Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 183260 July 4, 2012

PHILIPPINE SPORTS COMMISSION, CESAR PRADAS, NOEL ELNAR, EMERENCIANA SAMSON,

CESAR ABALON, JULIA LLANTO, EDGARDO MATEO AND ERIC BUHAIN, Petitioners,
vs.
DEAR JOHN SERVICES, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the April 17, 2008 Decision1 and the June 11, 2008 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 88606, which reversed and set aside the November 29, 2006
Decision3 of the Regional Trial Court, Branch 196, Parañaque City(RTC), in Civil Case No. 02-
0212, entitled "Dear John Services, Inc. v. Philippine Sports Commission."

The Facts:

In December 2001, respondent Philippine Sports Commission (PSC) published an "Invitation to

Bid" for its janitorial and security services. Pursuant thereto, respondent Dear John Services,
Inc. (Dear John Services) submitted its letter4 signifying its intent to participate in the bidding
and subsequently paid the bidding fee.5

On March 8, 2002, PSC Chairman Eric Buhain (Buhain), in a memorandum,6 cancelled the pre-
bidding conference pending evaluation of all procedures and documents relative to the bidding
policies.

When the review was completed, the "Invitation to Apply for Eligibility and to Bid" was re-
advertised in order to comply with the requirements set forth in Executive Order (E.O.) No. 40,
Series of 2001 and in its Implementing Rules and Regulations.7 The pre-bidding and bidding
dates were then scheduled to April 16, 2002 and April 26, 2002, respectively.

Among the bidders who qualified and submitted the necessary documents for prequalification
were Dear John Services8 and Consolidated Building Maintenance, Inc.9 (CBMI). A procedure for
the conduct of the public bidding, entitled "Instruction to Bidders,"10 was given to the qualified
bidders.
The bidding was held as scheduled and the sealed bids were opened. Dear John Services’ bid
amounted to P18,560,078.00 while that of CBMI amounted to P 27,419,097.00. PSC, however,
awarded the contract to CBMI because Dear John Services allegedly failed to reach the 60%
lower limit of the Approved Agency Estimate(AAE).11

Dear John Services sent a letter,12 dated May 8, 2002, to Buhain requesting that its bid be
reconsidered and stating therein that the AAE amounting to P 32,554,050.00 should have been
disclosed prior to the bidding and that its revelation after the opening of the bid was highly
irregular.

Subsequently, Dear John Services filed a Complaint13 against PSC for injunction before the RTC
praying, among others, that a temporary restraining order (TRO) be issued enjoining PSC and its
officers (petitioners) from awarding the janitorial services to CBMI; that a preliminary injunction
be issued restraining PSC from availing of CBMI’s janitorial services; and that after the hearing,
the injunction be made permanent.

On May 14, 2002, the RTC issued a TRO, enjoining PSC from awarding its janitorial services to
CBMI and/or allowing the latter to perform its contract in the event that it had been
awarded.14 The said TRO was extended until May 20, 2002.15

Thereafter, the prayer for the extension of the TRO and the request for the issuance of the writ
of preliminary mandatory injunction were denied in the RTC Order,16 dated May 20, 2002.

The Complaint was later on amended to include Buhain, in his capacity as Chairman of PSC, and
the chairman and members of the Bids and Awards Committee (BAC), namely, Cesar Pradas,
Eugene De Vera, Noel Elnar, Emerenciana Samson, Cesar Abalon, Julia Llanto, and Edgardo
Mateo.17

After the trial on the merits, the RTC dismissed the complaint, in its November 29, 2006
Decision, for lack of merit. It upheld the authority of the PSC to award the service contract to
CBMI because the latter’s bid was advantageous to the government.

On appeal, the CA, in the subject decision, reversed and set aside the RTC decision, as it
disposed:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed
Decision dated November 29, 2006 of the Regional Trial Court of Parañaque City, Branch 196 in
Civil Case No. 02-0212 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered
ordering the individual defendants-appellees, jointly and severally, to pay plaintiff-appellant the
sum of Two Hundred Thousand Pesos (P 200,000.00) as nominal damages.

Needless to reiterate, the Amended Complaint as against defendant-appellee Philippine Sports

Commission is dismissed.
No pronouncement as to costs.

