Republic of the Philippines

Supreme Court

Manila

EN BANC

ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO ALI and MARY ANNE L. SUSANO,

Petitioners,

- versus -

THE HONORABLE COMMISSION ON ELECTIONS,

Respondent.

x--------------------------------------------x

SOLIDARITY FOR SOVEREIGNTY (S4S), represented by Ma. Linda Olaguer; RAMON PEDROSA, BENJAMIN PAULINO SR., EVELYN CORONEL, MA. LINDA OLAGUER MONTAYRE, and NELSON T. MONTAYRE,

Petitioners,

- versus -

COMMISSION ON ELECTIONS, represented by its Chairman, Commissioner SIXTO S. BRILLANTES, JR.,

Respondent.

x--------------------------------------------x

TEOFISTO T. GUINGONA, BISHOP BRODERICK S. PABILLO, SOLITA COLLAS MONSOD, MARIA CORAZON MENDOZA ACOL, FR. JOSE DIZON, NELSON JAVA CELIS, PABLO R. MANALASTAS, GEORGINA R. ENCANTO and ANNA LEAH E. COLINA,

Petitioners,

- versus -

COMMISSION ON ELECTIONS and SMARTMATIC TIM CORPORATION,

Respondents.

x--------------------------------------------x

TANGGULANG DEMOKRASYA (TAN DEM), INC., EVELYN L. KILAYKO, TERESITA D. BALTAZAR, PILAR L. CALDERON and ELITA T. MONTILLA,

Petitioners,

- versus -

COMMISSION ON ELECTIONS and SMARTMATIC-TIM Corporation,

Respondents.

G.R. No. 201112

G.R. No. 201121

G.R. No. 201127

G.R. No. 201413

Present:

CARPIO, J.,

VELASCO, JR.,

LEONARDO-DE CASTRO,

BRION,

PERALTA,

BERSAMIN,

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ,

MENDOZA,

SERENO,

REYES, and

PERLAS-BERNABE, JJ.

Promulgated:

June 13, 2012

x----------------------------------------------------------------------------------------x

D E C I S I O N

PERALTA, J.:

Pursuant to its authority to use an Automated Election System (AES) under Republic Act (RA) No. 8436, as amended by RA No. 9369, or the Automation Law and in accordance with RA No. 9184, otherwise known as the Government Procurement Reform Act, the Commission on Elections (Comelec) posted and published an invitation to apply for eligibility and to bid for the 2010 Poll Automation Project[1] (the Project). On March 18, 2009, the Comelec approved and issued a Request for Proposal[2] (RFP) for the Project consisting of the following components:

Component 1: Paper-Based Automation Election System (AES)

1-A. Election Management System (EMS)

1-B. Precinct Count Optical Scan (PCOS) System

1-C. Consolidation/Canvassing System (CCS)

Component 2: Provision for Electronic Transmission of Election Results using Public Telecommunications Network

Component 3: Overall Project Management[3]

On June 9, 2009, the Comelec issued Resolution No. 8608 awarding the contract for the Project to respondent Smartmatic-TIM.[4] On July 10, 2009, the Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated Election System for the May 10, 2010 Synchronized National and Local Elections,[5] (AES Contract, for brevity). The contract between the Comelec and Smartmatic-TIM was one of lease of the AES with option to purchase (OTP) the goods listed in the contract. In said contract, the Comelec was given until December 31, 2010 within which to exercise the option.

On September 23, 2010, the Comelec partially exercised its OTP 920 units of PCOS machines with corresponding canvassing/consolidation system (CCS) for the special elections in certain areas in the provinces of Basilan, Lanao del Sur and Bulacan.[6] In a letter[7] dated December 18, 2010, Smartmatic-TIM, through its Chairman Cesar Flores (Flores), proposed a temporary extension of the option period on the remaining 81,280 PCOS machines until March 31, 2011, waiving the storage costs and covering the maintenance costs. The Comelec did not exercise the option within the extended period. Several extensions were given for the Comelec to exercise the OTP until its final extension on March 31, 2012.

On March 6, 2012, the Comelec issued Resolution No. 9373[8] resolving to seriously consider exercising the OTP subject to certain conditions. On March 21, 2012, the Comelec issued Resolution No. 9376[9] resolving to exercise the OTP the PCOS and CCS hardware and software in accordance with the AES contract between the Comelec and Smartmatic-TIM in connection with the May 10, 2010 elections subject to the following conditions: (1) the warranties agreed upon in the AES contract shall be in full force and effect; (2) the original price for the hardware and software covered by the OTP as specified in the AES contract shall be maintained, excluding the cost of the 920 units of PCOS and related peripherals previously purchased for use in the 2010 special elections; and (3) all other services related to the 2013 AES shall be subject to public bidding. On March 29, 2012, the Comelec issued Resolution No. 9377[10] resolving to accept Smartmatic-TIMs offer to extend the period to exercise the OTP until March 31, 2012 and to authorize Chairman Brillantes to sign for and on behalf of the Comelec the Agreement on the Extension of the OTP Under the AES Contract[11] (Extension Agreement, for brevity). The aforesaid Extension Agreement was signed on March 30, 2012.[12] On even date, the Comelec issued Resolution No. 9378[13] resolving to approve the Deed of Sale between the Comelec and Smartmatic-TIM to purchase the latters PCOS machines (hardware and software) to be used in the upcoming May 2013 elections and to authorize Chairman Brillantes to sign the Deed of Sale for and on behalf of the Comelec. The Deed of Sale[14] was forthwith executed.

