G.R. No. 201112 (Archbishop Fernando R. Capalla, Omar Solitario Ali and Mary Anne L. Susano v. Commission on Elections);

 

G.R. No. 201121 (Solidarity for Sovereignty (S4S) represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin Paulino, Sr., Evelyn Coronel, Ma. Linda Olaguer Montayre and Nelson T. Montayre v. Commission on Elections, represented by its Chairman, Commissioner Sixto S. Brillantes, Jr.)

 

G.R. No. 201127 (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 v. Commission on Elections and Smartmatic-TIM Corporation)

 

G.R. No. 201413 (Tanggulang Demokrasya [TANDEM], Inc., Evelyn L. Kilayko, Teresita D. Baltazar, Pilar L. Calderon and Elita T. Montilla v. Commission on Elections and Smartmatic-TIM Corporation.)

 

Promulgated:

June 13, 2012

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

 

DISSENTING OPINION

 

PERLAS-BERNABE, J.:

 

 

It is not the province of the Court to inquire into the wisdom of a government act for each great branch of our legal system is an expert in its own field and supreme in its own sphere. However, public acts should always be consistent with our laws and made within the bounds of the Constitution. Pragmatism may be one of the tools in policy making but law is the lone tool given to this Court to perform its judicial function. For legality of government actions should be tested against what the law says and not what practicality dictates.

 

 

 

I respectfully dissent from the majority opinion that the Option to Purchase (OTP) under the Contract for the Provision of an Automated Election System for the May 10, 2010 Synchronized National and Local Elections[1] (AES Contract) was validly extended and therefore, did not violate Republic Act No. 9184[2] or the Government Procurement Reform Act (GPRA).

 

 

From March 13 to 16, 2009, the Commission on Elections (COMELEC) published and posted an invitation for vendors to apply for eligibility and to bid for the procurement of counting machines, including the supply of ballot paper; electronic transmission services using public telecommunications networks; training; technical support; warehousing; deployment; installation; pull-out; systems integration; and overall project management to be used in the automation of the counting, transmission and canvassing of the votes for the May 10, 2010 synchronized national and local elections.

 

 

 

The invitation to bid was made in accordance with Section 52 of Batas Pambansa Bilang 881[3] which confers upon the COMELEC the exclusive charge of the enforcement and administration of all laws relative to the conduct of elections for the purpose of ensuring free, orderly and honest elections, as well as Republic Act No. 8436,[4] as amended by Republic Act No. 9369,[5] which recognizes the mandate and authority of the COMELEC to prescribe adoption and use of the most suitable technology that will improve the election process by adopting an automated election system that will ensure the secrecy and sanctity of the ballot and all election, consolidation and transmission documents in line with the purpose of conducting a transparent and credible election.

 

 

The Terms of Reference/Request for Proposal for Solutions, Terms and Conditions for the Automation of the May 10, 2010 Synchronized National and Local Elections[6] (TOR/RFP) expressly provided that the COMELEC, through its Bids and Awards Committee (BAC), is accepting bids for the lease, with an option to purchase, of an automated election system (AES)

 

 

After accomplishing the necessary procedures for the conduct of a public bidding, the COMELEC En Banc promulgated Resolution No. 8608 on June 9, 2009, awarding the contract for the automation of the elections on May 10, 2010 to Smartmatic-TIM Corporation (SMARTMATIC) as the bidder with the lowest calculated responsive bid.

 

 

On July 10, 2009, COMELEC and SMARTMATIC executed the AES Contract, into which was incorporated an OTP the Precinct-Count Optical Scan (PCOS) and Consolidation/Canvassing System (CCS) components, to wit:

 

ARTICLE 4

CONTRACT FEE AND PAYMENT

 

x x x

4.3 OPTION TO PURCHASE

 

In the event 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 (PhP 2,130,635,048.15) as contained in the Financial Proposal of the joint venture partnersSMARTMATIC 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 (10%) of every option to purchase payment made.

 

x x x

 

 

 

The AES Contract also provided the period within which the OTP shall be exercised. Article 6.6 thereof states that the COMELEC shall notify the PROVIDER on or before 31 December 2010 of its option to purchase x x x.

