GAERLAN, J.:
In conformity with Resolution No. 01, s. 1997 of the PBAC, this Office and the amended implementing Rules and Resolutions x x x, the contract for complete construction of the third floor of CSC-X building IS HEREBY AWARDED to your firm in the amount of One Million Four Hundred Seventy Five Thousand Seven Hundred Eighty Nine Pesos & Seven Centavos (P1,475,789.07), the following requirements to be completed within seven (7) days from receipt of this letter[.][6]On May 6, 1997, CSC Region X and Domingo F. Estomo Trading & Construction, represented by Estomo, executed a Contract For Works.[7] Pursuant to the Notice to Commence Work,[8] the project works commenced on May 8, 1997. The target date of completion was on October 5, 1997.[9]
Estomo wrote several letters to CSC Region X regarding the extra works needed for the complete construction of the third floor of CSC-X building (project). The letter dated July 7, 1997 was about the additional wall partition, aluminum swing door, one unit septic tank, and the roofings. The extra works for the toilet concrete slabs were mentioned in the Letter dated July 15, 1997,[11] the kitchen cabinets on the Letter dated July 18, 1997,[12] and the baseboard walling discussed on the Letter dated July 23, 1997.[13] On September 5, 1997,[14] Estomo claimed that all extra works amounted to P206,008.66, broken down as follows:
Date Voucher Number AmountJuly 14, 1997 2977003P251,808.46 August 15, 1997 2978001P287,474.41 September 26, 1997 2979014P372,824.63[10]
On the other hand, the following extra works were denied by Estomo due to financial constraints: (1) pebble finish at the front wall of the building; (2) fire escape; and (3) additional 400 amperes main breaker, including its accessories.[16]
1. Additional Wall Partition P17,947.432. Door 3 Aluminum Swing Door P28,473.833. Additional One Unit Septic Tank P22,343.374. Roofings P10,000.005. Toilet Concrete Slabs P10,026.756. Kitchen Cabinets P23,020.237. Endwall Roof Flashing P58,937.278. Base Board Walling P35,259.78TOTAL EXTRA COST P 206,008.66[15]
Estomo sent several demand letters to the CSC. Likewise, he submitted the following documents requested by the CSC in its letter dated December 16, 1997: (1) Inspection Report; (2) Contractor Statement of Work Accomplished; (3) Progress Chart (S-Curve); (4) Statement of Time Elapsed and Percentage of Work Accomplished; (5) Certificate of Acceptance; and (6) Certificate of Project Completion.[20]
1. Wood Partition P17,947.432. Door 3 Aluminum Swing Door P28,473.833 . Additional One Unit Septic Tank P22,343.374. Roofings P10,000.005. Toilet Concrete Slabs P10,026.756. Kitchen Cabinets P23,020.237. [Acoustic] Board P14,415.048. Endwall Roof Flashing P58,937.279. Base Board Walling P35,259.7810. Fixed Glass Window Field Office P8,100.1011. Additional One Set Steel Awning Window – 4 P11,155.2512. CHD Walling P16,968.1213. Painting wood partition P5,305.50TOTAL EXTRA COST P261,963.82[19]
(Emphasis supplied)
Contract for Works P 1,475,789.07 Previous Payments made by the CSC: July 14, 1997 P 363,296.34 August 15, 1997 P 405,220.45 September 26, 1997 P 480,577.06 Balance for the Contract for Works P 226,695.22 Balance for the extra works P 144,735.98 Total balance (Contract for Works plus extra works) P 371,431.20 Deductions: Tax P 25,998.79 Recoupment Fee P 31,766.36 Retention Fee P 14,471.60 Deficiencies P 82,000.00 Net P 217,174.42[34]
WHEREFORE, [CSC]'s motion to dismiss is accordingly denied for want of merit. [O]n the other hand, [Estomo's] prayer for the release of the full amount of P217,174.46 (less the P97,060.19 already released) is hereby granted. Let the said amount be released to [Estomo] without further need of submission of the original copy of the pertinent receipt/s which are in the possession of defendant CSC, and, of course, without prejudice to further hearing and accounting by the parties with regard to the amount still due, if any, relative to the project subject-matter of this case.The CSC filed another Motion for Reconsideration, which was denied by the RTC in its Order dated March 4, 2008.[46]
SO ORDERED.[45] (Emphasis in the original)
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [Estomo] and against the herein defendant [CSC]. Accordingly, defendant CSC is ordered to pay the plaintiff the following:A Motion for Reconsideration was filed by the CSC, but was denied in an Order dated November 4, 2014.[50]1. P387,104.14 representing the remaining outstanding obligation with legal interest of 6% per annum from the date of the filing of this case that is on February 20, 1998 and 12% per annum from the date the judgment becomes final and executory until its satisfaction.SO ORDERED.[49] (Emphases in the original)
