THE Commission on Audit has denied the appeal of Cagayan de Oro Water District (COWD) officials seeking relief from four Notices of Disallowance (NDs) issued against payments made to contractors of its water supply system upgrade project and bulk water supply deal in 2008.
In a 15-page decision released yesterday, the COA en banc affirmed the finding of the Fraud Audit Office (FAO) that the contract was tainted by overpricing and irregular expenditures although it reduced the total disallowance from P93.49 million to P88.61 million.
The ruling was signed by COA chairperson Gamaliel Cordoba and Commissioners Roland Café Pondoc and Mario Lipana.
Auditors identified the Geo-Transport and Construction Inc (GTCI) as the contractor for the Water Supply System Phase III Improvement/Expansion Project-Main Service Area (WSSP3IEP-MSA) and Phase III Improvement/Expansion Project-Lateral Improvement Project (P3IEP-LIP).
On the other hand, the contractor for the bulk water supply was Rio Verde Water Consortium Inc. (RVWCI).
Based on the first three NDs, auditors found “price escalation” for cement and lined steel pipes totaling P16.32 million, irregular expenditure represented by the variance between the contract cost and the evaluation of the COA technical team totaling P14.72 million, and payments exceeding the contract price amounting to P14.48 million.
Against the COWD – Rio Verde contract, the COA disallowed P47.96 million representing payments for the transfer of the original take-off point (TOP) which added three kilometers of pipes and supposedly resulted in reduced water pressure from 82 psi (pounds per square inch) to 20 psi.
Among those held liable were former Local Water Utilities Administration (LWUA) administrator Lorenzo Jamora, COWD general manager Gaspar Gonzales Jr., the entire Board of Directors of COWD, GCTI’s Edward Tan Chona, and Rio Verde’s Jose Ch. Alvarez.
In their appeal, the COWD officials said the decision to use reinforcing steel bars was made in good faith after consultation with LWUA officials. It insisted that there was nothing anomalous about paying compensation to the contractor for losses it incurred on costs not covered by the metallic pipe index.
They added that the transfer of TOP and the additional pipeline of three kilometers were unrelated since the additional distance was intended to provide water connection to Lumbia Airport and neighboring communities.
However, the COA En Banc noted that the resort to negotiated procurement on the water distribution system improvement contract did not comply with existing rules hence the payment to the contractors was considered an “irregular expenditure.”
“Irregular expenditures are incurred if funds are disbursed without conforming to prescribed usages and rules of discipline. These expenditures are likewise considered illegal expenditures for having violated the procurement law,” the COA said.
Regarding the bulk water supply deal, the commission noted that the change of the take-off point amounts to a “substantial amendment of the contract” due to modifications in plans, design or alignment to suit field conditions.
“Thus, the BOD acted beyond its authority as the change in the TOP was tantamount to a substantial amendment of the contract. In view of the irregularities in the transaction, this case shall be referred to the Office of the Ombudsman for the filing of appropriate charges, if warranted,” the COA added.