 

 

On May 10, 2010, the first National Automated Elections was held utilizing the goods and services provided by SMARTMATIC under the AES Contract.

 

 

On September 23, 2010, COMELEC partially exercised the OTP with regard to 920 PCOS machines and 36 CCS hardware from SMARTMATIC for the conduct of the Special Elections in Basilan, Lanao del Sur and Bulacan.

 

 

On December 18, 2010, thirteen (13) days before the lapse of the period to exercise the OTP, SMARTMATIC inquired[7] whether COMELEC would be exercising the option for the remaining PCOS machines. In the same letter of inquiry, SMARTMATIC unilaterally extended the period to exercise the OTP until March 31, 2011.

 

 

In a second letter[8] dated March 23, 2011, SMARTMATIC once again extended the period for COMELEC to exercise the OTP to December 31, 2011. Thereafter, and with the intention of giving the COMELEC more time to evaluate whether it should exercise its OTP, SMARTMATIC unilaterally extended[9] the period for another three (3) months or until March 31, 2012.

 

 

Subsequently, or on March 21, 2012, the COMELEC En Banc issued Resolution No. 9376[10] resolving to exercise its OTP over the PCOS and CCS hardware, subject to the conditions that:

 

 

i.                   The warranties agreed upon under Articles 4 and 8 of the 2010 AES Contract shall be in full force and effect.

 

ii.                The original price for the hardware and software covered by the Option to Purchase as specified under Annex L of the 2010 AES Contract shall be maintained, excluding the cost of the nine hundred twenty (920) units of PCOS and related peripherals previously purchased for use in the 2010 special elections; and

 

iii.              All other services related to the 2013 Automated Election System shall be subject to public bidding.

 

 

 

On March 30, 2012, after three (3) unilateral extensions of the period of the OTP and more than a year after the lapse of the original period of the AES Contract itself, COMELEC and SMARTMATIC entered into an Agreement on the Extension of the Option to Purchase Under the Contract for the Provision of An Automated Election System for the May 10, 2010 Synchronized National and Local Elections[11] where they stipulated that the period within which the COMELEC may exercise its OTP shall be extended to March 31, 2012. On even date, a Deed of Sale[12] was executed between COMELEC and SMARTMATIC.

 

Hence, the present consolidated petitions were filed questioning the validity of the Deed of Sale for allegedly violating the GPRA and the policy that all government procurement should undergo public bidding.

 

 

On April 24, 2012, the Court issued a Temporary Restraining Order (TRO) enjoining the implementation of the assailed Deed of Sale.

 

The ponencia has underscored the validity of the extensions of the period to exercise the OTP on the basis of the effectivity clause of the AES Contract, effectively validating as well the assailed Deed of Sale between COMELEC and SMARTMATIC. However, I respectfully dissent from this position and express the view that the period for the exercise of the OTP had already lapsed, and that its extension is a circumvention of the explicit provisions of the GPRA.

 

 

Validity of the AES Contract with Option to Purchase

 

 

The Court has previously upheld the validity of the AES Contract and its compliance with the procedures laid down in the GPRA and its implementing rules in the case of Roque, Jr. v. Commission on Elections,[13] as follows:


Assayed against the provisions of the Constitution, the enabling automation law, RA 8436, as amended by RA 9369, the RFP and even the Anti-Dummy Law, which petitioners invoked as an afterthought, the Court finds the project award to have complied with legal prescriptions, and the terms and conditions of the corresponding automation contract in question to be valid. x x x (emphasis supplied)

 

 

With the foregoing pronouncement, the Court has effectively upheld the validity of the OTP integrated in the AES Contract.

 

 

The GPRA requires public bidding in all procurement of infrastructure, goods and services. Section 10, Article IV thereof provides:

 

Section 10. Competitive Bidding. All procurement shall be done through Competitive Bidding, except as provided for in Article XVI of this Act.