Claiming that the foregoing issuances of the Comelec, as well as the transactions entered pursuant thereto, are illegal and unconstitutional, petitioners come before the Court in four separate Petitions for Certiorari, Prohibition, and Mandamus imputing grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Comelec in issuing the assailed Resolutions and in executing the assailed Extension Agreement and Deed.

G.R. No. 201112

In G.R. No. 201112, petitioners Archbishop Fernando R. Capalla, Omar Solitario Ali and Mary Anne L. Susano pray that a Temporary Restraining Order (TRO) be issued enjoining the Comelec from purchasing the PCOS machines until after final judgment of the instant case; a writ of prohibition be issued against the Comelec for the purchase of these defective PCOS machines; a writ of mandamus be issued compelling the Comelec to conduct the necessary bidding for the equipment and facilities which shall be used for the 2013 National and Local Elections; and to declare Comelec Resolution Nos. 9376, 9377, and 9378, on the purchase of PCOS machines, null and void.

Petitioners argue that if there is a necessity to purchase the PCOS machines, the Comelec should follow RA 9184 requiring competitive public bidding. They likewise argue that the OTP clause embodied in the contract with Smartmatic-TIM should be rendered invalid not only because the OTP has already lapsed but because of the fact that the OTP clause is a circumvention of the explicit provisions of RA 9184. Petitioners add that the current PCOS machines do not meet the rigorous requirements of RA 9369 that the system procured must have demonstrated capability and should have been successfully used in a prior electoral exercise here or abroad. Petitioners submit that there are intrinsic technical infirmities as regards the PCOS machines used during the 2010 elections which rendered it incapable for future use. Lastly, petitioners claim that the Comelec does not have the capability to purchase and maintain the PCOS machines, because of lack of trained manpower and technical expertise to properly maintain the PCOS machines; thus, the purchase is unfavorable to the general public.

G.R. No. 201121

In G.R. No. 201121, petitioners Solidarity for Sovereignty (S4S), represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin Paulino, Sr., Evelyn Coronel, Ma. Linda Olaguer Montayre and Nelson T. Montayre, pray that a TRO be issued directing the Comelec to desist from implementing the contract; that Resolution No. 9376 be declared unconstitutional and all acts made pursuant thereto, including the purchase of the PCOS machines unlawful and void; that an Injunction be issued prohibiting the Comelec from further pursuing any act pursuant to Resolution No. 9376.[15]

Petitioners argue that the Comelecs act of exercising its OTP the PCOS machines from Smartmatic-TIM after the period had already lapsed is illegal and unlawful.[16] They explain that the period within which the Comelec may exercise the OTP could last only until December 31, 2010 without extension as provided in the Comelecs bid bulletin.[17] They further assert that the Comelecs acceptance of Smartmatic-TIMs unilateral extension of the option period constitutes substantial amendment to the AES contract giving undue benefit to the winning bidder not available to the other bidders.[18] Petitioners also contend that the Comelecs decision to purchase and use the PCOS machines is unconstitutional, as it allows the Comelec to abrogate its constitutional duty to safeguard the election process by subcontracting the same to an independent provider (Smartmatic-TIM), who controls the software that safeguards the entire election process. The purchase of the PCOS machines for use in the May 2013 elections would be tantamount to a complete surrender and abdication of the Comelecs constitutional mandate in favor of Smartmatic-TIM. The control of the software and process verification systems places the Comelec at the end of the process as it merely receives the report of Smartmatic-TIM. This, according to petitioners, amounts to a direct transgression of the exclusive mandate of the Comelec completely to take charge of the enforcement and administration of the conduct of elections. [19] Lastly, petitioners aver that the Comelecs act of deliberately ignoring the palpable infirmities and defects of the PCOS machines, as duly confirmed by forensic experts, is in violation of Section 2, Article V of the Constitution, as it fails to safeguard the integrity of the votes. They went on by saying that the subject PCOS machines lack security features which can guaranty the secrecy and sanctity of our votes in direct contravention of RA 9369 which requires that the automated election system must at least possess an adequate security feature against unauthorized access. In deciding to purchase the PCOS machines despite the above-enumerated defects, the Comelecs decision are claimed to be unconstitutional.[20]

G.R. No. 201127

In G.R. No. 201127, petitioners Teofisto Guingona, Bishop Broderick S. Pabillo, Solita Collas Monsod, Maria Corazon Mendoza Acol, Fr. Jose Dizon, Nelson Java Celis, Pablo R. Manalastas, Georgina R. Encanto and Anna Leah E. Colina pray that the Court issue a TRO enjoining and restraining respondents Comelec and Smartmatic-TIM from implementing Comelec Resolution No. 9376 and the Deed of Sale for the acquisition and purchase of the PCOS machines and related equipment; issue writ of preliminary injunction; declare Comelec Resolution No. 9376 void and unconstitutional and annul the Deed of Sale; and direct the Comelec to conduct public bidding soonest for the automated election system to be used for the 2013 elections.[21]