2. P20,000.00 by way of reasonable attorney's fees, and
3. The cost of the suit.
Estomo's demand for the payment of extra works in the amount of P261,963.82 is anchored on the letters dated July 7, 1997, July 15, 1997, July 18, 1997, July 23, 1997, September 5, 1997, September 23, 1997, November 3, 1997 and November 24, 1997 sent by him to the CSC. However, a perusal of these documents shows that the same were mere letters "requesting" or "suggesting" to the CSC the extra works needed to be done on the project. In fact, the letters were subject to the approval of the CSC as suggested by the phrases "Your immediate action on this matter is highly appreciated", "For your comments and concurrence", "Please advise the undersigned" and "Your immediate action on this request is highly much appreciated", among others. Since these letters were mere requests and there was no showing that the CSC approved the amounts indicated therein by Estomo, they cannot be made as basis for the amounts demanded by him.[53]On the other hand, the CSC was able to present Resolution No. 97-1101 dated November 28, 1997. The CA noted that the Resolution was executed on a date later than the letters of Estomo. Also, the said Resolution showed that the total approved amount of extra works and change order is P144,735.98 only.[54]
The decretal portion of the CA decision reads:
WHEREFORE, the appeal is hereby PARTLY GRANTED. The Decision dated August 8, 2013 and the Order dated November 4, 2014 of the Regional Trial Court, 10th Judicial Region, Branch 20, Cagayan de Oro City in Civil Case No. 98-123 for "Specific Performance, Sum of Money plus Damages" is REVERSED. Defendant–appellant Civil Service Commission's obligation to plaintiff-appellee Domingo Estomo is deemed EXTINGUISHED in as much as the money in the amount of P217,174.46 paid by the former through escrow deposit was already released and paid to the latter.Estomo filed his Motion for Reconsideration, but was eventually denied by the CA in its Resolution[60] dated July 19, 2019.
SO ORDERED.[59]
7. The Implementing Rules & Regulation of P.D. 1594, as amended, the guidelines regarding contract price adopted and approved by the government, the provision of P.D. 1870, and other laws, decrees and administrative issuance or government contracts, are hereby made part and will be applied in this Contract. x x x[69]Government infrastructure projects are paid on installments called progress payments made upon the request of the contractor once a month or for an accomplishment of at least P1 Million.[70] Estomo, as contractor, received a total amount of P912,107.44 from the three progress payments made by the CSC on July 14, 1997, August 15, 1997,and September 26, 1997.