 

 

A lease with an option to purchase is not an uncommon arrangement in modern commercial transactions. In fact, the Implementing Rules and Regulations of the GPRA recognizes the feasibility of such an arrangement, which can be considered as falling within the term similar variations, to wit:

 

RULE XIV LEASE OF COMPUTERS, COMMUNICATIONS, INFORMATION AND OTHER EQUIPMENT

 

Section 46. Lease Contracts

 

The lease of construction and office equipment, including computers, communication and information technology equipment are subject to the same public bidding and to the processes prescribed under this IRR-A. Lease may also cover lease purchases or lease-to-own and similar variations. (Emphasis supplied)

 

 

 

Thus, when COMELEC bidded out the AES Contract for the May 2010 elections, it bidded not only the lease of the PCOS and CCS machines but also the privilege to purchase the same. These two prestations formed part of the contract that was properly bidded out, reviewed and eventually awarded to SMARTMATIC.

 

 

Further, it must be noted that the OTP was part of the COMELEC-issued TOR/RFP, the terms of which are as follows:

 

 

28.1 An offer for an option to purchase by component to be decided by COMELEC before December 31, 2010 shall be included by the bidder in its proposal.

 

28.2 The price of the option-to-purchase shall not exceed 50% of the lease price of the equipment.

 

 

 

Guided by the TOR/RFP, the foregoing conditions were thus included in the Financial Proposal submitted by SMARTMATIC to the Special Bids and Awards Committee (SBAC) which was later approved by the COMELEC. Thus, the OTP was an essential component of the proposal offered by SMARTMATIC to SBAC, which the latter duly evaluated and reviewed.

 

 

Having undergone the necessary bidding process and being a required condition in the TOR/RFP issued by the COMELEC, the OTP, therefore, is unquestionably valid. The Court cannot rule otherwise in the absence of evidence that it was entered into to circumvent the law on public bidding, or that SMARTMATIC was unduly given preference with its incorporation into the AES Contract. It must be noted that all the participating bidders were required to include an option to purchase in their respective proposals. Further, the terms of the OTP, with respect to the period of its exercise and the range of consideration for the price are presumed to have passed the required test of reasonableness.

 

 

Extension of the period to exercise the Option to Purchase is invalid

 

 

However, while I uphold the validity of the OTP, I disagree with the conclusion of the ponencia that since the Performance Security of SMARTMATIC has not been released, the AES Contract continues to be effective, hence, the extension of the period to exercise the OTP is likewise valid.

 

 

It should be stressed that the National Automated Elections for which the goods and services provided by SMARTMATIC under the AES Contract had long been concluded. Similarly, the period to exercise the OTP had expired. What remains to be done is merely the release of SMARTMATIC's Performance Security, which has no bearing on the non-extendible limited period within which the OTP may be exercised, taken in the light of Article 2.2 of the AES Contract which provides:

 

Article 2

EFFECTIVITY

 

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)

 

 

 

A cursory reading of the above-quoted provision shows that the effectivity of the AES Contract is separate and independent of the period of the OTP which expired on December 31, 2010 as well as the warranty provisions of the AES Contract, had the OTP been timely exercised by COMELEC. To hold that the period within which the OTP can be validly exercised may be extended solely on the basis of the non-release of the Performance Security would be stretching the provisions of the AES Contract too far so as to include what has not been contemplated when it was awarded to SMARTMATIC.

 

 

On the other hand, I maintain the view that the extensions for the exercise of the OTP are invalid for the following reasons:

 

 

First. The original period within which the COMELEC may exercise its OTP, which is December 31, 2010, had already long expired;

 

 

Second. Considering that the OTP expired without the COMELEC exercising the same, said option ceased to exist and can no longer be revived by a unilateral offer or even by mutual agreement of the parties.

 

 

Third. The extension of the period to exercise the OTP beyond the original period is deemed to be a fresh procurement which should undergo a new and separate public bidding.

 

 

 

Fourth and finally, the Deed of Sale executed by SMARTMATIC and COMELEC under the extended period does not fall under any of the alternative modes of procurement provided in the GPRA that would have exempted it from the competitive public bidding requirement.

