construction dispute that should have been referred to the Construction Industry Arbitration Commission (CIAC); and (3) the amount of its accomplishment was incorrectly determined.

The Supreme Court's Ruling

The Court dismissed the petition on two grounds: procedural and substantive.

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. Lotrim received the COA decision on October 16, 2018, and filed a motion for reconsideration 27 days later, leaving only 3 days of the reglementary period. When the motion was denied, the remaining period was extended to 5 days, which expired on September 5, 2023. Lotrim filed its petition only on October 2, 2023—nearly a month late. The Court held that the belated filing triggered the doctrine of immutability of judgment, making the COA ruling final and unalterable.

Second, even on the merits, the petition failed. The Court reiterated that COA, as the "guardian of public funds," has broad constitutional authority to define the scope of its audits and determine, prevent, and disallow irregular expenditures. Citing Yap v. Commission on Audit, the Court held that COA is not limited to the grounds initially cited by an auditor but is duty-bound to make its own independent assessment of disallowed disbursements.

On the due process claim, the Court found that Lotrim was given ample opportunity to be heard—it filed appeals, submitted a third-party report, and had its motion for reconsideration resolved on the merits. The Court also noted that COA's technical office is an internal unit answerable only to COA, and it is not required to furnish contractors with copies of its inspection reports.

On the CIAC jurisdiction issue, the Court held that while CIAC generally has jurisdiction over construction disputes, this can be waived. Lotrim actively participated in the COA proceedings for nearly eight years and only raised the jurisdiction issue after receiving an adverse ruling—too late to invoke it.

The Principle of Quantum Meruit

The Court clarified that quantum meruit—literally "as much as he deserves"—is an equitable principle that protects contractors who rendered services to the government. However, the Court emphasized that this doctrine "cuts both ways": while it obliges the government to pay for benefits actually received, it also safeguards public funds by allowing the recovery of overpayments. Contractors cannot use equity as a shield to retain payments in excess of what is legally due.

Practical Takeaways

• Respect COA's broad audit powers. COA can go beyond the grounds stated in an initial Notice of Disallowance and make its own assessment of the merits of a case. Contractors should be prepared for COA to independently verify their work accomplishments.

• Strictly observe procedural deadlines. The 30-day period under Rule 64 is mandatory. Filing even a few days late can be fatal to a petition, as the decision becomes final and immutable.

• Raise jurisdiction issues early. If a contract contains an arbitration clause, raise it at the earliest opportunity. Participating in administrative proceedings for years before objecting to jurisdiction constitutes a waiver.

• Keep accurate records of accomplishments. COA's technical experts will verify claimed accomplishments against actual work. Overstated claims can result in findings of overpayment, which contractors must return.

• Understand that quantum meruit is not a blank check. Contractors are entitled to reasonable compensation for work actually performed, but not to amounts exceeding what the work is worth.

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