[Suplico vs.
National Economic Development Authority OSG filed a Supplemental Manifestation and Motion appending
(NEDA), et. al.] / [2008]
[Reyes, R.T., J.]
I. FACTS
Three petitions were filed before the SC (prohibition,
mandamus, certiorari), with application for the issuance of a
TRO and/or Preliminary Injunction praying, among others, for
the following:
1. enjoin respondents from pursuing, entering into
indebtedness, disbursing funds, and implementing the
ZTE-DOTC Broadband Deal;
2. compel respondents to produce and furnish petitioner or
his counsel a certified true copy of the contract or
agreement covering the NBN project as agreed upon with
ZTE Corporation;
3. annul and set aside the award of the ZTE-DOTC
Broadband Deal, and
4. compel public respondents to comply with pertinent
provisions of law regarding procurement of government
ICT contracts and public bidding for the NBN contract.
Sept. 11, 2007. SC issued a TRO enjoining the parties from
pursuing, entering into indebtedness, disbursing funds, and
implementing the ZTE-DOTC Broadband Deal and Project.
Oct. 26, 2007. OSG filed a Manifestation and Motion stating
that they have been informed by the DOTC, through an
Indorsement, of the government’s decision not to continue with
the ZTE National Broadband Network Project and there being
no justiciable controversy, prayed for the dismissal of the cases.
The Petitioners filed their Comment to the Motion which may be
summarized as follows:
1. The Indorsement is not a sufficient basis to conclude that the
ZTE-DOTC NBN deal has been permanently scrapped,
especially since the Notes of the Meeting between PGMA
and Pres. Hu Jintao was not attached.
2. There is no assurance that in the event the cases are
dismissed, the government will not backtrack, re-transact, or
even resurrect the NBN-ZTE transaction as what was
indicated in the Indorsement was that they have decided not
to continue due to several reasons and constraints.
3. SC should take cognizance of the case despite its apparent
mootness because of the transcendental importance of the
issues raised (i.e. President’s use of the power to borrow).
OSG’s position is set out below:
1. For the SC to exercise its power of adjudication, there must
be an actual case or controversy.
2. There is no perfected contract that would prejudice the
government or public interest. The ZTE-DOTC contract, as
an executive agreement, remained in the negotiation stage.
the notes of the meeting between PGMA and Pres. Hu Jintao
where the PH government conveyed its decision not to continue
due to several constraints and that the Chines government is
understanding of the same.
II. ISSUE
WoN the cases should be dismissed for being moot and
academic? YES
III. RATIONALE
The prayer of petitioners to be furnished certified copies of the
contract has been mooted as it appears that during one of the
Senate hearings on the NBN Project, copies of the contract were
readily available to them.
When PGMA informed Chinese President HU Jintao of PH’s
decision not to continue, all the other principal prayers in the
petitions had also become moot. SC has no alternative but to
take judicial notice of the official act of the PH President as
mandated in Sec. 1, Rule 129 of the Rules of Court. Said rule is
mandatory and further provides that the Court shall take judicial
notice without introduction of further evidence. Moreover, under
Sec. 2 (m) of Rule 131 of the Rules of Court, the act of executive
officials informing the Court of the government’s decision not to
continue is presumed to have been regularly performed, absent
proof to the contrary.
Judicial power presupposes actual controversies, the very
antithesis of mootness. In the absence of actual justiciable
controversies or disputes, the Court generally opts to refrain
from deciding moot issues.
Even assuming that SC brush aside mootness, it cannot
completely rule on the merits of the case because its resolution
involves settling factual issues which definitely requires
reception of evidence and it cannot be done by the SC in the
first instance because it is not a trier of facts. Some of the reliefs
prayed for in the petitions require prior determination of facts
before pertinent issues can be resolved and the reliefs granted.
One of reliefs prayed for is for the Court to order respondents to
comply with pertinent provisions of law regarding the
procurement of government ICT contracts and public bidding for
the NBN Contract. It would be too presumptuous on the part of
the Court to summarily compel public respondents to comply
with pertinent provisions of law without any factual basis or prior
determination of very particular violations committed by specific
government officials of the executive branch. For the Court to do
so would amount to a breach of the norms of comity among co-
equal branches of government. Without proper evidence, the
Court cannot just presume that the executive did not comply with
procurement laws.
IV. DISPOSITIVE
Petitions dismissed. TRO dissolved.