Date of Payment | Gross Amount | Tax | Retention | Recoupment (Cash Advance) | Net Amount Released |
July 14, 1997 | P363,296.34 | P19,816.16 | P36,329.63 | P55,342.09 | P251,808.46 |
August 15, 1997 | P405,220.45 | P21,881.90 | P40,522.05 | P55,342.09 | P287,474.41 |
September 26, 1997 | P480,577.06 | P28,834.62 | - | P78,917.81 | P372,824.63[71] |
TOTAL | P1,249,093.85 | 70,532.68 |
|
|
CI 6 – RETENTION MONEYRetention money is allowed only until 50% of the value of works are completed, and beyond this threshold, no additional retention shall be made.[76] It is intended to cover uncorrected discovered defects and third party liabilities and the total retention money shall then be due for release upon final acceptance of the works.[77]
1. Progress payments are subject to retention of ten percent (10%) referred to as the "retention money." Such retention shall be based on the total amount due to the contractor prior to any deduction and shall be retained from every progress payment until fifty percent (50%) of the value of works, as determined by the Government, are completed. If, after fifty percent (50%) completion, the work is satisfactorily done and on schedule, no additional retention shall be made; otherwise, the ten percent (10%) retention shall be imposed.[75]
CI 4 – ADVANCE PAYMENT
1. The Government shall, upon a written request of the contractor which shall be submitted as a contract document, make an advance payment to the contractor in an amount equal to fifteen percent (15%) of the total contract price, to be made in lump sum or at the most two installments according to a schedule specified in the Instructions to Bidders and other relevant Tender Documents.Records show that on May 14, 1997, the CSC made an advance payment to Estomo in the amount of P221,368.35, which is within the 15% limit prescribed by the rules.[80] In turn, Estomo partially repaid the advance payment when the following amounts were deducted from the progress payments:
2. The advance payment shall be made only upon the submission to and acceptance by the Government of an irrevocable standby letter of credit of equivalent value from a commercial bank or a guarantee payment bond, callable on demand, issued by a surety or insurance company duly licensed by the Office of the Insurance Commissioner and confirmed by the implementing agency.
3. The advance payment shall be repaid by the contractor by deducting 20% from his periodic progress payments, with the first repayment to be made when the contract value of the work executed and materials delivered shall equal or have exceeded twenty percent (20%) of the contract price and further refunds shall be done thereafter at monthly intervals. THE FIRST WORK ACCOMPLISHMENT EQUIVALENT TO 20% OF THE CONTRACT PRICE SHALL NOT BE SUBJECT TO THE 20% DEDUCTION.
C. Withholding taxes
Date Recoupment
(Cash Advance)July 14, 1997 P 55,342.09August 15, 1997 P 55,342.09September 26, 1997 P 78,917.81[81]TOTAL P189,601.99
Sec. 9. Section 110(c) of the National Internal Revenue Code, is hereby further amended to read as follows:Relatedly, Section 102 of the National Internal Revenue Code (NIRC), as amended[86] provides that VAT shall be levied, assessed and collected from the gross receipts derived from the sale or exchange of services, which includes those performed or rendered by construction and service contractors.
'(c) Withholding of Creditable Value-Added Tax. — The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 100 and 102 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent.[85] (Emphasis and underscoring supplied)
Date | Gross Amount | Tax | 10% Retention Money |
July 14, 1997 | P363,296.34 | P 19,816.16 | P36,329.63 |
August 15, 1997 | P405,220.45 | P 21,881.90 | P40,522 .05 |
September 26, 1997 | P480,577.06 | P 28,834.62 | - |
For the September 26, 1997 progress payment, the CSC arrived at the tax deduction of P 28,834.62 with the following formula:
Gross Amount P405,220.45 Less: 10% Retention Money P40,522.05 Tax Base used by the CSC P364,698.4 x VAT rate 6%Tax deducted from the August 15, 1997 Progress payment P21,881.90
However, with respect to July 14, 1997 progress payment, there appears to be an incorrect computation prescinding from the foregoing formula applied by the CSC:
Gross Amount P480,577.06 Less: 10% Retention Money[87] 0Tax Base used by the CSC P480,577.06 x VAT rate 6%Tax deducted from the September 26, 1997 progress payment P28,834.62
In order to determine whether the CSC properly applied the withholding tax rate of 6% on the gross amount after the deductions were made for the retention money, a brief discussion of the definition of "gross receipts" is warranted.