SO ORDERED.18

In coming up with the said decision, the CA explained:

xxx

The controversy revolved around the so-called "Agency Approved Estimate" which is nowhere
found or mentioned in EO 40 or its IRR. What EO 40 mandates is the use of the lowest
calculated and responsive bid intended to be transparent, objective and non-discretionary
criteria, and the approved budget contract (ABC) as the ceiling of the bid price. It is significant
to note that appellees are mandated to disclose the "approved budget for the contract" in the
Invitation to Bid pursuant to Sec. 14 of EO 40, another feature of the law aimed at ensuring
transparency and objectivity in the bidding process. Records do not show compliance with said
requirement. While Sec. 27, bids tendered must be post-qualified to determine if they satisfied
all the conditions and requirements in the bidding documents, specifically the condition
imposed in the Instructions to Bidders that the bid amount should not be lower that 60% of the
"AAE", this lower limit violates the rule laid down in EO 40 which prohibits such lower limit to
the contract amount. Sec. 25 of the IRR reiterated the rule that "there shall be no lower limit to
or floor on the amount of the award."

Moreover, the non-disclosure of the AAE prior to the bidding contravenes the policy of
transparency, on the assumption that such AAE is equivalent to ABC since the latter amount is
required to be disclosed in the Invitation to Bid. Neither can the AAE be equated with the
"Lowest Calculated and Responsive Bid" considering the admission in the testimony of BAC
Chairman Cesar Pradas that the AAE was determined even prior to the bidding held on April 26,
2002, or more precisely as early as April 18, 2002. The imposition of the 60% below AAE ceiling
for the bids therefore has no legal basis and contrary to the prohibition against a floor price for
the amount of the award under EO 40.

4.2 Award of Contract

Award of Contract will be made in accordance with the provisions of EO 40 and its
implementing Rules and Regulations (IRR). The PSC, however, is not bound to accept the lowest
bid or any bid nor will be responsible for or pay any expenses which maybe incurred by any
Bidder in the preparation or submission of its Bid. The PBAC-BAC also reserves the right to
award the contract to the bidder whose Bid is evaluated to be the most advantageous to the
government.

No award of contract shall be made to a Bidder whose bid price is higher than the allowable
government estimate (AGE) or the Approved Agency Estimate (AAE) whichever is higher, or
lower than seventy percent (70%) of the AGE, for the purpose of these implementing rules and
regulations, the AGE shall be equal to one-half (1.5) of all responsive bids. For purpose of
determining the average of all responsible bids, bids higher than One Hundred Twenty Percent
(120%) of the AAE or lower than sixty percent (60%) of the AAE shall not be considered.

Upon careful and thorough evaluation of Bids, the winning Bidder shall be informed through
written Notice of Award.

The PSC is not bound to justify the selection of the successful Bidder to any Bidder or other
interested party.

The above conditions in the Instruction to Bidders does not comply with the requirements of
EO 40 and its IRR, and are offensive to due process as they contravene the principles of
transparency, objectivity and non-discretionary criteria established therein. The fact that
appellant voluntarily accepted these conditions and submitted its bid without any question
regarding the existence of or amount of the AAE is of no moment, in view of the irregular
bidding procedure. Appellees had not been transparent and objective about the so-called AAE
as to whether it represents the approved budget contract or the lower calculated and
responsive bid provided in EO 40. Thus, although it is conceded that there is no evidence of
collusion or that the conditions imposed by appellees were made the basis of a fraudulent
award, it cannot be gainsaid that the bidding instructions were arbitrarily issued and the entire
bidding procedure did not comply with EO 40 and its IRR.

Appellees’ reliance on the following reservation clause in the Instruction to Bidders, likewise
holds no water.

1.4 Rejection of Bids, Disqualification of Bidder and other sanctions

The office of the PSC reserves the right to reject any or all bids and waives any required
formality in the bids received. The right is also reserved to reject the bid of any bidder (a) that is
above AAE or AGE (b) who had previously failed to satisfactorily perform or complete any
contract services undertaken by him/her or was eligible on the basis of suppressed or false
information.

The PSC assumes no obligation whatsoever to compensate or indemnify bidders for any
expenses or loss that may be incurred in the preparation of the bids nor does it guarantee that
an award will be made.

The PSC will reject any non-complying Bid, i.e., a Bid that fails to meet any requirement, terms
or condition set forth in the Tender Documents as well as relevant laws, rules and regulations.

Notwithstanding the eligibility of any contractor to submit Bids for the proposed contract, PSC
reserves the right to review its Eligibility requirements, statements and other relevant
information before and/or after the submission and before award of the Contract. Should such
review uncover any misrepresentation made in the Eligibility statement, the BAC shall disqualify
the contractor from submitting a Bid or shall not make any award to prospective Contracting
Agencies.

Under Sec. 29 of EO 40, such reservation clause is essential.