V. DISSENTING OPINION OF J. CARPIO
Carpio is of the opinion that the Contract is void from the
beginning for being contrary to the Constitution, the
Administrative Code of 1987, the Government Auditing Code of
the Philippines, and the Government Procurement Reform Act.
As such, the ZTE Supply Contract is legally non-existent. The
cancellation made by the government then has no legal effect
and will not moot the petitions. The case is also of
transcendental importance as it involves a government
procurement contract amounting to USD 329 million (Php 14.82
billion). The legal issues are also capable of repetition yet
evading review.
Equally important also is that ZTE Corporation has not
manifested to the SC its consent to the discontinuance or
cancellation of the ZTE Supply Contract. In a bilateral contract,
one party cannot unilaterally declare a contract cancelled.
Hence, the case is far from moot.
A petition for prohibition is a proper action to test the legality of
the disbursement of public funds and the legality of the
execution of procurement contracts non-compliant with law.
These are the facts established from the admissions of
respondents:
1. The ZTE Supply Contract, a procurement of goods and
services for the PH Government, was signed on 21 April
2007 by DOTC Sec. Mendoza and ZTE Corp. VP Yu Yong;
2. There was no public bidding in the award of the contract to
ZTE Corp., and the Chinese Government handpicked ZTE
Corp. to supply the goods and services to the PH
Government;
3. The Contract is to be financed by a loan from the Export-
Import Bank of China to the PH Government;
4. The Loan Agreement to finance the Contract was not
concluded before or after the signing of the ZTE Supply
Contract;
5. There is no appropriation law enacted by Congress to fund
the Contract;
6. A certificate of appropriation and fund availability is not
attached to the Contract;
7. ZTE Corp. is publicly listed in the Hong Kong and Shenzhen
stock exchanges.
Carpio asserts that the Contract is void from the beginning
as it lacks these three requisites; an appropriation law, a
certificate of appropriation and fund availability, and public
bidding.
Appropriation Law and Certificate of Appropriation and Fund
Availability
Sec. 29(2), Art. VI of the Constitution requires an appropriation
law before public funds are spent for any purpose. The power of
the purse or the power to authorize payment from funds in the
National Treasury is lodged exclusively in Congress. One of the
fundamental checks and balances finely crafted in the
Constitution is that Congress authorizes the amount to be spent,
while the Executive spends the amount so authorized. The
rationale of this basic check and balance is to prevent abuse of
discretion in the expenditure of public funds.
The 1987 Administrative Code expressly prohibits the entering
into contracts involving the expenditure of public funds unless 1)
there is an appropriation law authorizing the expenditure
required in the contract, and 2) attached to the contract is a
certification by the proper accounting official and auditor
that funds have been appropriated by law and such funds
are available. Failure to comply with any of these two
requirements renders the contract void.
These requirements have repetitively been stated in different
laws, such as:
 Secs. 46, 47, and 48, Chapter 8, Subtitle B, Title I, Book V
of the Administrative Code of 1987
 Sections 85, 86 and 87 of the Government Auditing Code of
the Philippines
The law prohibits the mere entering into a contract without the
corresponding appropriation from Congress. It does not matter
whether the contract is subject to a condition as to its effectivity,
such as a subsequent favorable legal opinion by the Department
of Justice, because even a contract with such condition is still a
contract under the law.
The law not only prohibits the entering into the contract but also
authorizing the same without the certification issued by the
proper accounting official. In several cases, these have been
declared by the Court as conditions sine qua non for the
execution of government contracts. Failure to comply with these
two requirements declares void the procurement contract.
The ZTE-DOTC contract does not comply with any of these
requirements, hence, it is void. NEDA is fully aware that all
proceeds of loans and grants cannot be disbursed without an
appropriation of Congress. The argument of OSG that under
Sec. 31 of PD No. 1177, automatic appropriation for payment of
foreign loans is provided for and it covers the appropriation for
the ZTE Contract is without merit.
When the Executive branch secures a loan to fund a
procurement of goods/services, the loan proceeds enter the
National Treasury as part of the general funds of the
government. Congress must appropriate by law the loan
proceeds to fund the procurement of goods/services, otherwise
the loan proceeds cannot be spent by the Executive. When the
loan falls due, Congress must make another appropriation law
authorizing the repayment of the loan out of the general funds
in the National Treasury. This appropriation for the repayment
of the loan is what is covered by the automatic appropriation in
Sec. 31 of PD No. 1177. 22 It is not the appropriation needed to
fund a procurement contract.