Gross Amount P363,296.34 Less: 10% Retention Money P36,329.63 Tax Base used by the CSC P326,966.71 x VAT rate 6%Tax deducted from the July 14, 1997 progress payment P19,618.00
Date | Gross Amount | Tax withheld by CSC | Correct VAT Amount | Underpayment |
July 14, 1997 | P363,296.34 | P 19,816.16 | P21,797.78 | P1,981.62 |
August 15, 1997 | P405,220.45 | P 21,881.90 | P24,313.23 | P2,431.33 |
September 26, 1997 | P480,577.06 | P 28,834.62 | P28,834.62 | - |
[T]he letters were subject to the approval of the CSC as suggested by the phrases "Your immediate action on this matter is highly appreciated", "For your comments and concurrence", "Please advise the undersigned" and "Your immediate action on this request is highly much appreciated", among others.[95]Payments for extra works cannot be collected on the basis of letter requests and billings alone. The 1992 IRR of P.D. No. 1594 requires that request for payment by the contractor for any extra work shall be accompanied by a statement, with approved supporting forms, giving a detailed accounting and record of amount for which he claims payment. The cost of the extra works done shall be submitted at the intervals to be determined by the Project Engineer in a satisfactory form, which shall be approved or adjusted at once by the Government.[96] Aside from Estomo's letter requests, no approved supporting forms were submitted.
To begin with, petitioners-contractors assented and agreed to undertake additional constructions for the completion of the housing units, believing in good faith and in the interest of the government and, in effect, the public in general, that appropriations to cover the additional constructions and completion of the public works housing project would be available and forthcoming. On this particular score, the records reveal that the verbal request and assurance of then DPWH Undersecretary Canlas led petitioners-contractors to undertake the completion of the government housing project, despite the absence of covering appropriations, written contracts, and certification of availability of funds, as mandated by law and pertinent auditing rules and issuances. x x x.
Further, petitioners-contractors sent to the DPWH Secretary a demand letter pressing for their money claims, on the strength of a favorable recommendation from the DPWH Assistant Secretary for Legal Affairs to the effect that implied contracts existed and that the money claims had ample basis applying the principle of quantum meruit. Moreover, as can be gleaned from the records, even the DPWH Auditor interposed no objection to the payment of the money claims, subject to whatever action the COA may adopt.[101] (Emphases supplied)
The work done by [the contractor] was impliedly authorized and later expressly acknowledged by the Ministry of Pubic Works, which has twice recommended favorable action on the petitioner's request for payment. Despite the admitted absence of a specific covering appropriation as required under COA Resolution No. 36-58, the petitioner may nevertheless be compensated for the services rendered by it, concededly for the public benefit, from the general fund alloted by law to the Betis River project. Substantial compliance with the said resolution, in view of the circumstances of this case, should suffice. x x xNotably, the foregoing circumstances are wanting in the present case. To reiterate, Estomo commenced with the extra works without the approval of the CSC. In EPG Construction Co. v. Vigilar,[105] the contractor only agreed to undertake the additional construction pursuant to an implied contract with the concerned government agency. In the case of Estomo, he proceeded with the additional works over the repeated and vehement objections of the CSC considering that the additional works would exceeded the total amount of the contract price approved for the project. Whereas in EPG Construction, no objection was interposed by the concerned government agency.
Accordingly, in the interest of substantial justice and equity, the respondent Commission on Audit is DIRECTED to determine on a quantum meruit basis the total compensation due to the petitioner for the services rendered by it in the channel improvement of the Betis River in Pampanga and to allow the payment thereof immediately upon completion of the said determination.[104] (Emphasis supplied)
Indeed, and as previously discussed, the Court upholds the position of the CSC as regards the balance for the extra works in the amount of P144,735.98.
