COMMISSION ON AUDIT RESOLUTION NO. 79-52
October 3, 1979
This refers to the communication of the City Auditor, Quezon City, dated August
13, 1979, for concurrence on the request of Interlink Construction dated May 26, 1979,
for contract price adjustment in connection with the construction of one (1) unit 2-storey
Barangay Hall and Health Center, one (1) unit Tennis clubhouse and two (2) units
Tennis Courts for the Municipal Government of Pasig, Metro Manila, from the original
contract price of P310,000.00 to P403,000.00 or an adjustment in the amount of
P93,000.00, involving an increase of thirty percent (30%) of the contract amount.
Extant records show that the Municipality of Pasig entered into a contract with
P.M. Gatbalite for the construction of the above-mentioned facilities. Thereafter, P.M.
Gatbalite assigned the contract in question to Interlink Construction. A Deed of
Assignment was executed between the parties and accepted on March 26, 1979 by the
Municipal Committee on Award, Municipality of Pasig, and approved by the Metro Manila
Commission in a 1st Indorsement dated April 19, 1979. On May 24, 1979, the assignee
requested the Mayor of Pasig for an adjustment of its contract price based on the
Central Bank price indices of 30% escalation. The Municipal Committee on Award
under resolution dated July 16, 1979, granted the request of Interlink for a 30%
escalation and approved by the Metro Manila Commission in its 1st Indorsement dated
August 6, 1979.
From a recital of the above facts it is clear that this Commission is confronted
with two issues to resolve. Firstly, on the issue of the assignment made by P.M.
Gatbalite to Interlink Construction and secondly, on the issue of contract price
adjustment.
Anent the first issue, undeniably the Metro Manila Commission is empowered at
its option, to honor an assignment or annul the same. The following standard condition
incorporated in bidded contracts, provides:
“This contract shall not be assigned to any other party or parties,
and in case of such a transfer the Government may refuse to carry out
the contract either with the transferer or transferee, but all rights of action
for any branch of this contract shall be reserved to and remain in said
government.” (Par. 59, Standard Government Form of Contract No. 1,
Rev. January 10, 1936).
With the passage, however, of P.D. 1594 on June 11, 1978, certain requisites
were laid to validate an assignment. Sec. 6 of P.D. 1594, states: “The Contractor shall
not assign x x the contract or any part of interest therein except with the approval of the
Minister of Public Works, Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be x x.” The records failed to
disclose that this requirements has been complied by the assignor, P.M. Gatbalite.
As a general rule, assignment of contracts are discouraged, for the very essence
of requiring prospective contractors to undergo competitive public bidding is defeated.
Public bidding is the only avenue open “x x to give the public the best possible
advantage by means of open competition between the bidders x x “ (Favis et al. vs. Mun.
of Sabangan, et al., L-26522, Feb. 27/69, 27 SCRA 92) The law on public bidding in
regard to government contracts is based upon motives of public economy and is an
instrument for the curtailment and prevention of anomalies in the execution or renewal of
contracts. Recognizing such importance, P.D. 1594 refuses to give due cognizance to
the subcontractor. “Approval of the subcontract shall not relieve the main contractors
from any liability or obligation under his contract with the Government. x x x.” (Sec. 6,
Ibid)
As regards the second issue involving the legality of allowing the contract price
adjustment in the absence of stipulation to that effect in the original contract, it may be
stated at the outset that the provisions of P.D. 1594 , R.A. 5979, as amended by
Presidential Decrees 454 & 459 whereby price escalation is allowed as a matter of
policy, are not applicable to public works financed by local or municipal funds. It is clear
from the law, that its application is limited only to public works projects financed by the
national government. (16th Indorsement of the Office of the President, Oct. 29, 1974)
Price adjustments in government contracts are allowed only when expressly authorized
by the laws covering the government projects and only on grounds specified by said
laws. (Department of Justice, Oninion No. 129, s. 1971 embodied in COA Office Memo
No. 439, Sept. 10, 1972).
In the absence of a law allowing the application of escalation clause on contracts
financed by local funds, the same may not be allowed. The parties shall be governed
strictly by the terms of the contract. (Art. 1159, New Civil Code). This office is of the
opinion that the word “acts” in Sec. 6, P.D. 824, is not broad enough to include within its
ambit the grant upon MMC the power to modify a contract so as incorporate contract
price adjustment. Jurisprudence established that, “local legislative bodies possess x x
only such power as Congress may have deemed fit to grant the and they are to be
construed strictly.”
(Vega and Gellada vs. the Municipal Board of the City of Iloilo, G.R. L-6765, May 12,
1954). “Any doubt or ambiguity arising out of the term used in granting said powers are
resolved against the local government.” (Cu Unjieng vs. Patstone, 42 Phil 818, 830;
Pacific Commercial vs. Romualdez, 49 Phil 917, 924; Batangas Transp. Co. vs.
Provincial Treasurer of Batangas, 52 Phil 190; Icard vs. the City Council of Baguio, 46
Off. Gaz., Supplement No. 11, pp. 320-323).
While it is settled doctrine in this jurisprudence that “municipality, under proper
charter authority, may adopt ordinances/upon subjects already covered by the general
law of the state, so long as the ordinances are not repugnant; nor in conflict with such
general law”, the records on hand failed to disclose the existence of any local legislation
passed on the subject by the Municipality of Pasig. In the absence of rules and
regulations implementing P.D. 1594, or a specific grant of authority in its charter, or an
appropriate law similar to the authority conferred in R.A. 5979, as amended by P.D.s 854
and 859, this Commission is constrained to take a contrary stand.
WHEREFOR, premises considered, this Commission resolves not to take
cognizance of the assignment made by P.M. Gatbalite to Interlink Construction, as well
as its request for concurrence in the contract price adjustment in the absence of proofs
that the requisite steps outlined by law as mentioned in the foregoing paragraphs are
complied with.
Quezon City, Philippines.
October 3, 1979.
(SGD.) FRANCISCO S. TANTUICO, JR.
Acting Chairman
(SGD.) SILVESTRE D. SARMIENTO
Commissioner