Sec. 29. Reservation Clause. The government reserves the right to reject any all bids, or declare
a failure of bidding, or not award the contract for any justifiable reason including among others,
if there is evidence of collusion between relevant public officers or employees of the agency or
the BAC and any of the which restricts, suppresses or nullifies competition, or if the BAC is
found to have failed to follow the prescribed bidding procedures.

The Supreme Court has ruled in National Power Corporation vs. Philipp Brothers Oceanic, Inc.
where the right to reject is so reserved, the lowest bid or any bid for that matter may be
rejected on a mere technicality. And where the government as advertiser, availing itself of that
right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain
nor right to dispute that choice unless an unfairness or injustice is shown. Accordingly, a bidder
has no ground of action to compel the Government to award the contract in his favor, nor
compel it to accept his bid. Even the lowest bid or any bid may be rejected.

Generally, the discretion to accept or repea[l] a bid and award contract is of such wide latitude
that the Court will not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award. The exercise of the discretion is a policy decision vested in the government
agencies entrusted with that function. The exercise of that discretion is a policy decision that
necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can
best be discharged by the concerned government agencies, not by the courts. The role of the
courts is to ascertain whether a branch or instrumentality of the government has transgressed
its constitutional boundaries. Courts will not interfere with executive or legislative discretion
exercised within those boundaries.

This policy has been reiterated in a more recent case, thus:

Further, LWUA made a reservation to reject bids as the Invitation to Prequalify and Bid
published in the June 6, 1992 issue of the Philippine Daily Inquirer shows:

LWUA reserves the right to reject any or all the bids, to waive any formality found therein and
to accept such bid or a part thereof as may be deemed most advantageous to LWUA. (Empahsis
and underscoring supplied)

The discourse in his "A TREATISE ON GOVERNMENT CONTRACT UNDER PHILIPPINE LAW" of
former Commissioner of the Commission on Audit Bartolome C. Fernandez, Jr. is enlightening:

It is a settled rule that where the invitation to bid contains a reservation for the Government to
reject any or all bids, the lowest or highest bidder, as the case may be, is not entitled to an
award as a matter of right for it does not become the ministerial duty of the Government to
make such award. Thus, it has been held that where the right to reject is so reserved, the
lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids may
be rejected, even if arbitrarily and unwise, or under a mistake, and that in the exercise of a
sound discretion, the award may be made to another than the lowest bidder. And so, where
the Government as advertiser, availing itself of that right, makes its choice in rejecting any or all
bids, the losing bidder has no cause to complain nor right to dispute that choice, unless an
unfairness or injustice is shown. Accordingly, he has no ground of action to compel the
Government to award the contract in his favor, nor to compel it to accept his bid.

Verily, a reservation in the advertisement for bids of the right to reject any bid generally vests in
the authorities a wide discretion as to who is the best and most advantageous bidder. The
exercise of such discretion involves inquiry, investigation, comparison, deliberation and
decision, which are quasi-judicial functions, and when honestly performed, may not be
reviewed by the courts. In such cases, there is no binding obligation to award the contract to
any bidder and in the exercise of such discretion the award may be made validly to whoever
among the participating bidders has submitted the most advantageous bid.

Contrary then to the assertion of petitioner, the bidding was carried out in accordance with its
purpose of protecting public interest by giving the public the best possible advantages through
open competition.

However, a reading of the decisional rule on reservation of right to reject cautions against
injustice, unfairness, arbitrariness, fraudulent acts or grave abuse of discretion. A contrary
conclusion would be anathema to the purposes for which public biddings are founded – to give
the public the best possible advantages through open competition – as it would give the
unscrupulous a plain escape to rig the bidding process. Grave abuse of discretion is committed
when an act is: 1) done contrary to the Constitution, the law or jurisprudence, or 2) executed
whimsically or arbitrarily in a manner so patent and so gross as to amount to an evasion of a
positive duty, or to a virtual refusal to perform the duty enjoined. The bidding conducted by the
appellees is clearly tainted with irregularity and grave abuse, resulting in prejudice and material
loss to appellant.19

x x x.

Petitioners filed their motion for reconsideration but was denied in the June 11, 2008 CA
Resolution. Hence, this petition, anchored on the following:

GROUNDS RELIED UPON IN THE PETITION

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE JUDGMENT OF THE
LOWER COURT CONSIDERING THAT:

I
RESPONDENT FAILED TO REACH THE 60% LOWER LIMIT OF THE AAE.