 

 

To reiterate, the OTP as part of the AES Contract provides two significant terms for its exercise: the option price and the period for its actual exercise on or before December 31, 2010. The limited period of the OTP bears a practical significance to the option price of the subject machines. Any extension of the period would have left the option price undetermined and/or made dependent upon the whims of the contracting parties, thereby ignoring transparency and accountability as required of a government contract.

 

 

Moreover, extensions were never contemplated upon by the parties in executing the AES Contract, otherwise, it would have so expressly provided, or fixed another or the same price as the period is extended. As it is, the option price has been pegged as of the last day of the option period or on December 31, 2010.

 

 

Besides, important factors with respect to the integrity of the subject machines militate against the validity of the extension of the period to exercise the OTP. The nature of the machines, the technological advances which may have rendered them obsolete over time, considering the rapid pace in which technology improves, and their further depreciation for the period from December 31, 2010 up to the date when the COMELEC acquired them on March 31, 2012 a period of more than a year are all compelling reasons necessitating a re-evaluation of the option price to correspond with the machines reasonable cost, which can only be done through a separate competitive public bidding. Only then can it be rightfully said that the procurement was advantageous to the government. To exercise the OTP under the original terms but beyond the original period under changed conditions will definitely fail the test of reasonableness. Thus, to allow the parties to freely extend without limit the period within which to exercise the OTP directly contravenes the purposes and rationale of the GPRA.

 

 

Extension of the period of the OTP defeats the

purpose and rationale of public bidding

 

 

In a public bidding, there must be competition that is legitimate, fair and honest. The three principles of a public bidding are (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for exact comparison of bids.[14]

 

 

In these cases, the extension of the period not provided in the AES Contract effectively deprived other potential bidders the equal opportunity to participate in the bidding process and offer better terms to the government. This gravely violates the principles on government procurement through competitive bidding which aims to obtain the best deal possible by fostering transparency and preventing favoritism, collusion and fraud in the awarding of contracts.[15]

 

 

It bears to stress that the government procuring entity, in construing contracts with options to purchase, should be mindful of the strong policy consideration underlying the enactment of the government procurement law. Thus, badges to circumvent public bidding should be investigated and eliminated before any government contract is awarded.

 

 

To hold, therefore, that the extension of the period within which to exercise the OTP is valid and enforceable creates dire and serious consequences on future dealings or negotiations with the government, and directly collides with the raison d'etre for the requirement of public bidding. Consequently, the COMELEC's argument that time and budgetary constraints, among others, justify the validity of the extensions and consequently, the Deed of Sale, is specious. Pragmatic considerations cannot legitimize what is illegal under our laws.

 

 

In the light of all the foregoing, it is my view that, while the OTP under Article 4.3 of the AES Contract is valid and enforceable, the extension of the period within which to exercise it, however, is proscribed by law and violates R.A. 9184 or the Government Procurement Reform Act. Consequently, the Deed of Sale entered into by COMELEC and SMARTMATIC pursuant to the extended option to purchase and executed without the competitive bidding required by law is NULL and VOID.[16]

 

Accordingly, I vote to GRANT the petitions.

 

 

 

 

ESTELA M. PERLAS-BERNABE

Associate Justice

 


[1] Rollo, G.R. No. 201121, pp. 26-49.

[2] Dated January 10, 2003.

[3] Otherwise known as the Omnibus Election Code of the Philippines.

[4] Election Modernization Act.

[5] An Act Amending Republic Act No. 8436, dated January 23, 2007.

[6]Rollo, G.R. No. 201112, pp. 214-271.

[7] Id. at 872-874.

[8] Id. at 881-882.

[9] Id. at 885-886.

[10] Id. at 39-47.

[11] Id. at 919-921.

[12] Rollo, G.R. No. 201413, pp. 31-36.

[13] G.R. No. 188456, September 10, 2009, 599 SCRA 69.

[14] JG Summit Holdings, Inc. v. Court of Appeals, 345 SCRA 143 (2000).

[15] Demosthenes P. Agan, Jr. et al. v. PIATCO, et al., G.R. No. 155001, May 5, 2003.

[16] See Leopoldo Oani v. People of the Philippines, G.R. No. 139984, March 31, 2005.