Petitioners fault the Comelec in totally disregarding the recommendation of the Comelec Advisory Council (CAC) not to exercise the OTP. They point out that in its Resolution No. 2012-2003, the CAC resolved to recommend that the Comelec should exert all efforts to procure the necessary AES only through public bidding. The CAC likewise allegedly recommended that the OTP should not be exercised if as a consequence, the rest of the system must come from the same vendor as the Comelec would lose the opportunity to look for better technology; would prevent the Comelec from taking advantage of the best possible technology available; would prevent other prospective vendors from competitively participating in the bidding process; and may erode the public trust and confidence in the electoral process. In its report to the Congressional Oversight Committee after the 2010 elections, the CAC supposedly concluded that the Comelec does not need to use the same PCOS machines and that the Comelec would be better off not exercising the OTP the PCOS machines so it can look for an even better solution for the May 2013 elections.[22] Like the other petitioners, it is their position that Comelec Resolution No. 9376 is totally null and void having been issued in violation of the express provisions of RA 9184 and the AES contract. According to petitioners, the Comelec itself provided in its bid bulletins for a fixed and determinate period, and such period ended on December 31, 2010. Thus, Smartmatic-TIM could not have unilaterally extended the option period and the Comelec could not have also given its consent to the extension. In extending the option period, it is tantamount to giving the winning bidder a benefit that was not known and available to all bidders during the bidding of the 2010 AES, which is a clear violation of the bidding rules and the equal protection clause of the Constitution.[23] Considering that the option period already expired, the purchase of the PCOS machines requires competitive public bidding. Lastly, petitioners claim that the Comelec committed grave abuse of discretion in opting to buy the PCOS machines and allied paraphernalia of Smartmatic-TIM for the 2013 elections, despite incontrovertible findings of the glitches, malfunctions, bugs, and defects of the same.[24]

G.R. No. 201418

In G.R. No. 201418, petitioners Tanggulang Demokrasya (Tan Dem), Inc., Evelyn L. Kilayko, Teresita D. Baltazar, Pilar L. Calderon and Elita T. Montilla pray that the Court annul Resolution No. 9376 and the March 30, 2012 Deed of Sale, and prohibit the Comelec and Smartmatic-TIM from implementing the same; and declare said Resolution and Deed of Sale invalid for having been issued and executed by the Comelec with grave abuse of discretion and for violating the provisions of R.A. 9184.[25]

Petitioners claim that the Comelec committed grave abuse of discretion amounting to lack or excess of jurisdiction in contracting for the purchase of AES goods and services from Smartmatic-TIM in spite of the below par performance of the latters PCOS machines, CCS and other software and hardware in the May 2010 elections and non-compliance with the minimum functional capabilities required by law.[26] They echo the other petitioners contention that the Comelecs decision to buy the CCS, PCOS machines, software and hardware of Smartmatic violates RA 9184s requirement of a prior competitive public bidding. Since the Comelec is bent on pursuing the purchase of the subject goods, which is an entirely new procurement, petitioners contend that there must be a public bidding. They argue that there is enough time to conduct public bidding for the 2013 elections, considering that for the May 2010 elections, the Comelec only had 10 months and they were able to conduct the public bidding. Petitioners are of the view that there is no more OTP to speak of, because the option period already lapsed and could not be revived by the unilateral act of one of the contracting parties.[27]

On April 24, 2012, the Court issued a TRO enjoining the implementation of the assailed contract of sale. The consolidated cases were later set for Oral Arguments on the following issues:

I. Whether or not the Commission on Elections may validly accept the extension of time unilaterally given by Smartmatic-TIM Corporation within which to exercise the option to purchase under Article 4 of the Contract for the Provision of an Automated Election System for the May 2010 Synchronized National and Local Elections; and

II. Whether or not the acceptance of the extension and the issuance of Comelec En Banc Resolution No. 9376 violate Republic Act No. 9184 or the Government Procurement Reform Act and its Implementing Rules, and Republic Act No. 9369 or the Automated Election Systems Act.

The parties were, thereafter, required to submit their Memoranda.

The petitions are without merit.

Simply stated, petitioners assail the validity and constitutionality of the Comelec Resolutions for the purchase of the subject PCOS machines as well as the Extension Agreement and the Deed of Sale covering said goods mainly on three grounds: (1) the option period provided for in the AES contract between the Comelec and Smartmatic-TIM had already lapsed and, thus, could no longer be extended, such extension being prohibited by the contract; (2) the extension of the option period and the exercise of the option without competitive public bidding contravene the provisions of RA 9184; and, (3) despite the palpable infirmities and defects of the PCOS machines, the Comelec purchased the same in contravention of the standards laid down in RA 9369.

For its part, the Comelec defends the validity and constitutionality of its decision to purchase the subject PCOS machines, pursuant to the OTP under the AES contract with Smartmatic-TIM, on the following grounds: (1) Article 6.6 of the AES contract which states the option period was amended by the extension agreement; (2) the exercise of the OTP is not covered by RA 9184, because it is merely an implementation of a previously bidded contract; (3) taking into account the funds available for the purpose, exercising the OTP was the prudent choice for the Comelec and is more advantageous to the government; and (4) the exercise of the OTP is consistent with the technical requirements of RA 9369.

Stated in another way, Smartmatic-TIM insists on the validity of the subject transaction based on the following grounds: (1) there is no prohibition either in the contract or provision of law for it to extend the option period; rather, the contract itself allows the parties to amend the same; (2) the OTP is not an independent contract in itself, but is a provision contained in the valid and existing AES contract that had already satisfied the public bidding requirements of RA 9184; (3) exercising the option was the most advantageous option of the Comelec; and (4) Smartmatic-TIM has an established track record in providing effective and accurate electoral solutions and its satisfactory performance has been proven during the 2010 elections. The alleged glitches in the May 2010 elections, if at all, are not attributable to the PCOS machines.

We agree with respondents.