Contract for Works P1,475,789.07 Previous Payments made by the CSC: July 14, 1997 P 363,296.34 August 15, 1997 P 405,220.45 September 26, 1997 P 480,577.06 Balance for the Contract for Works P 226,695.22 Balance for the extra works P 144,735.98 Total balance (Contract for Works plus extra works) P 371,431.20 Deductions: Tax P 25,998.79 Recoupment Fee P 31,766.36 Retention Fee P 14,471.60 Deficiencies P 82,000.00 Net P 217,174.42[106]
SEC. 2.57.2. Income Payment Subject to Creditable Withholding Tax and Rates Prescribed Thereon. — Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines:From the foregoing provisions, the CSC was correct to deduct and withhold the following taxes: (1) 6% of the gross receipts representing VAT under Section 114(c) of the 1997 NIRC; and (2) 1% of the gross payments representing 1% of the expanded creditable withholding tax under Section 2.57.2(E) of RR No. 02-98.
x x x x
(E) Income payments to certain contractors — On gross payments to the following contractors, whether individual or corporate — One percent (1%).
x x x x
(2) General Building contractors — Those whose principal contracting business is in connection with any structure built, for the support, shelter and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of more than two unrelated building trades or crafts, or to do or superintend the whole or any part thereto. Such structure includes sewers and sewerage disposal plants and systems, parks, playgrounds, and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skills, powerhouse, power plants and other utility plants and installation, mines and metallurgical plants, cement and concrete works in connection with the above-mentioned fixed works.
In addition to the progress payments, the CSC tendered payment by way of escrow deposit with the RTC the amount of P217,174.16. As tendered, the escrow deposit represents the full payment for the Contract for Works, including the cost for the approved extra works and change order. Records show that the amount tendered is the net of the following:
Date Gross Amount RetentionJuly 14, 1997 P363,296.34 P36,329.63August 15, 1997 P405,220.45 P40,522.05September 26, 1997 P480, 577.06[112] -
Despite the retention money, deficiencies in the amount of P82,000.00 were deducted as well. Upon further review of the records, it was shown that the said amount was to secure the completion of the defects discovered by the CEO.
Gross P371,411.00 Tax P25,999.00 Recoupment (Cash Advance) P31,766.00 Retention P14,472.00 Deficiencies P82,000.00 Net P217,174.00[113]
This has reference to the inspection conducted by the undersigned on the Third Floor Extension of Civil Service [C]ommission Building Project, under contract with D.F. ESTOMO CONSTRUCTION. Our findings indicate that the contractor has substantially completed the works, however, we observed that some items are defective and were not in accordance with the specifications given by this office, thus, we strongly recommend for completion/rectification prior to issuance of a certificate of final completion, [x x x.][114] (Emphasis in the original)On January 15, 1998, the CSC directed Estomo to rectify the defects within 15 days. The CSC likewise advised Estomo that the Certificate of Final Completion will only be issued after the defects have been rectified.[115] Nonetheless, in a letter dated January 26, 1998, the CSC relayed to Estomo that:
it was willing to pay the balance under the contract upon completion of the deficiencies in the amount of Eighty-Two Thousand Pesos (P82,000.00) discovered by the City Engineering Office Inspectorate Team and upon submission of the necessary documents x x x.[116] (Emphasis supplied)Consistently, the CSC averred in its Motion for Reconsideration filed before the CA:
15. Clearly, [Estomo] did not complete the work he bound himself to do, and has not submitted up to the present the necessary documents as stated above. He has also not completed the deficiencies in the amount of Eighty Two Thousand Pesos (P82,000.00).[117] (Emphasis supplied)It cannot escape the attention of the Court that the deficiencies in the amount of P82,000.00 serve the same purpose as that of the retention money. The IRR of P.D. No. 1594 mandates the release of the total retention money upon final acceptance of the works, free from any defect or deficiency as evidenced by the Certificate of Final Completion. Absent this key document, the retention money may not be released. By the same token, in this case of Estomo and the CSC, the deficiencies computed at P82,000.00 prevented the issuance of the Certificate of Final Completion.