Public Bidding (RELEVANT TO TOPIC)
Sec. 10, Art. IV of the Government Procurement Act (Act)
requires public bidding in all procurement of infrastructure,
goods and services. Sec. 4 provides that Act applies to
government procurement "regardless of source of funds,
whether local or foreign." Hence, the requirement of public
bidding applies to foreign-funded contracts like the ZTE Supply
Contract.
ZTE Corp. claims that the ZTE Contract is exempt from public
bidding as it is part of an executive agreement. They cite the last
sentence of Sec. 4 of the Act which states “Any treaty or
international or executive agreement affecting the subject
matter of this Act to which the Philippine government is a
signatory shall be observed.” ZTE argues that there is no
provision in the Executive Agreement that requires the conduct
of competitive public bidding before the award of the NBN
Project.
Carpio opines that this argument may hold water only if an
executive agreement can amend the mandatory statutory
requirement of public bidding in the Act. The issue raised now
is of whether an executive agreement can amend or repeal
a prior law. The obvious answer is that an executive
agreement cannot amend or repeal a prior law.
An executive agreement has the force and effect of law.
However, just like implementing rules of executive agencies,
executive agreements cannot amend or repeal prior laws but
must comply with the laws they implement. Only a treaty, upon
ratification by the Senate, acquires the status of a municipal law.
An executive agreement, being an exclusive act of the
Executive, does not have the status of a municipal law. Acting
alone, the Executive has no law-making power. While the
Executive does possess rule-making power, such power must
be exercised consistent with the law it seeks to implement.
Executive agreements are intended to carry out well-established
national policies, and these are found in statutes.
Carpio resorts to US jurisprudence in espousing the view that
executive agreements cannot alter existing law but must
conform with all statutory requirements.
The Act has laid down a categorical state policy that all
procurement shall be done through Competitive Bidding, subject
only to narrowly defined exceptions that respondents do not
invoke.
ZTE Corp. further claims that the Contract is part of the
executive agreement between China and the Philippines. This
is plain error. An executive agreement is an agreement between
governments. The Executive has defined an "international
agreement", which includes an executive agreement, to refer to
a contract or an understanding "entered into between the
Philippines and another government."
That the Chinese Government handpicked the ZTE Corp. to
supply the goods and services to the PH Government does not
make the Contract an executive agreement. ZTE Corp. is not a
government or even a government agency performing
governmental or developmental functions (e.g. Export-Import
Bank of China, Japan Bank for International Cooperation), or a
multilateral lending agency organized by governments (e.g.
World Bank). ZTE is a business enterprise performing purely
commercial functions.
Moreover, an executive agreement is governed by international
law. The ZTE Contract expressly provides that it shall be
governed by PH law. Thus, the ZTE Supply Contract is not an
executive agreement but simply a commercial contract, which
must comply with public bidding as mandated by the governing
law, which is PH law.
Nothing in the Act states that there is a delegated legislative
power vested upon the President to allow it to do away with the
mandatory requirement of public bidding. The only exceptions
to mandatory public bidding are those specified in Art. XVI of the
Act which do not include purchases from foreign suppliers
handpicked by foreign governments, or from suppliers owned or
controlled by foreign governments. Moreover, Sec. 4 mandates
that the Act shall apply regardless of source of funds, whether
local or foreign.
Sec. 4 of the Act must also be read in conjunction with other
laws such as the Foreign Borrowings Act and the Official
Development Assistance Act. Construed together, Sec. 4 refers
only 1) the waiver or modification of preferences to local goods
or domestic suppliers; 2) the waiver or modification of
restrictions on international competitive bidding; and (3) the
method or procedure in the comparison of bids. Nowhere is it
said that the conduct of the public bidding is waived. What may
be waived or modified are the restrictions and the methods or
procedure on bidding. In this case, no public bidding was ever
conducted. Even so, these exceptions were also not invoked by
the respondents.
That the funding for the ZTE Supply Contract will come from a
foreign loan does not negate the rationale for public bidding.
Filipino taxpayers will still pay for the loan with interest. The
need to safeguard public interest against anomalies exists in all
government procurement contracts, regardless of the source of
funding. Public bidding is the most effective means to prevent
anomalies in the award of government contracts.
Whatever doubt may have existed before has been erased by
the enactment of the Government Procurement Reform Act,
which reformed the laws regulating government procurement.
The Act clearly prescribe the rule that government procurement
contracts shall be subject to mandatory public bidding.
Hence, Carpio votes to grant the petitions.