At the outset, we brush aside the procedural barriers (i.e., locus standi of petitioners and the non-observance of the hierarchy of courts) that supposedly prevent the Court from entertaining the consolidated petitions. As we held in Guingona, Jr. v. Commission on Elections:[28]

There can be no doubt that the coming 10 May 2010 [in this case, May 2013] elections is a matter of great public concern. On election day, the country's registered voters will come out to exercise the sacred right of suffrage. Not only is it an exercise that ensures the preservation of our democracy, the coming elections also embodies our people's last ounce of hope for a better future. It is the final opportunity, patiently awaited by our people, for the peaceful transition of power to the next chosen leaders of our country. If there is anything capable of directly affecting the lives of ordinary Filipinos so as to come within the ambit of a public concern, it is the coming elections, more so with the alarming turn of events that continue to unfold. The wanton wastage of public funds brought about by one bungled contract after another, in staggering amounts, is in itself a matter of grave public concern.[29]

Thus, in view of the compelling significance and transcending public importance of the issues raised by petitioners, the technicalities raised by respondents should not be allowed to stand in the way, if the ends of justice would not be subserved by a rigid adherence to the rules of procedure.[30]

Now on the substantive issues. In order to achieve the modernization program of the Philippine Electoral System, which includes the automation of the counting, transmission and canvassing of votes for the May 2010 national and local elections with systems integration and over-all project management in a comprehensive and well-managed manner,[31] the Comelec entered into an AES contract with Smartmatic-TIM for the lease of goods and purchase of services under the contract, with option to purchase the goods.

The option contract between the Comelec and Smartmatic-TIM is embodied in Article 4.3 of the AES contract to wit:

Article 4

Contract Fee and Payment

x x x x

4.3. OPTION TO PURCHASE

In the event the COMELEC exercises its option to purchase the Goods as listed in Annex L, COMELEC shall pay the PROVIDER an additional amount of Two Billion One Hundred Thirty Million Six Hundred Thirty- Five Thousand Forty-Eight Pesos and Fifteen Centavos (Php2,130,635,048.15) as contained in the Financial Proposal of the joint venture partners Smartmatic and TIM.

In case COMELEC should exercise its option to purchase, a warranty shall be required in order to assure that: (a) manufacturing defects shall be corrected; and/or (b) replacements shall be made by the PROVIDER, for a minimum period of three (3) months, in the case of supplies, and one (1) year, in the case of equipment, after performance of this Contract. The obligation for the warranty shall be covered by retention money of ten percent (10%) of every option to purchase payment made.

The retention money will be returned within five (5) working days after the expiration of the above warranty, provided, however, that the goods supplied are in good operating condition free from patent and latent defects, all the conditions imposed under the purchase contract have been fully met, and any defective machines, except to those attributable to the COMELEC, have been either repaired at no additional charge or replaced or deducted from the price under the Option to Purchase.[32]

Article 6.6 thereof, in turn provides for the period within which the Comelec could exercise the option, thus:

Article 6

COMELECs Responsibilities

x x x x

6.6. COMELEC shall notify the PROVIDER on or before 31 December 2010 of its option to purchase the Goods as listed in Annex L.[33]

The Comelec did not exercise the option within the period stated in the above provision. Smartmatic, however, unilaterally extended the same until its final extension on March 31, 2012. The Comelec, thereafter, accepted the option and eventually executed a Deed of Sale involving said goods. Now, petitioners come before the Court assailing the validity of the extension, the exercise of the option and the Deed of Sale. In light of the AES contract, can Smartmatic-TIM unilaterally extend the option period? Can the Comelec accept the extension?

We answer in the affirmative.

It is a basic rule in the interpretation of contracts that an instrument must be construed so as to give effect to all the provisions of the contract.[34] In essence, the contract must be read and taken as a whole.[35] While the contract indeed specifically required the Comelec to notify Smartmatic-TIM of its OTP the subject goods until December 31, 2010, a reading of the other provisions of the AES contract would show that the parties are given the right to amend the contract which may include the period within which to exercise the option. There is, likewise, no prohibition on the extension of the period, provided that the contract is still effective.

Article 2 of the AES contract lays down the effectivity of the contract, viz.:

Article 2

EFFECTIVITY

2.1. This Contract shall take effect upon the fulfillment of all of the following conditions:

(a) Submission by the PROVIDER of the Performance Security;

(b) Signing of this Contract in seven (7) copies by the parties; and

2.2. The Term of this Contract begins from the date of effectivity until the release of the Performance Security, without prejudice to the surviving provisions of this Contract, including the warranty provision as prescribed in Article 8.3 and the period of the option to purchase (Emphasis supplied).[36]

Obviously, the contract took effect even prior to the 2010 elections. The only question now is whether its existence already ceased. Pursuant to the above-quoted provision, it is important to determine whether or not the performance security had already been released to Smartmatic-TIM. In Article 8 of the AES contract, performance security was defined and the rules in releasing said security were laid down, to wit:

Article 8

Performance Security and Warranty

8.1. Within three (3) days from receipt by the PROVIDER of the formal Notice of Award from COMELEC, the PROVIDER shall furnish COMELEC with a Performance Security in an amount equivalent to five percent (5%) of the Contract Amount; which Performance Security as of this date has been duly received by COMELEC.

Within seven (7) days from delivery by the PROVIDER to COMELEC of the Over-all Project Management Report after successful conduct of the May 10, 2010 elections, COMELEC shall release to the PROVIDER the above-mentioned Performance Security without need of demand.[37]

Smartmatic-TIM categorically stated in its Consolidated Comment to the petitions that the Comelec still retains P50M of the amount due Smartmatic-TIM as performance security.[38] In short, the performance security had not yet been released to Smartmatic-TIM which indicates that the AES contract is still effective and not yet terminated. Consequently, pursuant to Article 19[39] of the contract, the provisions thereof may still be amended by mutual agreement of the parties provided said amendment is in writing and signed by the parties. In light of the provisions of the AES contract, there is, therefore, nothing wrong with the execution of the Extension Agreement.

Considering, however, that the AES contract is not an ordinary contract as it involves procurement by a government agency, the rights and obligations of the parties are governed not only by the Civil Code but also by RA 9184. In this jurisdiction, public bidding is the established procedure in the grant of government contracts. The award of public contracts, through public bidding, is a matter of public policy.[40] The parties are, therefore, not at full liberty to amend or modify the provisions of the contract bidded upon.