II

PETITIONER PSC HAD BASIS TO REJECT RESPONDENT’S BID BECAUSE OF THE RESERVATION
CLAUSE IN THE INSTRUCTION TO BIDDERS.20

Petitioners point out that the "Instruction to Bidders" clearly provides that the bid price should
not be less than 60% of the AAE. When Dear John Services submitted its bid, it expressed its
assent in the "Instruction to Bidders"and so it was bound by the terms and conditions stated
therein.

They explain that the condition that the bid amount should not be lower than 60% of the AAE is
necessary in order to ensure compliance with the minimum wage, 13th month pay, state
insurance and other benefits imposed by statutes, and to guarantee efficient and effective
performance by the winning bidder.

Petitioners further aver that there is nothing in E.O. No. 40 that mandates the disclosure of the
AAE to bidders. Besides, Dear John Services never demanded its disclosure during the opening
of the bids.

The Court finds no merit in the petition.

Public bidding, as a method of government procurement, is governed by the principles of

transparency, competitiveness, simplicity, and accountability.21 By its very nature and
characteristic, a competitive public bidding aims to protect the public interest by giving the
public the best possible advantages thru open competition and in order to avoid or preclude
suspicion of favoritism and anomalies in the execution of public contracts.22 Except only in
cases in which alternative methods of procurement are allowed, all government procurement
shall be done by competitive bidding.23

In the case of Agan, Jr. v. Philippine International Air Terminals Co, Inc.,24 the Court held:

Competition must be legitimate, fair and honest. In the field of government contract law,
competition requires, not only bidding upon a common standard, a common basis, upon the
same thing, the same subject matter, the same undertaking, but also that it be legitimate, fair
and honest; and not designed to injure of defraud the government.

It has been held that the three principles in bidding are the offer to the public, opportunity for
competition, and a basis for the exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character of the system and thwarts the
purpose of its adoption.25
As pointed out in the case of Power Sector Assets and Liabilities Management Corporation v.
Pozzolanic Philippines Incorporated,26 an essential element of a publicly bidded contract is that
all bidders must be on equal footing, not simply in terms of application of the procedural rules
and regulations imposed by the relevant government agency, but more importantly, on the
contract bidded upon.

In the case at bench, PSC-BAC failed to comply with the requirements and procedures for
competitive bidding specified under E.O. No. 40.

Section 14 of E.O. No. 40 provides:

Section 14. Invitation to Bid. The invitation to bid shall contain, among others: a brief
description of the items to be procured; the eligibility requirements; the place, date and time of
the deadlines for receipt of eligibility requirements and bids; the approved budget for the
contract to be bid; time and place of the opening of bids; and the contract duration or delivery.
[Underlining supplied]

Section 14 of the Implementing Rules and Regulations (IRR) of E.O. No. 40 specifically mandates
the BAC to include in the "Invitation to Apply for Eligibility and to Bid" the following information
to guide the prospective bidders, to wit:

Section 14. Invitation to Bid

14.1. Contents of the Invitation to Apply for Eligibility and to Bid

xxxx

1. The name, address, telephone number, facsimile number, e-mail and website
addresses of the concerned agency, as well as its designated contact person;

2. For the procurement of:

a) Goods, the name of the contract to be bid and a brief description of the goods
to be procured;

b) Civil works, the name and location of the contract to be bid, the project
background and other relevant information regarding the proposed contract
works, including a brief description of the type, size, major items, and other
important or relevant features of the works; and

c) Consulting services, the name of the contract to be bid, a general description

of the project and other important or relevant information;
 3. The criteria to be used by the agency in the following: (i) eligibility check of
prospective bidders; (ii) examination and evaluation of bids; and (iii) post qualification;
which shall be on a non-discretionary "pass/fail" basis;

4. The approved budget for the contract to be bid and the source of funding;

5. The period of availability of the bidding documents, the place where the bidding
documents may be secured and, where applicable, the price of the bidding documents;

6. The date, time and place of the deadline for the submission and receipt of the
eligibility requirements, the pre-bid conference if any, the submission and receipt of
bids, and the opening of bids; and

7. The contract duration or delivery schedule. [Emphasis supplied]

Essentially, the procurement process involves the following steps: (1) pre-procurement
conference; (2) advertisement of the invitation to bid; (3) pre-bid conference; (4) eligibility
check of prospective bidders; (5) submission and receipt of bids; (6) modification and
withdrawal of bids; (7) bid opening and examination; (8) bid evaluation; (9) post qualification;
(10) award of the contract; and (11) notice to proceed.27 Parenthetically, from the first step of
the procurement procedure, E. O. No. 40 and its implementing rules are clear to the effect that
the approved budget for the contract and the source of the funding should be divulged to
prospective bidders.

Under the Rules Implementing E.O. No. 40, the BAC shall indicate in the Invitation to Bid
relevant information regarding the proposed project and the standards that would be used in
determining the pre-qualification and post-qualification of the prospective bidders and in the
evaluation of bids. It shall indicate, among others, a brief description of the project to be bid;
the approved budget for the contract to be bid; the criteria to be used by the agency concerned
for the eligibility check; the availability of the bidding documents; and the date, time and place
of the deadline for the submission of the eligibility requirements. In other words, the BAC shall
furnish all information on the projects necessary for prospective bidders to properly prepare
their bids in order to give them fair and equal opportunity to bid.

Admittedly, PSC-BAC did not disclose in any of the bidding documents the amount of the
AAE.1âwphi1 The Bid Bulletin which was posted in conspicuous places and the "Instruction to
Bidders" that was distributed to qualified bidders did not indicate the amount of the AAE.
Petitioners’ contention, that they were not bound to disclose the AAE and that Dear John
Services never demanded its disclosure, is untenable. Under the law, the PSC-BAC is mandated
to disclose not only the description of the items to be procured, and the eligibility
requirements, among others, but also the approved budget of the project. Competitive bidding
is an essential element of a public bidding. Thus, it should be conducted fairly and openly with
full and free opportunity for competition among bidders. It has been held in a long line of cases
that a contract granted without the competitive bidding required by law is void and the party to
whom it is awarded cannot benefit from it.28 Had Dear John Services and CBMI known all the
information regarding the bidding, a different set of bids might have emerged.

Moreover, Section 25 of E.O. No. 40 and its IRR prohibit the BAC from imposing a minimum
amount to be offered in the bid. It states:

Section 25. Ceiling for Bid Price. The approved budget for the contract shall be the upper limit
or ceiling for the bid price. Bid prices which exceed this ceiling shall be disqualified outright
from further participating in the bidding.There shall be no lower limit to the amount of the
award. For this purpose, the approved budget for the contract shall be that approved by the
head of the agency. [Underscoring supplied]

Consequently, the provision in the "Instruction to Bidders" stating that no award of the contract
shall be made to a bidder whose bid price is lower than the allowable government
estimate (AGE) or AAE is not valid. The rule on the matter is clear. The PSC-BAC is obliged to
observe and enforce the same in the procurement of goods and services for the project. The
law on public bidding is not an empty formality.29 A strict adherence to the principles, rules and
regulations on public bidding must be sustained if only to preserve the integrity and the faith of
the general public on the procedure.30

WHEREFORE, the petition is DENIED. The April 17, 2008 Decision and the June 11, 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 88606 are AFFIRMED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

DIOSDADO M. PERALTA BIENVENIDO L. REYES*

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. No. 296, The Judiciary Act of 1948, as amended)

Footnotes
*
Designated Acting Member in lieu of Associate Justice Roberto A. Abad, per Special
Order No. 1244 dated June 26, 2012.
1
Rollo, pp. 52-67. Penned by Associate Justice Martin S. Villarama, Jr. (now member of
this Court) and concurred in by Associate Justice Noel G. Tijam and Associate Justice
Myrna Dimaranan Vidal.
2
Id. at 68.
3
Records, pp. 580-587.
4
Annex "A," records, p. 496.
5
Annex "B," id. at 498-499.
6
Annex "E," id. at 501.
7
Annex "G," id. at 503.
8
Annex "I," id. at 505.
9
Records, p. 515.
10
Annex "J," records, pp. 506-514.
11
Annex "K," id. at 515.
12
Annex "L," id. at 516.
13
Records, pp. 49-58.
14
Id. at 8.
15
Id. at 83.
16
Id. at 89.
17
Id. at 261-267.
18
Rollo, p. 66.
19
Id. at 61-65.
20
Id. at 35.
21
Commission on Audit v. Link Worth International, Inc., G.R. No. 182559, March 13,
2009, 581 SCRA 501, 509.
22
Danville Maritime, Inc. v. Commission on Audit, 256 Phil. 1092, 1103 (1989).
23
Commission on Audit v. Link Worth International, Inc., supra note 21.
24
450 Phil. 744, 814 (2003).
25
Malaga v. Penachos, Jr., G.R. No. 86695, September 3, 1992, 213 SCRA 516, 526.
26
G.R. No. 183789, August 24, 2011, 656 SCRA 214, 231-232.
27
Sections 13-30 of E.O. No. 40.
28
Malaga v. Penachos, Jr., supra note 25.
29
Nava v. Palattao, 531 Phil. 345, 367 (2006).
30
Agan, Jr. v. PIATCO, 450 Phil. 744, 812-813.