Unconscionable? How the Supreme Court Upholds COA's Power to Claw Back Overpayments

The Supreme Court's decision in Lotrim Construction, Inc. v. Commission on Audit (G.R. No. 270295, April 29, 2026) is a reminder that the Commission on Audit's role as guardian of public funds is broad, and that a contractor who has been overpaid on a government project must return the excess. The case also shows how procedural missteps can end a case before the merits are even reached.

The Project and the Disallowances

In 2012, the Bureau of Customs (BOC) set aside PHP 20,000,000.00 in its budget for the expansion of its Administration Building at the Port of Davao. Lotrim Construction, Inc. (Lotrim) won the public bidding with a bid of PHP 17,203,203.18, and a contract was signed in March 2013.

The BOC paid Lotrim a 15% advance payment of PHP 2,419,200.45 in April 2013, and a first partial payment of PHP 3,828,184.10 in June 2013. But COA later issued two Notices of Disallowance, finding that the project had no valid appropriation. According to COA, the BOC had unlawfully used its Maintenance and Other Operating Expenses (MOOE) funds, and had violated several provisions of Presidential Decree No. 1445 and the General Appropriations Act.

What COA Found

A technical inspection by the COA Technical and Information Technology Services (TechITS) found that the project was only 36.90% complete, with an actual accomplishment of PHP 6,347,826.73 — far less than the 80.67% that Lotrim had reported.

The COA Cluster Director initially lifted the disallowances and allowed Lotrim to be paid under the principle of quantum meruit. On automatic review, however, COA Proper modified that ruling. It held the contract void for lack of a valid appropriation, but still recognized Lotrim's right to be paid for work actually done. After recomputation, COA Proper found that the BOC had overpaid Lotrim by PHP 408,859.16 and ordered Lotrim to return that amount.

The Petition and the Fatal Delay

Lotrim elevated the case to the Supreme Court, arguing that its right to due process was violated because the COA TechITS inspected the project without notifying it, and that the dispute should have been referred to the Construction Industry Arbitration Commission (CIAC).

The Court dismissed the petition outright. Under Section 3, Rule 64 of the Rules of Court, a petition for certiorari must be filed within 30 days from notice of the judgment or final resolution. If a motion for reconsideration is filed, the period is interrupted, and the petitioner has the remaining period — but not less than five days — from notice of the denial.

Lotrim received the COA Proper decision on October 16, 2018, and filed its motion for reconsideration 27 days later, leaving only three days. It received the denial on August 31, 2023, giving it five days, or until September 5, 2023, to file the petition. It filed only on October 2, 2023. The ruling had already become final and immutable.

Due Process Was Satisfied

Even on the merits, the Court found no grave abuse of discretion. The essence of due process is the opportunity to be heard. Lotrim actively participated in the proceedings, filed an appeal with the COA Cluster Director, and moved for reconsideration before COA Proper. Its prayer for compensation under quantum meruit was even granted.

The Court also clarified that the COA TechITS is an internal office that provides technical support to auditors. Under COA Memorandum No. 2009-083, it is not required to furnish a private contractor a copy of its findings. In any case, COA Proper adopted those findings and gave Lotrim the chance to refute them.

The CIAC Objection Came Too Late

The Court acknowledged that the CIAC may have jurisdiction over construction disputes by virtue of an arbitration clause. But Lotrim raised this issue for the first time on appeal, nearly eight years after the COA Cluster Director's decision. Citing Tijam v. Sibonghanoy and Amoguis v. Ballado, the Court held that active participation in the proceedings, combined with an unreasonable delay in objecting to jurisdiction, amounts to a waiver. Lotrim was estopped from invoking CIAC jurisdiction.

Quantum Meruit Cuts Both Ways

The Court reaffirmed the principle of quantum meruit — literally, "as much as he deserves" — as explained in Torreta v. Commission on Audit. It prevents the government from being unjustly enriched by a contractor's work even when the contract is void.

But the Court stressed that the principle is not a shield for contractors to keep more than what is due. It obliges the government to pay for benefits actually received, while allowing the recovery of overpayments to protect public funds. COA's factual findings, supported by substantial evidence and its specialized expertise, are entitled to great respect, if not finality.

Practical Takeaways

• Government contracts require a valid appropriation. A contract entered into without one may be declared void, even if the contractor acted in good faith.
• Quantum meruit protects contractors — but only up to the reasonable value of work actually done. Overpayments must be returned.
• COA has broad audit powers. Under Article IX-D, Section 2(2) of the Constitution, it may disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, and is not limited to the grounds cited by its auditors.
• Do not sleep on your remedies. The 30-day period under Rule 64 is strictly enforced, and a late petition can render a ruling final and immutable.
• Raise jurisdictional objections early. Participating in proceedings and seeking relief from a tribunal can bar a later challenge to its jurisdiction.

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