The three principles of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for the exact comparison of bids.[41] By its very nature, public bidding aims to protect public interest by giving the public the best possible advantages through open competition.[42] Competition requires not only bidding upon a common standard, a common basis, upon the same thing, the same subject matter, and the same undertaking, but also that it be legitimate, fair and honest and not designed to injure or defraud the government.[43] The essence of competition in public bidding is that the bidders are placed on equal footing which means that all qualified bidders have an equal chance of winning the auction through their bids.[44] Another self-evident purpose of public bidding is to avoid or preclude suspicion of favoritism and anomalies in the execution of public contracts.[45]

A winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon. However, such changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms.[46] The determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or financial proposals previously submitted by the other bidders. The modifications in the contract executed between the government and the winning bidder must be such as to render the executed contract to be an entirely different contract from the one bidded upon.[47]

Public bidding aims to secure for the government the lowest possible price under the most favorable terms and conditions, to curtail favoritism in the award of government contracts and avoid suspicion of anomalies, and it places all bidders in equal footing. Any government action which permits any substantial variance between the conditions under which the bids are invited and the contract executed after the award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which warrants proper judicial action.[48] If this flawed process would be allowed, public bidding will cease to be competitive, and worse, government would not be favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and conditions in the bid documents but will formulate their bid in anticipation of the execution of a future contract containing new and better terms and conditions that were not previously available at the time of the bidding. Such a public bidding will not inure to the public good.[49]

In Power Sector Assets and Liabilities Management Corporation (PSALM) v. Pozzolanic Philippines Incorporated,[50] the Court nullified the right of first refusal granted to respondent therein in the Batangas Contract for being contrary to public policy. The Court explained that the same violated the requirement of competitive public bidding in the government contract, because the grant of the right of first refusal did not only substantially amend the terms of the contract bidded upon so that resultantly the other bidders thereto were deprived of the terms and opportunities granted to respondent therein after it won the public auction, but also altered the bid terms by effectively barring any and all true bidding in the future.[51]

Also in Agan, Jr. v. Philippine International Air Terminals Co., Inc., (PIATCO),[52] this Court declared as null and void, for being contrary to public policy, the Concession Agreement entered into by the government with PIATCO, because it contained provisions that substantially departed from the Draft Concession Agreement included in the bid documents. The Court considered the subject contracts a mockery of the bidding process, because they were substantially amended after their award to the successful bidder on terms more beneficial to PIATCO and prejudicial to public interest.[53]

The same conclusions cannot be applied in the present case.

One. Smartmatic-TIM was not granted additional right that was not previously available to the other bidders. Admittedly, the AES contract was awarded to Smartmatic-TIM after compliance with all the requirements of a competitive public bidding. The RFP, Bid Bulletins and the AES contract identified the contract as one of lease with option to purchase. The AES contract is primarily a contract of lease of goods[54] listed in the contract and purchase of services[55] also stated in the contract. Section 4.3 thereof gives the Comelec the OTP the goods agreed upon. The same provision states the conditions in exercising the option, including the additional amount that the Comelec is required to pay should it exercise such right. It is, therefore, undisputed that this grant of option is recognized by both parties and is already a part of the principal contract of lease. Having been included in the RFP and the bid bulletins, this right given to the Comelec to exercise the option was known to all the bidders and was considered in preparing their bids. The bidders were apprised that aside from the lease of goods and purchase of services, their proposals should include an OTP the subject goods. Although the AES contract was amended after the award of the contract to Smartmatic-TIM, the amendment only pertains to the period within which the Comelec could exercise the option because of its failure to exercise the same prior to the deadline originally agreed upon by the parties. Unlike in PSALM, wherein the winning bidder was given the right of first refusal which substantially amended the terms of the contract bidded upon, thereby depriving the other bidders of the terms and opportunities granted to winning bidder after it won the public auction; and in Agan, Jr., wherein the Concession Agreement entered into by the government with PIATCO contained provisions that substantially departed from the draft Concession Agreement included in the bid documents; the option contract in this case was already a part of the original contract and not given only after Smartmatic-TIM emerged as winner. The OTP was actually a requirement by the Comelec when the contract of lease was bidded upon. To be sure, the Extension Agreement does not contain a provision favorable to Smartmatic-TIM not previously made available to the other bidders.

Two. The amendment of the AES contract is not substantial. The approved budget for the contract was P11,223,618,400.00[56] charged against the supplemental appropriations for election modernization. Bids were, therefore, accepted provided that they did not exceed said amount. After the competitive public bidding, Smartmatic-TIM emerged as winner and the AES contract was thereafter executed. As repeatedly stated above, the AES contract is a contract of lease with OTP giving the Comelec the right to purchase the goods agreed upon if it decides to do so. The AES contract not only indicated the contract price for the lease of goods and purchase of services which is P7,191,484,739.48, but also stated the additional amount that the Comelec has to pay if it decides to exercise the option which is P2,130,635,048.15. Except for the period within which the Comelec could exercise the OTP, the terms and conditions for such exercise are maintained and respected. Admittedly, the additional amount the Comelec needed to pay was maintained (less the amount already paid when it purchased 920 units of PCOS machines with corresponding CCS for the special elections in certain areas in the provinces of Basilan, Lanao del Sur and Bulacan) subject to the warranties originally agreed upon in the AES contract. The contract amount not only included that for the contract of lease but also for the OTP. Hence, the competitive public bidding conducted for the AES contract was sufficient. A new public bidding would be a superfluity.

The Solicitor General himself clarified during the oral arguments that the purchase price of the remaining PCOS machines stated in the assailed Deed of Sale was the price stated in Article 4.3 of the AES contract. Therefore, the said amount was already part of the original amount bidded upon in 2009 for the AES contract which negates the need for another competitive bidding.[57]

Third. More importantly, the amendment of the AES contract is more advantageous to the Comelec and the public.

The nature of an option contract was thoroughly explained in Eulogio v. Apeles,[58] to wit:

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former's property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer.[59]

Also in Carceller v. Court of Appeals,[60] the Court described an option in this wise:

An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option.[61]

In Adelfa Properties, Inc. v. CA,[62] the Court described an option as:

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is sometimes called an unaccepted offer. x x x[63]

From the foregoing jurisprudential pronouncements, an option is only a preparatory contract and a continuing offer to enter into a principal contract. Under the set-up, the owner of the property, which is Smartmatic-TIM, gives the optionee, which is the Comelec, the right to accept the formers offer to purchase the goods listed in the contract for a specified amount, and within a specified period. Thus, the Comelec is given the right to decide whether or not it wants to purchase the subject goods. It is, therefore, uncertain whether or not the principal contract would be entered into. The owner of the property would then have to wait for the optionee to make a decision. A longer option period would mean that more time would be given to the optionee to consider circumstances affecting its decision whether to purchase the goods or not. On the part of Smartmatic-TIM, it would have to wait for a longer period to determine whether the subject goods will be sold to the Comelec or not, instead of freely selling or leasing them to other persons or governments possibly at a higher price. This is especially true in this case as the terms and conditions for the exercise of the option including the purchase price, had been included in the AES contract previously bidded upon. The parties are bound to observe the limitations embodied therein, otherwise, a new public bidding would be needed.

We agree with respondents that the exercise of the option is more advantageous to the Comelec, because the P7,191,484,739.48 rentals paid for the lease of goods and purchase of services under the AES contract was considered part of the purchase price. For the Comelec to own the subject goods, it was required to pay only P2,130,635,048.15. If the Comelec did not exercise the option, the rentals already paid would just be one of the government expenses for the past election and would be of no use to future elections. Assuming that the exercise of the option is nullified, the Comelec would again conduct another public bidding for the AES for the 2013 elections with its available budget of P7 billion. Considering that the said amount is the available fund for the whole election process, the amount for the purchase or lease of new AES will definitely be less than P7 billion. Moreover, it is possible that Smartmatic-TIM would again participate in the public bidding and could win at a possibly higher price. The Comelec might end up acquiring the same PCOS machines but now at a higher price.

The advantage to the government of the exercise of the OTP was even recognized by petitioners, shown during the oral arguments:

ASSOCIATE JUSTICE PERALTA:

May I just ask you, do you know the total value of the subject matter of this contract?

DEAN ESPEJO:

Php1.8 billion pesos, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Youre referring to the Deed of Sale.

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

The whole, the whole equipment, subject matter of the contract.

DEAN ESPEJO:

I think roughly, the original contract something like 10 billion I am not sure, Your Honor.

ASSOCIATE JUSTICE PERALTA:

10 billion pesos.

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Okay. Now, in the original contract of July 10, 2009, the contract was not actually a purchase contract but merely a lease contract.

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

And the lease contract is 7.1 billion.

DEAN ESPEJO:

It says 7.1 billion.

ASSOCIATE JUSTICE PERALTA:

Okay. But it is here [denominated] as a lease contract.

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

So the value was 10 billion pesos then you just pay the difference between ten (10) and seven (7) you get 3 billion pesos to purchase all of these equipment.

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Okay. Now, you look at your Deed of Sale, this is annexed to your petition, the value of the Deed of Sale is something like two billion one hundred thirty million (Php2,130,000,000).

DEAN ESPEJO:

Around that much, Your Honor.

ASSOCIATE JUSTICE PERALTA:

You add this at two [billion] one hundred thirty million and so to seven billion one ninety-one the subject matter of your original contract; you come up with something like over 9 billion pesos.

DEAN ESPEJO:

Close to Ten, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Close to Ten.

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

So thats practically less than the total value of the equipment, because according to you the total value would come up to 10 billion pesos, you add up the Lease Contract of 7 billion and two billion, plus under this Deed of Sale which is the subject matter of this petition, you will come up with a little more than 9 billion pesos even less than the 10 billion pesos. Do you think that is disadvantageous to the government?

DEAN ESPEJO:

May I be allowed to explain?

ASSOCIATE JUSTICE PERALTA:

Go ahead, you go ahead, you have all the time.

DEAN ESPEJO:

It may appear advantageous, Your Honor please, but on the other hand, there are certain disadvantages there. For one thing, these are not brand new machines; these are refurbished existing machines which could be suffering from hardware or software problem. For the COMELEC to accept this, Your Honor please, each machine will have to be checked as to its hardware and software. Eighty-two thousand (82,000) PCOS machines, Your Honor please, what if half of them, [turn out] to be white elephants or malfunctioning, Your Honor please, then we will be acquiring eighty-two thousand (82,000) with fifty percent (50%) malfunctioning machines. There is a danger, Your Honor please, that does not appear to the naked eye. In any event, with respect to the financial figures there appears to be some advantages, Your Honor, please.

ASSOCIATE JUSTICE PERALTA:

x x x these are merely speculative. Yourre only speculating that there are dangers, the dangers might not come, in fact, it might even be void or favorable. Okay, now my other question is, do you think that if this was bidden out under R.A. 9184 for the purchase of all these equipment, do you think that a bidder will come up with a bid of less than 2 billion pesos for the whole equipment? When according to you, the equipment in 2009 is 10 billion, and elections are very near already 2013, the filing of certificates of candidacy will be on the second to the last month of this year?

DEAN ESPEJO:

May I be allowed to answer that by way of a speculation, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Go ahead, please.

DEAN ESPEJO:

I think bidder will find it difficult to match that.

x x x x

ASSOCIATE JUSTICE PERALTA:

Okay. My other question is this. Okay, now you admitted that the original value is 10 billion. Are you also aware that the budget of the COMELEC when they come up with this contract is 7 billion?

DEAN ESPEJO:

Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

And the total value of the original contract is 10 billion. Do you think that the COMELEC will have money to purchase equipment valued at 10 billion pesos with only 7 billion pesos for the elections of 2013? Because the budget of 7 billion is not for the purpose only of the purchase of the equipment, but also includes for the budget of the elections, pre, during and post elections expenses.

DEAN ESPEJO:

Well, Your Honor please, the shortfall of 3 billion pesos can be remedied if Congress will appropriate additional amounts, if the President of this Republic will convince the legislature to appropriate an additional amount, I see no problem why the shortfall of 3 billion cannot be remedied, Your Honor please.

ASSOCIATE JUSTICE PERALTA:

Oh, thats again speculative.

DEAN ESPEJO:

Again, thats unfortunate thats my speculation.

ASSOCIATE JUSTICE PERALTA:

You will have first to go to Congress, then you go to Senate, and then you go to the President discounting the possibility of filing a petition to question the allocation of additional amount for the 2013 elections, by the time that all of these exercises are finished then election is there already.

DEAN ESPEJO:

Well, Im hopeful, Your Honor please, that our Congressmen and our Senators will rise to the occasion and move fast and appropriate the needed amount of 3 billion pesos to help the COMELEC acquire the proper Automated election System.

x x x[64]

Another reason posed by petitioners for their objection to the exercise of the option and the eventual execution of the March 30, 2012 Deed of Sale is the existence of the alleged defects, glitches, and infirmities of the subject goods. The technology provided by Smartmatic-TIM was not perfect, because of some technical problems that were experienced during the 2010 elections. Petitioners herein doubt that the integrity and sanctity of the ballots are protected because of these defects.

We do not agree.

Prior to the execution of the Deed of Sale, the Comelec and Smartmatic-TIM had agreed that the latter would undertake fixes and enhancements to the hardware and software to make sure that the subject goods are in working condition to ensure a free, honest, and credible elections. As former Commissioner Augusto C. Lagman admitted[65] during the oral arguments, there are possible software solutions to the alleged problems on the PCOS machines and it is not inherently impossible to remedy the technical problems that have been identified. While there is skepticism that Smartmatic-TIM would be able to correct the supposed defects prior to the 2013 elections because of its inaction during the two years prior to the exercise of the option, we agree with the opinion of Chairman Sixto S. Brillantes, Jr. that it is absurd to expect Smartmatic-TIM to invest time, money and resources in fixing the PCOS machines to the specifications and requirements of the Comelec when prior to the exercise of the OTP, they do not have the assurance from the Comelec that the latter will exercise the option.[66]

Moreover, as to the digital signature which appears to be the major concern of petitioners, it has been clarified during the oral arguments that the PCOS machines are capable of producing digitally-signed transmissions:

JUSTICE CARPIO:

I have some questions. Counsel, the law requires that the election returns that are electronically transmitted must be digitally signed, correct?

ATTY. LAZATIN:

Thats right, Your Honor.

JUSTICE CARPIO:

Now, but in the 2010 elections, all election returns electronically transmitted were NOT digitally signed, correct?

ATTY. LAZATIN:

They were, Your Honors, please

JUSTICE CARPIO:

Why? How?

ATTY. LAZATIN:

Your Honor, as we explained in our presentation, the iButtons, Your Honor, contain the digital signatures

JUSTICE CARPIO:

Yes, I understand that

ATTY. LAZATIN:

and the iButtons [interrupted]

JUSTICE CARPIO:

because they are there, the machine is capable of producing digitally-signed transmissions. But you just said that the BEI Chairman did not input their private keys because there was no time. It requires five (5) months.

ATTY. LAZATIN:

Your Honor, as I said, there is a digital signature that was assigned to the BEIto the BEIs, your Honor, okay. I am saying that there is digital signature. What I also said, Your Honor, is that there is also a possibility that another digital certificate or signature can come from another certification authority xxx

JUSTICE CARPIO:

No, thats a third partythats a third-party certifier, but thats an option. The law does not require a third-party certification. It merely says that transmission must be digitally signed.

ATTY. LAZATIN:

Thats right.

JUSTICE CARPIO:

Thats why Chairman Melo told Congress that it will cost one (1) billion to get a third-party certifier, but the law does not require it even now, if you said in your presentation that the BEI Chairman could not input their private key, thats generated because it takes five (5) months to do that and the list of BEI Chairman is known only one (1) month before the election, then how could there be a digital signature?

ATTY. LAZATIN:

Your Honor, as I mentioned it is anot a customized or personal digital signature. It is a digital signature that is assigned by COMELEC.

JUSTICE CARPIO:

Assigned by COMELEC? How canwho inputs that digital signature?

ATTY. LAZATIN:

It is cranked out, Your Honor, and

JUSTICE CARPIO:

No, yourit is trusted that the list of the BEI Chairman is known only one (1) month before, so how can the BEI Chairman input their digital signature five (5) months before?

ATTY. LAZATIN:

As I said, Your Honor, it is not a personal or customized signature. It is just like

JUSTICE CARPIO:

It is a machine ID, in other words?

ATTY. LAZATIN:

No, let me explain it this way, Your Honor. The best example I can give, Your Honor, is

JUSTICE CARPIO:

Okay, let us define first what a digital signature means.

ATTY. LAZATIN:

The Rules of Court, Your Honor, defines digital signature as the first one it is electronic signature consisting of a transformation of an electronic document or an electronic data message using an asymmetric or public Cryptosystem such that a person having the initial untransformed electronic document and the signers public key can accurately determine: (i) whether the transformation was created using the private key that corresponds to the signers public key; and (ii) whether the initial electronic document has been altered after the transformation was made.

JUSTICE CARPIO:

Therefore, digital signature requires private key and public key

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

and this private key and public key are generated by an algorithm, correct?

ATTY. LAZATIN:

Yes, thats right, Your Honor.

JUSTICE CARPIO:

And there is another algorithm which, if you matchif you put together the private key and the message, will generate the signature.

ATTY. LAZATIN:

Thats right, Your Honor.

JUSTICE CARPIO:

And the third algorithm, that if you put together the public key and the signature it will accept or reject the message, thats correct?

ATTY. LAZATIN:

Thats correct, Your Honor.

JUSTICE CARPIO:

Now, was that used in the 2010 elections?

ATTY. LAZATIN:

Yes, your Honor.

JUSTICE CARPIO:

How was that private key generated?

ATTY. LAZATIN:

Again, Your Honor, as I said

JUSTICE CARPIO:

Did the BEI Chairman know what that private key is?

ATTY. LAZATIN:

Your Honor, allow me to explain, Your Honor. The names, Your Honor, or the private keys arewere assigned to the BEIs Your Honor. In the same way, Your Honor, in the office my code name, Your Honor, or assigned to me is 00 xxx

JUSTICE CARPIO:

You mean to say the private key is embedded in the machine?

ATTY. LAZATIN:

No, Your Honor, it is embedded in the iButton and they are given a x x x

JUSTICE CARPIO:

Yes, in the machinethe iButton is in the machine.

ATTY. LAZATIN:

No, Your Honor.

JUSTICE CARPIO:

Where is it?

ATTY. LAZATIN:

It is a gadget, Your Honors, that is usedit is a separate gadget, your Honor xxx This is a sample of an iButton, your Honor, and in fact we said that we are prepared to demonstrate, Your Honor, and to show to this Court

x x x x

JUSTICE CARPIO:

On election Day, where was the iButton placed? In the machine?

ATTY. LAZATIN:

To start the machine, Your Honor, you have to put it on top of that Button xxx

JUSTICE CARPIO:

In other words, whoever is in possession of that iButton can make a digitally-transmitted election return, correct?

ATTY. LAZATIN:

Thats correct, Your Honor. Your Honor, together with the other BEIs because apart from this iButton, Your Honor, for authentication the BEIs, three of them, Your Honor, have an 8-digit PIN, Your Honor.

JUSTICE CARPIO:

How is that 8-digit PIN given to them?

ATTY. LAZATIN:

In a sealed envelope, Your Honor, these are x x x

JUSTICE CARPIO:

And then they also input that in the keyboard?

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

In the display?

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

So, that iButton contains the private key?

ATTY. LAZATIN:

Yes, Your Honor, thats my understanding.

JUSTICE CARPIO:

And who controls the public key? Who control[led] the public key in the last election?

ATTY. LAZATIN:

My understanding, Your honor, is COMELEC, your Honor.

JUSTICE CARPIO:

COMELEC had the public key?

ATTY. LAZATIN:

Thats my understanding, Your Honor.

JUSTICE CARPIO:

And there was no certifying agency because it cost too much and the law did not require that?

ATTY. LAZATIN:

Thats correct, Your Honor. But the machine, Your Honor, as I mentioned, is capable of accepting any number of digital signatures whether self-generated or by a third-party certification authority, Your Honor.

JUSTICE CARPIO:

Okay. So, whoever is in possession of that iButton and in possession of the four (4) PINS, the set of PINs, for the other BEI number, can send a transmission?

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

The moment you are in possession of the iButton and the four (4) sets of PINs

ATTY. LAZATIN:

Thats correct, Your Honor.

JUSTICE CARPIO:

If they can send an electronic transmission thats digitally signed and when received by the COMELEC and matched with the public key will result with an official election return, correct?

ATTY. LAZATIN:

Thats correct. In the same way, Your Honor, that even if someone keeps his key or private key, Your Honor, if he is under threat he will also divulge it, Your Honor. Its the same.

JUSTICE CARPIO:

Okay, so whoever wants to send it, he will have to get the private key from the BEI Chairman and the PIN numbers from the other members

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

before they can send the electronic transmission.

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

Okay. That clarifies things. x x x[67]

As the Comelec is confronted with time and budget constraints, and in view of the Comelecs mandate to ensure free, honest, and credible elections, the acceptance of the extension of the option period, the exercise of the option, and the execution of the Deed of Sale, are the more prudent choices available to the Comelec for a successful 2013 automated elections. The alleged defects in the subject goods have been determined and may be corrected as in fact fixes and enhancements had been undertaken by Smartmatic-TIM. Petitioners could not even give a plausible alternative to ensure the conduct of a successful 2013 automated elections, in the event that the Court nullifies the Deed of Sale.

WHEREFORE, premises considered, the petitions are DISMISSED. The Temporary Restraining Order issued by the Court on April 24, 2012 is LIFTED.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

I certify that J. Velasco left his vote
concurring with J. Peralta and will
submit a separate concurring opinion.

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Senior Associate Justice Associate Justice

Please see concurring opinion Please see my Dissenting Opinion

TERESITA J. LEONARDO DE-CASTRO ARTURO D. BRION