THE Commission on Audit (COA) has flagged the Municipality of Dumanjug in southwestern Cebu for rounding off the total contract cost of the town's new public market to P300 million from the approved budget for the contract (ABC) of only P299.468 million, as well as for awarding the project to a contractor whose bid exceeded the approved budget by P419,712.
COA said this indicates the failure of the Municipal Hall to abide by the provisions set in determining the ABC per Procurement of Manual for Local Government Units (LGUs) and that the proper conduct of bidding process was carried out insufficiently.
However, Dumanjug's municipal engineer maintained that the summation of costs which was rounded off to P300 million still complied with the law.
COA's observation
COA noted that the LGU's rounding off of the contract cost from the ABC with a difference of P531,712 is contrary to the Procurement Manual for LGUs Volume 3.
COA recommended that the LGU write an explanation or justification why it rounded off the total contract cost in determining the ABC to avoid audit suspension or disallowance.
The LGU was also asked to explain why it should not be held liable for its inability to verify the correctness of the computation in the financial bid proposal.
Section 3.1 of the Procurement of Manual for LGUs Volume 3 provides that in determining the ABC, if the sum of the different cost components is lower than the appropriation for the procurement, then the ABC should be equal to the sum of the cost components.
The manual further stipulates that if the resulting sum is higher than the appropriation, it is advisable to review the technical specifications and the computation of the ABC. In any case, the ABC should not exceed the appropriation, the manual states.
Management's response
Responding to COA, Dumanjug's municipal engineer explained that the summation of costs was rounded off to P300 million being the ABC for the project, pointing to the 2016 Revised Implementing Rules and Regulations (IRR) of Republic Act (RA) 9184.
Section 4a of the Procurement and Implementation of Contracts for Design and Build Infrastructure Projects of the updated 2016 Revised IRR of RA 9184 states that the "ABC shall be a lump sum amount that shall cover the cost of design and construction works based on the conceptual design and performance specifications and in accordance with applicable provisions of the law or agency guidelines."
The LGU also explained that the breakdown of costs for prospective workable items was based on the rough estimate of the minimum quantities in relation to the conceptual design.
"We need to specify quantities, especially on the needed floor area, in order for the winning bidder not to design lesser than the required minimum," the LGU explained.
"The winning bidder may design the proposed public market with areas higher than what was specified and for that reason, we cannot fix the exact amount, hence, we arrived with a lump sum ABC at P300 million," the LGU added.
But according to COA, nothing in the RA 9184 IRR provision allows rounding off of the ABC to the nearest hundred million.
"The difference of the ABC of P299,468,288 and the rounded-off figure of P300 million in the amount of P531,712 is a very significant amount," the state auditors noted.
In excess of ABC
Meanwhile, the town's move to award the contract to a contractor who exceeded the ABC is a violation of the 2016 Revised IRR of Republic Act 9184 or the Government Procurement Reform Act, according to COA.
COA said the upward adjustment of the ABC due to the failure of bidding may be done only if there has been a failure of bidding for the second time due to all bids submitted exceeding the ABC or no bids having been submitted, or failure in the negotiated procurement after two failed biddings, and if there has been previous modification of terms, conditions and specifications of the project.
COA explained that RA 9184 provides that the ABC shall be the upper limit for acceptable bid prices.
"If a bid price, as evaluated and calculated in accordance with this IRR, is higher than the ABC, the bidder submitting the same shall be automatically disqualified," COA stated.
12 percent VAT
The state auditors also noted that Dumanjug Municipal Hall used 12 percent value added tax (VAT) instead of five percent in preparing the ABC for the project that involved the design and build of Dumanjug new public market Phase 1, resulting in an excess of seven percent or P18.717 million, contrary to the Department of Public Works and Highways (DPWH) Department Order 197, series of 2016, and increasing the amount of the ABC.
COA stated that item B.5 of the DPWH DO provides that VAT component for public projects shall be five percent of the estimated direct cost (EDC), overhead, contingencies, and miscellaneous expenses and profit.
The P299.468 million budget for the first phase of the new public market included the following items: (a) Design Phase - P3.4 million for preliminary investigations and P11.5 million for general requirements, and (b) Construction Phase - P120,096,000 for serviceable areas, P107,086,400 for public areas, P14.7 million for concrete pavement, P3.6 million for open spaces, P7 million for design, engineering and supervision, and (c) P32,085,888 for the 12 percent (VAT).
But COA said had the LGU applied the proper VAT of five percent of only P13.369 million, the ABC for the project should have only been P280.751 million.
Management's reply
Dumanjug municipal engineer explained that the DPWH department order covers only those under the supervision and control of the secretary of the DPWH and that Dumanjug is not covered by such.The LGU said it derives its autonomy under RA 7160 or the Local Government Code of 1991.
The LGU added that the application of 12 percent VAT is in consonance with Bureau of Internal Revenue (BIR) memorandum circular 85-2017 dated Oct. 11, 2017, clarifying the imposition of the appropriate VAT rate to be used in the preparation of the ABC.
In its rejoinder, COA stressed that the fiscal autonomy of the LGU should align with the existing rules and regulations by other government regulating bodies such as the DPWH for uniformity and consistency.
The state auditors, however, said they will prepare a written query to clarify what appropriate VAT rate should be used in preparing the ABC in light of the conflicting VAT rates provided in DPWH DO 197 and BIR Memorandum Circular 85-2017.