Date | Gross Amount | Retention | Underpayment | Balance |
July 14, 1997 | P363,296.34 | P36,329.63 | P1,981.62 | P34,348.01 |
August 15, 1997 | P405,220.45 | P40,522.05 | P2,431.33 | P38,090.72 |
September 26, 1997 | P480,577.06 | - | - |
Respondent Civil Service Commission Regional Office No. X is ORDERED to release in favor of petitioner Domingo F. Estomo the following:
1. The total contract price for the Contract for Works, including the extra works and change order, executed by respondent Civil Service Commission Regional Office No. X and petitioner Domingo F. Estomo, is One Million Six Hundred Twenty Thousand Five Hundred Twenty-Five and Five Centavos (P1,620,525.05); and2. The following deductions are valid: a) Withholding taxes in the amount of P25,998.79; b) Recoupment in the amount of P55,342.09 from the progress payment dated July 14, 1997; c) Recoupment in the amount of P55,342.09 from the progress payment dated August 5, 1997; d) Recoupment in the amount of P78,917.81 from the progress payment dated September 26, 1997; e) Recoupment in the amount of P31,766.00 from the escrow deposit made on March 7, 2001; and f) Deficiencies in the amount of P82,000.00 from the escrow deposit made on March 7, 2001.
The total monetary award shall be subject to interest rate of twelve percent (12%) per annum from the time of judicial demand on February 4, 1998 until June 30, 2013, and six percent (6%) per annum from July 1, 2013 until full satisfaction.
1. Retention money in the amount of P34,348.01 from the progress payment dated July 14, 1997; 2. Retention money in the amount of P38,090.72 from the progress payment dated August 26, 1997; and 3. Retention money in the amount of P14,472.00 from the escrow deposit made on March 7, 2001.
1. Once a month or for an accomplishment of at least P1.0 million, the contractor may submit a request for payment for work accomplished. Such request for payment shall be verified and certified by the Government project engineer. Except as otherwise stipulated in the Instructions to Bidders, materials and equipment delivered on the site but not completely put in place shall not be included for payment.
2. The government shall have the right to deduct from the contractor's progress billing such amount as may be necessary to cover third party liabilities, as well as uncorrected discovered defects in the project. (IMPLEMENTING RULES AND REGULATIONS OF PRESIDENTIAL DECREE No. 1594, AS AMENDED IN APRIL 1992).
CI 3 — CONDITIONS UNDER WHICH CONTRACTOR IS TO START WORK UNDER VARIATION ORDERS AND RECEIVE PAYMENTS
1. Under no circumstances shall a contractor proceed to commence work under any Change Order, Extra Work Order or Supplemental Agreement unless it has been approved by the Secretary or his duly authorized representative. Exceptions to the preceding rule are the following:
a. The Regional Director may, subject to the availability of funds, authorize the immediate start of work under any Change or Extra Work Order under any or all of the following conditions:
(1) In the event of an emergency where the prosecution of the work is urgent to avoid detriment to public service, or damage to life and/or property; and/or
(2) when time is of the essence; provided, however, that such approval is valid on work done up to the point where the cumulative increase in value of work on the project which has not yet been duly fully approved does not exceed five percent (5%) of the total original contract price, or P500,000 whichever is less; provided, fu1ther, that immediately after the start of work, the corresponding Change/Extra Work Order shall be prepared and submitted for approval in accordance with the above rules herein set. Payments for works satisfactorily accomplished on any Change/Extra Work Order may be made only after approval of the same by the Secretary or his duly authorized representative.
b. For a Change/Extra Work Order involving a cumulative amount exceeding fifteen percent (15%) of the original contract price or original adjusted contract price, no work thereon may be commenced unless said Change/Extra Work Order has been approved by the Secretary or his duly authorized representative.
SEC. 114. Return and Payment of Value-added Tax. —
x x x x
(C) Withholding of Creditable Value-added Tax. — The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent.