Archbishop Fernando Capalla, et al., v. Comission on Elections

G.R. No. 201112 - ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO ALI and MARY ANNE L. SUSANO, Petitioners, versus  COMMISSION ON ELECTIONS, Respondent;

G.R. No. 201121 - SOLIDARITY FOR SOVEREIGNTY (S4S) represented by Ma. Linda Olaguer; RAMON PEDROSA, BENJAMIN PAULINO, SR., EYELYN CORONEL, MA. LINDA OLAGUER MONTAYRE and NELSON T. MONTAYRE, Petitioners, versus COMMISSION ON ELECTIONS,Respondent;

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, Petitioners, versus COMMISSION ON ELECTIONS and SMARTMATIC TIM CORPORATION, Respondents;

G.R. No. 201413 - TANGGULANG DEMOKRASYA (TANDEM), INC., EVELYN L. KILAYKO, TERESITA D. BALTAZAR, PILAR L. CALDERON and ELITA T. MONTILLA, Petitioners, versus COMMISSION ON ELECTIONS and SMARTMATIC TIM CORPORATION, Respondents.

Promulgated:

June 13, 2012

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S E P A R A T E   C O N C U R R I N G   O P I N I O N

SERENO, J.:

          The present Rule 65 Petitions challenge the proposed purchase of 80,916 Precinct Count Optical Scan (PCOS) machines by the Commission on Elections (COMELEC) from Smartmatic-TIM.  They claim that the failure of the latter to timely and completely exercise the option to purchase the said units, prior to the expiration of the original given period, removed the legal basis for the COMELEC to make the purchase without conducting a separate public bidding.  The proposed purchase is embodied in a Deed of Sale executed by the parties on 30 March 2012 (Deed of Sale).  Under its original 2009 contract with Smartmatic-TIM,[1]COMELEC had until 31 December 2010 to exercise the option to purchase 82,200 PCOS machines, which it was going to lease, and did lease, for use in the 2010 national and local elections.  On 23 September 2010, it partially exercised this option by purchasing 920 of the machines for the 13 November 2010 Special Elections.[2]  Four letters extending the option were sent by Smartmatic-TIM to COMELEC, and an extension agreement over the option was entered into by respondents.  We will discuss the legal effects of these letters and agreement subsequently.  The issue in these Petitions thus ultimately boil down to whether the COMELEC committed grave abuse of discretion in purchasing 80,916[3] PCOS machines from Smartmatic-TIM without subjecting the purchase to a separate public bidding, considering that under the terms of the 2009 Contract, the original period within which the purchase should have been made, already expired? 

          As will be clearly demonstrated, the COMELEC has ample authority under the Constitution and the Civil Code to execute the Deed of Sale, and this Deed of Sale does not violate any provision of the Government Procurement Reform Act (GPRA), its implementing rules and regulations (IRR), or any public policy on government contracts; and, thus, the COMELEC did not commit any grave abuse of discretion to warrant the grant of the Petitions.

Setting Aside the Technical Issues

          Petitioners have raised five technical issues regarding the following: 

(a) Absence of a digital signature;

(b) Absence of a voter verified paper trail;

(c) Existence of an open port console;

(d) Deactivation of the ultraviolet marks verification capability; and

(e) Last-minute reconfiguration of the compact flash disks in 2010.

          A decision on whether the COMELEC can proceed to implement the Deed of Sale need not hinge on the resolution of these issues for the following reasons:

          One, a legal defect in the proposed sale of the machines can only exist with respect to these technical issues, if there is a showing that the machines are not “fit for the purpose” of their intended use.[4]  Absent a showing that the machines cannot presently perform and cannot be made to perform in a way that satisfies the requirements of an Automated Election System (AES) as defined by Republic Act No. 8436, as amended — otherwise known as the Automated Election System Law (AES Law) — then the sale cannot be struck down on that legal point.

          Petitioners are not assailing the results of the 2010 elections.  They are not parties to any electoral protest involving the same.  Allegations regarding the failure of the machines to conform to the requirements of an acceptable AES are intrinsically relevant only to the various electoral protests currently lodged with the Presidential Electoral Tribunal[5] and the House of Representatives Electoral Tribunal.  The performance of the machines during the 2010 Elections will have an impact on this case only if petitioners can demonstrate that these defects (1) fail the technical requirements of an AES; and (2) were not and cannot be remedied.  We will avoid ruling on the first point so as not to prejudice the outcome of the electoral protests.  On the second point, however, we can already rule, and hereby rule, that petitioners have failed to prove it.  We will discuss this point in a later portion of this opinion.

          Two, assuming that the burden of proof to demonstrate the fitness of the machines has shifted to the COMELEC and Smartmatic-TIM, this burden has been adequately met by respondents.  We will discuss this in a later portion together with our discussion on the first point.  For now, let it suffice that the debate among the Members of the Court focused on the legal issues surrounding the option to purchase the PCOS machines; they did not consider the technical issues sufficiently determinative of the disposition of the various Petitions for reasons that will be evident in a later discussion. 

Preliminary Discussion on             the Context:  The Interface         Between Contract Law                   and Government Procurement Regulations in This Case

A.               The Treatment of Options, Extensions of Time for their Exercise, and their Revival  Under         Contract Law

Had the parties been both private entities, then there would have been either no legal dispute on the validity of the exercise of an option that was renewed after its expiry, or, the legal dispute would have been quite easy to resolve.  This is because our law on contracts is quite straightforward on this matter.  It is our government procurement laws and regulations that have complicated the legal issues we need to resolve.

First, the Civil Code is quite emphatic about respecting the autonomy of the wills of the parties:

            Art. 1306.  The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Among the stipulations that the parties can agree on is an “option” granted by one party in favor of the other (Art. 1324, Civil Code).  Samples of such contractually created options can be found in some articles of the Civil Code, such as:  (a)  an option to buy,  which is embedded in a lease of personal property (Art. 1485) and (b) sales on consignment in which the buyer has the option to return the goods or pay the price thereof (Art. 1502).

Second. A contract when validly executed has the legal effect of binding the party who has undertaken to give something or to render some service (Art. 1305). By “binding,” we mean that a legally enforceable right is created in favor of the person who is to receive the “thing” or the service.  This right has the force of law between the contracting parties (Art. 1159, Civil Code).

Conversely, if the person who possesses the right to demand the performance of the undertaking to give or to render a service, can demand the performance thereof, he or she can also waive the same.  This waiver has the effect of extinguishing the obligation.  A waiver is the abandonment or voluntary forfeiture of a right.  It operates in the same manner as a condonation or remission of a debt under Articles 1231(3), and 1270-1274 of the Civil Code.

Examples of valid waivers can be found in the following articles of the Civil Code:  (a) a waiver evidenced by the delivery of a document evidencing a credit (Art. 1271); (b) the waiver of a right to assail a voidable contract through an act ratifying the contract (Art. 1393); (c) the waiver of a condition in a sales contract (Art. 1545).

Third, if an option is conditioned on its exercise within a period, then this condition that consists in a “period” or a deadline for its exercise can itself be waived. In a contract of sale, for example, “where the obligation of either party . . . is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition.  (Art. 1545, Civil Code)”

Fourth, this waiver of a condition that consists in a deadline can be made by the party in whose favor the deadline was constituted. Under Article 1196 of the Civil Code, “[w]henever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances, it should appear that the period has been established in favor of one or of the other.” An option that expires on a fixed date is an obligation with a resolutory period that “take[s] effect at once, but terminate[s] upon arrival of the day certain.”  An offeror can also always withdraw an option under Article 1324 of the Civil Code, with the converse implication that he or she can always extend the period for the acceptance of the offer. 

Thus, an option to purchase exercisable within a fixed period, embedded in a lease contract, expires after that fixed period, because the lapse thereof is a resolutory condition that extinguishes the option to purchase.  Both parties can agree to waive the resolutory condition, however, in the form of an extension of the period for performance, under the very clear provisions of the Civil Code.  This accounts for the commonness of renewed or revived options in private commercial agreements, such as leases, sales, joint ventures, intellectual property rights contracts, etc.

The legal disputes that will arise in these situations would be easy to resolve.  Because both parties agreed to revive or renew an expired option, their agreement binds both of them; and neither can assail the agreement simply on the ground that the original option period has expired, and this extension agreement has the force of law between them.

That the parties have the ability to revive dead or terminated contracts is so basic a rule that it has consistently and implicitly been understood to be so by this Court.  In two injunction cases, the Court restated its understanding that a dead or terminated contract can always be revived or renewed by mutual agreement of the parties.[6]

The termination of a contract is not like the death of a natural being.   It is the will and the mutual understanding of the parties, rather than the form and solemnities, that prevail in contract interpretation.  Thus, a contract that on its face expires can, by the mutual contracting action of the parties, even be pronounced by the court to be continuing simply because the parties consider it to be so continuing.  As the eminent scholar on contracts put it:

“In the construction of an instrument, the intention of the parties is to be pursued. The true agreement of the parties may be proved, as against the terms and stipulations appearing in a written contract where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, is put in issue by the pleadings, or there is an intrinsic ambiguity in the writing. When the true intent and agreement of the parties is established, it must be given effect and prevail over the bare words of the written contract.”[7]

B.      The Treatment of Options, Extensions of Time for their Exercise, and their Revival Under Government Procure-ment Laws

Having laid down the premises for the intrinsic validity of the revival of expired options upon mutual agreement of the parties, we shall now need to examine whether such mutual agreement entered into by the government as vendee contravenes “law, morals, good customs, public order, or public policy.”

It has been alleged by petitioners that the Deed of Sale contravenes the law, because it violates the mandatory public bidding provisions of the Government Procurement Reform Act (GPRA).[8] 

To begin with, we will immediately dispose of an isolated claim made in one of the Petitions that the option to purchase in the 2009 Contract is a void arrangement in a contract for public procurement.

We have already clarified that an option to purchase leased equipment is a recognized stipulation by the Civil Code itself.  This legal situation is no different when the purchaser is a government entity.

Lease contracts with the government are covered by the GPRA.[9] Although there is no express provision on options to purchase in a lease contract in the GPRA, its implementing rules specifically point to other permissible variations of leases, including lease-purchase, lease-to-own and other similar arrangements. Section 46 of the GPRA/IRR holds thus:

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 the Act and this IRR.  Lease may also cover lease purchases or lease-to-own and similar variations.[10]  (Emphasis supplied.)

Options to purchase in leases are implicitly recognized as valid by the GPRA.  In response to a query from the Armed Forces of the Philippines, it has been opined by the Government Procurement Policy Board — an agency created under the GPRA — that a lease-to-own arrangement over military motor vehicles is valid and subject to the rule on competitive bidding:

Whether Section 46 of the IRR-A of R.A. 9184 is applicable to the purchase of motor vehicles under lease-to-own arrangement.

While lease-to-own of motor vehicles is not contemplated under Section 46 of the IRR-A which specifically relates to construction and office equipment, Section 5 (k) of the IRR-A expressly defines goods as including “related” or “analogous services,” such as, lease or purchase of office space, media advertisements, health maintenance services, and other services essential to the operation of the procuring entity. Undoubtedly, motor vehicles are essential in the operations of the procuring entity. In addition, a lease-to-own arrangement is a variant of lease which involves procurement as defined under Sections 4 and 5 (p) of the IRR-A.

Based on the foregoing, the procurement of motor vehicles under lease-to-own arrangement is subject to the general rule of competitive bidding under Section 5 (k) in relation to Section 4 of the IRR-A.[11] 

In the same manner, an option to purchase is a recognized alternative for any government lease of goods in the international market under the World Trade Organization Agreement on Government Procurement:

This Agreement applies to procurement by any contractual means, including through such methods as purchase or as lease, rental or hire purchase, with or without an option to buy, including any combination of products and services.[12]   (Emphasis supplied.)

An option to purchase is even advised in one jurisdiction as a preferable condition for any lease of equipment. In the United States, the Federal Acquisition Regulation System provides that “[i]f a lease is justified, a lease with option to purchase is preferable.”[13]

Next, as in any other ordinary private contract, the procuring entity is permitted to allow an extension in the performance of a government contract,which includes the option to purchase.

The GPRA IRR recognizes allowable delay, or extension of time, for the delivery of purchased goods:

Subject to the conditions set forth below, amendments to order may be issued at any time by the procuring entity concerned. If any such order increases or decreases the cost of, or thetime required for executing any part of the work under the original contract, an equitable adjustment in contract price and/or delivery schedule shall be mutually agreed upon between the parties concerned, and the contract modified in writing.[14]   (Emphasis supplied.)

Parties to a government contract are also free to amend the government contract even after the award and during the performance of the contract. In the procurement of goods, supplies or materials, the government can issue amendments to its order at any time, subject to the consent of the awarded supplier and to the agreement being reduced into writing. Of course, as jurisprudence would explain, such amendment must not be material as to affect or alter the terms of the original competitive bidding.

The same implementing rules of the GPRA also recognize instances, especially in infrastructure projects, in which there is a justification for allowing the contracting private party some extension of time to perform its contractual obligations:

Should the amount of additional work of any kind or other special circumstances of any kind whatsoever occur such as to fairly entitle the contractor to an extension of contract time, the procuring entity shall determine the amount of such extension; xxx Upon receipt of full and detailed particulars, the procuring entity shall examine the facts and extent of the delay and shall extend the contract time completing the contract work when, in the procuring entity’s opinion, the findings of facts justify an extension.[15]

It is then left to the other contracting party whether to accept the explanations for the delay and allow an extension or to refuse the explanation.[16]

In Cities Service Helex, Inc., v. US,[17] the U.S. government was pronounced by the Court as possessing the right to waive the expiry of contracts.Although the government earlier terminated a contract for the supply of helium due to an alleged material breach, it continued to accept and pay for the helium given by the complaining corporations.  The United States Court of Claims therein ruled that a material breach of the contract only gave the injured party a right to terminate the agreement, but would not prevent the latter, meaning the government, from waiving the right to act on the breach and thus        continue with the contract performance, if accepted by the other party:

A material breach does not automatically and ipso facto end a contract. It merely gives the injured party the right to end the agreement; the injured party can choose between canceling the contract and continuing it. If he decides to close the contract and so conducts himself, both parties are relieved of their further obligations and the injured party is entitled to damages to the end of the contract term (to put him in the position he would have occupied if the contract had been completed). If he elects instead to continue the contract, the obligations of both parties remain in force and the injured party may retain only a claim for damages for partial breach.[18]

          In other words, pursuant to the dominance of the will of the parties in Philippine contract law, and as illustrated in the U.S. procurement case above, the life of a government procurement contract depends on the will of the parties, and the terms on the face of the contract can be superseded by the contrary exercise of that will.

          In a United States case that will be discussed subsequently, even unexercised options can be availed of after the lapse of the original period, and a losing bidder cannot assail the belated exercise of that option.

FACTUAL ANTECEDENTS

Respondent COMELEC conducted a competitive bidding for the automated election system for the 2010 national and local elections pursuant to its authority to implement an automated election system under Republic Act No. 8436, as amended, otherwise known as the Automated Election System Law (AES Law),[19] which states:

SEC. 5. Authority to Use an Automated Election System. - To carry out the above-stated policy, the Commission on Elections, herein referred to as the Commission, is hereby authorized to use an automated election system or systems in the same election in different provinces, whether paper-based or a direct recording electronic election system as it may deem appropriate and practical for the process of voting, counting of votes and canvassing/ consolidation and transmittal of results of electoral exercises...In succeeding regular national or local elections, the AES shall be implemented nationwide.

xxx             xxx             xxx

SEC. 12. Procurement of Equipment and Materials. - To achieve the purpose of this Act, the Commission is authorized to procure, in accordance with existing laws, by purchase, lease, rent or other forms of acquisition, supplies, equipment, materials, software, facilities and other services, from local or foreign sources free from taxes and import duties, subject to accounting and auditing rules and regulations. With respect to the May 10, 2010 elections and succeeding electoral exercises, the system procured must have demonstrated capability and been successfully used in a prior electoral exercise here or abroad. Participation in the 2007 pilot exercise shall not be conclusive of the system’s fitness...

On 18 March  2009, the COMELEC issued a Request for Proposal (RFP)[20] for the 2010 Poll Automation Project which consisted of the following:

Component 1: Paper-Based Automated Election System (AES)

1-A. Election Management System (EMS)

1-B. Precinct Count Optical Scan (PCOS) System

1-C. Consolidation/Canvassing System (CCS)

Component 2: Provision for Electronic Transmission of Election Results using Public Telecommunications Network

Component 3: Overall Project Management

The prospective bids were described in Part II of the RFP on “Intent” as bids for a lease with option to purchase:

The Commission on Elections (COMELEC), through its Bids and Awards Committee (BAC), is currently accepting bids for the lease, with an option to purchase, of an automated election system (AES) xxx. (Emphasis supplied)

The terms of the option to purchase (OTP) were specified in Part V of the RFP on “Other Specifications” as follows:

28. The offer shall be for a one-time lease basis for Component 1-A, 1-B and 1-C.

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. (Emphasis supplied.)

Only seven bidders submitted bid proposals, of whom only two were able to satisfy the eligibility requirements and thus qualified for further evaluation of their technical and financial proposals. The technical proposals of the two remaining complying bidders — namely, Indra Sistemas/Strategic Alliance Holdings/Hart InterCivic (Indra) and Smartmatic-TIM — were declared qualified. However, upon opening of the financial proposals, only Smartmatic-TIM’s bid for the required 82,200 PCOS machines was qualified. Indra’s bid was disqualified, because it was only for 57,231 PCOS machines.[21] A comparison of the two bids is shown below:[22]

Item	Budget Estimate	Smartmatic-TIM’s Bid (for 82,200 units)	Indra’s bid (for 57,231 units)
Component 1	₱10,923,618,400.00	₱6,891,484,742.96	₱10,923,307,793.00
·  1-A (EMS) and 1-B            (PCOS)	₱8,220,000,000.00	₱4,187,876,280.00	₱8,220,000,000.00
·  1-C (CCS)	₱140,000,000.00	₱139,999,999.86	₱140,000,000.00
·  Services and Others	₱1,563,618,400.00	₱1,563,618,399.00	₱1,563,618,400.00
·  Ballots	₱1,000,000,000.00	₱999,999,064.10	₱999,689,393.00
Component 2	₱200,000,000.00	₱199,999,997.51	₱200,000,000.00
Component 3	₱100,000,000.00	₱99,999,999.00	₱100,000,000.00
Total Amount of Bid	₱11,223,618,400.00	₱7,191,484,739.48	₱11,223,307,793.00

On May 26, 2009, the COMELEC’s Special Bids and Awards Committee (SBAC) issued Omnibus SBAC Resolution No. 09-007 declaring Smartmatic-TIM “as the bidder that has submitted the single complying calculated bid.”

After Smartmatic-TIM complied with post-qualification proceedings, COMELECthereafter entered into a lease agreement (the 2009 AES Contract)[23] with the former. Under the 2009 Contract, Smarmatic-TIM would lease its PCOS machines to public respondent and render services in connection with their operation. One of the features of this agreement relevant to the instant Petitions was the grant to respondent COMELEC of an OTP vis-à-vis the machines leased by Smartmatic-TIM,[24] was an option to be exercised on or before 31 December 2010:

ARTICLE 4

CONTRACT FEE AND PAYMENT

xxx                  xxx                  xxx

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 (Php2, 130,635,048.15) as contained in the Financial Proposal of the joint venture partners- SMARTMATIC and TIM.

xxx                  xxx                  xxx

ARTICLE 6

COMELEC’S RESPONSIBILITIES

xxx                  xxx                  xxx

6.6 COMELEC shall notify the PROVIDER on or before 31 December 20 10 of its option to purchase the Goods as listed in Annex “L.”

Aside from the option to purchase, there are other major prestations in the 2009 Contract. These include the purchase of ballots; the provision of allied support services; the requirement that Smartmatic-TIM furnish a performance security as well as the warranties of Smartmatic-TIM that all the goods covered would comply with COMELEC’s specifications and that the former will provide all software/firmware upgrades or replacements of any defective components or entire units. There is also a provision reserving the right of the COMELEC to purchase goods on repeat order basis whenever the need arises; and to issue variation orders to cover any increase in quantities, including the introduction of new work items as a result of a mutually agreed change of plans of the parties.

On 10 May 2010, the synchronized national and local elections were held using the automated election system of Smartmatic-TIM, including its 82,200 PCOS machines.

After the 2010 elections and prior to the expiration of the period, respondent COMELEC on 23 September 2010 partially exercised its option under the 2009 Contract and purchased 920 PCOS machines for the 13 November 2010 special elections to be conducted in Basilan, Lanao del Sur and Bulacan.[25]

In November 2010, COMELEC Chairperson Jose Melo tendered his resignation effective 31 January 2011, or four years ahead of his scheduled retirement. Not long after, in February 2011, Commissioners Nicodemo Ferrer and Gregorio Larrazabal would also retire.

On 18 December 2010, respondent Smartmatic-TIM reminded public respondent COMELEC of the imminent expiration of the option period, but nevertheless granted the latter its first three-month extension from 31 December 2010 to 31 March 2011.[26] However, private respondent received no response from COMELEC regarding its extension.

In the early part of 2011, Atty. Sixto S. Brillantes, Jr., Atty. Christian Robert S. Lim and Mr. Augusto Lagman were appointed as Chairperson and Members, respectively, of the COMELEC, following the retirement of its previous members. 

On 23 March 2011, Smartmatic-TIM again reminded the COMELEC of the option period and the impending expiration of the extension. It also informed the COMELEC that there would be a 10% price increase from the 2009 Contract price that was to be maintained until 30 September 2011.[27]

On 23 September 2011, Smartmatic-TIM wrote a follow-up letter to inquire about the status of the COMELEC’s decision on the OTP and reiterated the former’s commitment to extend the period to exercise the OTP until 31 December 2011, but with a 20% price increase.[28]

On 28 December 2011, a few days before the end of 2011, Smartmatic-TIM again followed up COMELEC’s decision on the OTP.[29] Aside from extending the period for another three months or until 31 March 2012, Smartmatic-TIM dropped the price increase it had imposed in previous extensions,[30] and outlined the advantages and benefits to be obtained by COMELEC from exercising the OTP.

The extensions made by Smartmatic-TIM are summarized as follows:

Extension	Start of the Period	Expiry of the Period	Date of Smartmatic-TIM Letter Extending the Period	Price Escalation
(Original Option Period)		(31 December 2010)
First Extension Letter	01 January 2011	31 March 2011	18 December 2010	No
Second Extension Letter	01 April 2011	30 September 2011	23 March 2011	Yes (10% price increase from the original 2009 price for 75,000 PCOS units. The price per unit is therefore increased from          ₱20,049.58 to ₱22,054.54)
Third Extension Letter	01 October 2011	31 December 2011	23 September 2011	Yes (20% price increase from the original 2009 price. The price per unit is therefore increased from            ₱20,049.58 to ₱24,059.50)
Fourth Extension Letter	01 January 2012	31 March 2012	28 December 2011	No

Meanwhile, the General Appropriations Act of 2012 was signed into law.[31] Although the COMELEC initially proposed a budget of ₱10,436,300,399for the procurement of the 2013 AES through a lease, it received an approved budget of only ₱7 billion for this particular item. According to the COMELEC, out of this approved budget for 2012, only ₱2.2 billion is available for purposes of securing an AES for the 2013 national and local elections, because the balance would need to be allocated to fixed expenses to run the 2013 elections.[32]

Citing the budgetary constraints, the COMELEC En Banc promulgated assailed Resolution No. 9376 dated 21 March 2012 and exercised the OTP under its 2009 Contract with Smartmatic-TIM, subject to three conditions:

NOW, THEREFORE, the Commission on Elections, by virtue of the powers vested in it by the Constitution, the Omnibus Election Code, Republic Act No. 9369 and other election laws, and after finding the exercise of the Option to Purchase most advantageous to the government, RESOLVED, as it herebyRESOLVES, to exercise its Option to Purchase the PCOS and CCS hardware and software in accordance with Section 4.3, Article 4 of the AES contract between the Commission and SMARTMATIC-TIM in connection with the May 10, 2010 National and Local Elections, subject to the conditions that:

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

2.                  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

3.                   All other services related to the 2013 Automated Election System shall be subject to public bidding. (Emphasis supplied.)

Commissioners Lim and Lagman dissented from the above-quoted Resolution. In his Additional Arguments for Dissent, Commissioner Lagman cited the failure of Smartmatic-TIM to complete the fixes and improvements required from it and alleged that the critical issues with the PCOS hardware and software had not yet been completely resolved, contrary to the claims of the majority of the Commissioners.[33]  In response, Chairperson Brillantes argued that the alleged bugs in the software relied upon by Commissioner Lagman were “easily identifiable and definitely correctible.”[34]

On 30 March 2012, both respondents mutually agreed to extend the period for the exercise of the OTP by the COMELEC to 31 March 2012.[35] On even date, COMELEC duly exercised the extended option and entered into a Deed of Sale for the purchase of the PCOS machines and CCS hardware and software for a total amount of ₱1,833,274,457.09, which was within the COMELEC’s approved budget of ₱2.2 billion.[36] The extension of the period for the OTP[37] and the exercise of the option[38] were both duly approved by the COMELEC En Banc.

Several days thereafter, petitioners questioned the validity of the exercise by the COMELEC of its OTP under the 2009 Contract with respondent Smartmatic-TIM by filing the instant consolidated Rule 65 Petitions[39] with this Court.

          In essence, petitioners seek the nullification of the Deed of Sale executed by the COMELEC and Smartmatic-TIM for the acquisition of the PCOS machines and CCS hardware and software on the ground that the option period expired way back on 31 December 2010 without COMELEC timely exercising the OTP. Thus, the purchase of the PCOS machines after the expired period should supposedly be deemed as a new public procurement, which would require competitive bidding in compliance with public procurement laws. According to petitioners, the absence of a bidding process for the purchase of the PCOS machines from Smartmatic-TIM constituted grave abuse of discretion on the part of COMELEC. Petitioners likewise assailed the technical capabilities of the purchased PCOS machines, since these purportedly failed to comply with the minimum requirements of an automated election system under the AES Law.

DISCUSSION OF THIS WRITER ON

THE SUBSTANTIVE ISSUES

I

Do the Unassailed Public Bidding, Award of Contract and 2009 Contract in Favor of Smartmatic-TIM also Provide Legal Cover for the Deed of Sale as to Exempt It from the Requirement of a Separate Public Bidding?

          Several observations are in order.  There are at least eight (8) distinct prestations in the 2009 Contract:  (1) lease of goods, (2) purchase of ballots, (3) provision of allied support services, (4) payment of contract fee, (5) option to purchase, (6) provision of performance security, (7) observance of warranties, and (8) provisions on repeat orders and variation orders.

          It would be the height of absurdity to posit that the conduct of eight public biddings is required for each of these eight prestations to be valid under the GPRA. Instead, the only sensible position is that the 2009 Contract is a unitary contract, and that all of its provisions have the benefit of legal cover provided by the successful and unassailed public bidding conducted on 04 May 2009 and the consequent award of contract in favor of Smartmatic-TIM.

          It has been posited, however, that the OTP, which is the fifth prestation identified above, expired; thus, there is absolutely no option that can be exercised anymore.  In other words, once an option to purchase expires in any government contract, it allegedly cannot be revived anymore without violating the GPRA.  To understand the legal impact of this proposition, we need to analyze the prestations involved in the 2009 Contract.  Below is a table showing the major prestations and their respective expiry dates or conditions:

 Table of Expiry of Prestations of the 2009 Contract

A.       By Express Contract Prestation Provisions		Expiration
1.  Lease of Goods	1-A: Election Management System
	1-B: Precinct Count Optical Scan	Delivery, Testing and Acceptance of the PCOS machines
	1-C: Consolidation/Canvassing System	Delivery, Testing and Acceptance of the PCOS machines
	2: Electronic Transmission
	3: Over-all Project Management	Delivery of Over-All Project Management Report
2. Purchase of Ballots		Print and delivery of ballots
3. Allied Support Services		Expiration of the Contract
4. Contract Fee (Schedule and Mode of Payment)		Within 30 days from receipt of Final Report
5. Option to Purchase		On or before 31 December 2010
6. Performance Security		To be released within 7 days from delivery of the Over-All Project Management Report after successful conduct of the 2010 Elections
7. Warranties		If PCOS machines are purchased, 10 years; if CCS hardware and software are purchased, 3 years.
8. Repeat Order and Variation Orders		Expiration of the Contract
B.     By the Provisions of the Civil Code on Sales
Warranty of fitness for purpose (Art. 1562, Civil Code)		Intended lifespan of machines
Warranty against hidden defects (Art. 1547(2), Civil Code)		10 years from delivery (Art. 1144, Civil Code)
C.                 By the Provisions of the GPRA IRR (2009)
1.      Performance security (Secs. 39.4 & 39.5)		Issuance of final Certificate of Acceptance
2.     Warranty for non-expandable supplies (Sec. 62.1) (GPRA  IRR (2009))		Minimum of 1 year

It would appear that the prestation on the contract fee has yet to be performed, as Smartmatic-TIM still has an outstanding claim.[40] Moreover, the performance security has not been released.[41] In other words, the 2009 Contract, as a totality, is still very much alive.

An American case, C.M.P., Inc. d/b/a/ C.M.P. Corporation v. The United States,[42]  illustrates why options should be considered as an intrinsic part of the mother contract, and why an original procurement contract with an option should be considered as unitary:

On February 8, 1985, the procurement division of the Department of Commerce issued an Invitation for Bids (IFB) No. 50–SOL–61665 to procure maintenance services for the Bureau of the Census for Government-owned IBM data processing equipment located in Suitland, Maryland. The IFB was prepared from the automated document preparation system of the Department of Commerce, and embodied the standard clauses utilized for the various procurements of that Department.

Prices for maintenance services for 14 listed items of equipment were solicited, to be provided during an initial period, with options to the Government to extend for additional periods. The IFB specified that the initial term of contract for services of a continuing nature such as maintenance would extend to September 30 of the award year, and that additional term periods were to be at the Government's option. Special contract provision H.1 provided, in part:

As used in this contract, the phrase “Term of the Contract” refers to that period of time for which this contract is valid for the purpose of the Government exercising certain unilateral rights, such as exercising options for increased quantity. If this contract results in services of a continuing nature, as opposed to one time services, such as but not limited to transportation or installation, then the term of contract shall be from the date of contract award through September 30 of the Government's fiscal year in which award is made, subject to the Government's unilateral option to extend the term of contract. Services of a continuing nature may include, but are not necessarily limited to lease/rent of equipment, license or lease of software, maintenance, or on-going system support.

The combination of initial and extended terms was limited to 42 months. Special contract provision H.2 provided:

a. This contract is renewable at the prices stated elsewhere in the contract, at the option of the Government, by the Contracting Officer giving written notice of renewal to the Contractor by the first day of each fiscal year, or funded portion thereof, of the Government, or within 30 days after funds for that fiscal year become available, whichever date is the later; provided that the Contracting Officer shall have given preliminary notice of the Government's intention to renewal at least 30 days before this contract is to expire. Such a preliminary notice of intent to renew shall not be deemed to commit the Government to renewals. If the Government exercises this option for renewal, the contract as renewed shall be deemed to include this option provision. However, the total duration of this contract, including the exercise of any options under this clause shall not exceed 42 months from the first day of service(s) covered hereunder.

Provisions in the IFB relative to evaluation of bids explained the policy reasons for use of the option method of contracting and gave notice that award would be based on the price for all option periods. Section M(a) stated, in part:

This solicitation is being conducted on the basis that the known requirements extend beyond the initial contract period to be awarded, but, due to the unavailability of funds including statutory limitations on obligation of funds, the option(s) cannot be exercised at the time of award of the initial contract. There is a reasonable certainty that funds will be available thereafter to permit exercise of the options. Because realistic competition for the option periods is impracticable once the initial contract is awarded, it is in the best interest of the Government to evaluate options in order to eliminate the possibility of a “buy-in.”

Section M(c)(2) provided, in part:

Evaluation of Prices. Offers will be evaluated for purpose of award by adding the total price of all optional periods to the total price for the initial contract period covering the initial systems or items. These prices will be adjusted by the appropriate discount factors shown in this Section M. Evaluation of option prices will not obligate the Government to exercise the options.

Section M(f) contained the following notice:

failure to exercise an option(s) shall not obligate the Government to any charges other than the contract price including exercised options.

The IFB required price information to be supplied by means of completed unit price tables and by completion of a pricing questionnaire. There were two tables: (1) pricing tables for equipment to be maintained and (2) a table for optional extended maintenance service and per-call monthly rates for service outside the designated principal period of maintenance (PPM). PPM was a defined term:

Any nine consecutive hours per day, including an official meal period not to exceed one hour per day, between the hours of 7:00 AM and 6:00 PM, Monday through Friday, excluding holidays observed at the installation.

The unit pricing tables listed and described each item of equipment, designated the number of units and contained space for insertion of a price for each item in columns. One column was headed: “Monthly Unit Price PPM” and the other column was headed: “Monthly Unit Prices Extended PPM.”

A synopsis of the solicitation was published in Commerce Business Daily on December 21, 1984, and 14 companies requested copies of the IFB; eight companies, including plaintiff, submitted bids. At bid opening, on March 11, 1985, preliminary comparison of the pricing tables indicated that Sorbus, Inc., with a bid of $3,076.23 per month, was the low bidder. Sorbus, Inc. was announced as the low bidder at that time. Plaintiff's representatives at the bid opening complained that its bid had been erroneously interpreted and that its bid was $2,975 per month, which made it the actual low bidder. Plaintiff was told to make a written complaint.

On March 22, 1985, plaintiff's president, by letter, explained the computations on plaintiff's unit pricing tables and confirmed its contention that its bid when properly analyzed was for $2,975 per month for the equipment listed. Thereafter there were discussions between representatives of plaintiff and defendant, and plaintiff's contentions were considered in the Commerce Department's general counsel's office.

Plaintiff had completed the pricing tables in a manner that was not clear on the face of the tables as submitted, and in a manner which was unexpected by defendant. None of the other bidders had submitted price information that was calculated on the same basis that plaintiff had used.

During July 1985, the contracting officer reviewed the IFB and the bids that had been submitted by plaintiff and Sorbus, Inc. The contracting officer concluded that it would be inappropriate and unfair to accept plaintiff's explanation of the manner in which its bid had been calculated or to permit plaintiff to correct the bid it had submitted.

At argument, defendant conceded that the agency had recomputed column 2 (Monthly Unit Prices Extended PPM) for all bids, for the reason that the IFB possibly was ambiguous as to that column. Plaintiff does not challenge defendant's authority to make such recomputations. In this recalculation, the contracting officer found that, on the basis of the information in column 1 of plaintiff's table, the total monthly on-call maintenance cost submitted by plaintiff was $6,425 per month. The recalculation of the bid of Sorbus, Inc. confirmed the $3,076.23 per month that company had submitted, and that Sorbus, Inc. had submitted the low bid.

On July 31, 1985, contract No. 50–YABC–5–66031 was awarded to Sorbus, Inc.

DISPOSITION

Plaintiff does not challenge the award to Sorbus, Inc. of a contract under the IFB for the initial period, April 1—September 30, 1985. Plaintiff seeks to invoke the equitable jurisdiction of this court to enjoin the exercise of the option to procure maintenance services from Sorbus, Inc., during the forthcoming fiscal year, October 1, 1985, through September 30, 1986. Plaintiff's premise is that, as to the period commencing October 1, 1985, until the option is exercised, no contract is in being between defendant and Sorbus, Inc., and, accordingly, that a contract had not been awarded on September 6, 1985, when plaintiff filed its complaint.

Plaintiff argues that an option is a contract in which one of the contracting parties holds an inchoate power to bring into being a second contract through acceptance of an offer that contractually has been rendered irrevocable under certain conditions.

The option that the Government may exercise for the period commencing October 1, 1985, according to plaintiff, would give rise to a new contractual relationship between the parties during the later performance period. Plaintiff argues that, since no contractual relationship presently exists between Sorbus, Inc. and the Government for that later period, plaintiff's claim qualifies as a contract claim brought before the contract is awarded within the meaning of 28 U.S.C. § 1491(a)(3).

Plaintiff misconceives the nature of the contractual relationship that was created between defendant and Sorbus, Inc. on July 31, 1985. That contract includes an initial term of computer maintenance that is to expire on September 30, 1985, and it includes provision for renewals of 1 year, with a maximum of 42 months from July 31, 1985. The options are essential parts of the total contractual relationship and are in no sense severable from the initial term as far as the obligations of the parties are concerned. Sorbus, Inc. is subject to an obligation to provide maintenance services at the contract rates for a maximum of 42 months. Concurrently, the defendant has a vehicle which assures it of those services at those prices if it is in its best interest.

The contract that was awarded was the contract that was intended to result from the IFB on which plaintiff submitted its bid. The exercise of an option in an existing contract is not equivalent to the award of a new and different contract; it is an element in the continuation of a unitary contract package. The decision to exercise an option is a matter of contract administration, when done in compliance with the requirements of the federal acquisition regulation. 48 C.F.R. § 17.207.  (Emphasis supplied)

xxx                  x x x                xxx

In this case, the contract that controls the exercise of this court's equitable jurisdiction was awarded on July 31, 1985, well before the complaint was filed on September 6, 1985. For purposes of section 1491(a)(3), the exercise of an option in an existing contract is not the equivalent of the award of a new contract.

The use of option clauses in IFB’s and contracts accords with Government policies and procedures. The use of options is authorized in recognition of the Government’s need in certain service contracts for continuity of operation where there is an anticipated need for similar services beyond a first contract period. 48 C.F.R. § 17.202(d). The use of options is particularly apt and is frequently used in Government contracts to obtain maintenance services. x x x

          If such contracts as the above U.S. government  contract is unitary with all its various parts, and the exercise of an option therein is not to be considered as a new contract ─ especially to benefit government during periods when it may not have a budget to immediately procure the intended service ─ then there is absolutely no reason why the OTP herein should be denied the legal cover provided by the successful public competitive bidding conducted in 2009.  It is false, artificial and too shrill an argument to say that an expired clause in the 2009 Contract will immediately deny government a procurement advantage it might otherwise have. 

There are two other related arguments that seek to contradict our position that the OTP is part of a unitary contract that need not be subjected to a new public bidding, neither of which is correct.

One, according to petitioners, the Deed of Sale is a new contract requiring a new public bidding.

Petitioners argue that the Deed of Sale between COMELEC and Smartmatic-TIM is a new contract with a new object and must therefore undergo another bidding in compliance with the GPRA.[43] But the Deed of Sale does not contain a new object, as it is in fact pursuant to the option under the 2009 Contract clearly contemplated by the parties and included as an integral part thereof, precisely in accordance with the doctrine in the C.M.P. case.

In claiming that a new contract is being entered into ─ as opposed to considering the transaction as merely giving effect to a mere subpart of the old contract or as a “matter of contract administration” ─ petitioners are in effect saying that the aforesaid 2009 Contract has been novated, and that a new contract has replaced it. This argument is plainly wrong.

          There are two kinds of novation. There is express novation when it is so declared in unequivocal terms[44] while there is implied novation when there is complete or substantial incompatibility between two agreements.

In the present case, there is no express novation, since the Deed of Sale does not state in clear terms that the obligations under the 2009 Contract are extinguished and in lieu thereof the Deed of Sale will be substituted. On the contrary, the Deed of Sale expressly states that it is being entered into pursuant to the OTP under the 2009 Contract:

WHEREAS, after public bidding, the BUYER and the SELLER had executed on 10 July 2009 a Contract for the Provision of an Automated Election System for the May 10, 2010 Synchronized National and Local Elections (“AES Contract), a copy of which is hereto attached by way of reference as Annex “A” hereof; …

 WHEREAS, Article 4.3, among others, of the AES Contract granted the BUYER the option to purchase the hardware and software listed in Annex ‘L” of the AES Contract, including one (1) lot of EMS Machine, for the total option price of Two Billion One Hundred Thirty Million Six Hundred Thirty Five Thousand Forty Eight Pesos and Fifteen Centavos (Php 2,130,635,048.15); …

In fact, the Deed of Sale even incorporates, by way of reference, Articles 4 and 8 of the 2009 Contract; and the warranties thereunder continue to remain in full force and effect:

The warranties agreed upon by the parties under Articles 4 and 8 of the AES Contract, including the limitations on warranties under Article 8.5, shall continue to remain in full force and effect. Articles 4 and 8 of the AES Contract are incorporated by way of reference. …[45]

Neither is there an implied novation, since the Deed of Sale is not incompatible with the 2009 Contract. Changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions.[46]

Neither is there substantial change in the principal conditions resulting in a novation. Jurisprudence has consistently held that a mere extension or renewal of a period does not novate a contract.[47]  What is sought to be performed is still the old contract or, more specifically, a part of it. In other words, the option herein is merely being allowed to be given effect vis-à-vis the mother contract or the 2009 AES Contract, which has not been novated and still subsists. Therefore, there is no new contract. Consequently, there is no need for a new bidding.

In some cases, the Court deemed changes that were considerably more substantial than a mere extension of time as insufficient to create incompatibility that would result in an implied novation. For instance, additional interest was not deemed sufficiently substantial to create incompatibility.[48]  

Two, petitioners allege that the Deed of Sale is a substantial amendment of the 2009 Contract that requires a new public bidding.

Amendments of government contracts, per se, are not prohibited.  It is when an amendment is so substantial as to effectively alter the terms of the bid that the amendment can be struck down if it is not covered by a separate public competitive bidding.  Public biddings would not be competitive if a bidder, after winning the contract, can abruptly and substantially change the original parameters of its obligations under the government contract, to the prejudice of the losing bidders. Otherwise, nothing would prevent unscrupulous bidders from lowballing their bids and promising the world, only to attempt to change the terms of the contract midstream after the government has awarded them the contract.  

The logic of this principle was well-discussed in the seminal case Agan, Jr., v. PIATCO.[49] The Court struck down the 1997 Concession Agreement between the government and the Philippine International Airport Terminals, Co. (PIATCO), because the amendments made to the government contract for the construction of the Ninoy Aquino International Airport International Passenger Terminal III were substantial. These changes included new terms and conditions that provided financial benefit to PIATCO, which could have altered the technical and financial offer of the other bidders had they known that such terms were available. The amendments to the originally bidded contract proposal included modification of the public and non-public utility revenues that may be collected by PIATCO and the inclusion of a direct guarantee by the Republic of the liabilities of PIATCO in case the latter defaulted on them. The Court, through then Justice Reynato S. Puno, succinctly ruled that any substantial amendment to a government contract would contravene the very rationale for open and competitive bidding and would result in turning the exercise into a farce:

An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of application of the procedural rules and regulations imposed by the relevant government agency, but more importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in any material respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning bidder may modify the contract and include provisions which are favorable to it that were not previously made available to the other bidders.[50]  (Emphasis supplied.)

In Information Technology Foundation of the Philippines v. COMELEC,[51] the Court was confronted with a petition to cancel a billion-peso contract entered into by COMELEC with Mega-Pacific for, oddly enough, the automation of the counting and canvassing of the ballots in the 2004 elections. The Court found that COMELEC awarded the contract to Mega-Pacific with inexplicable haste despite the latter’s non-participation in the public bidding process, and that it had even failed to adequately qualify under COMELEC’s own financial, technical and legal requirements. In striking down the contract with Mega-Pacific, the Court ruled that COMELEC violated the policy on public biddings, especially when the latter allowed the winning bidder to alter the contract:

At the very outset, the Court has explained that Comelec flagrantly violated the public policy on public biddings (1) by allowing MPC/MPEI to participate in the bidding even though it was not qualified to do so; and (2) by eventually awarding the Contract to MPC/MPEI. Now, with the latest explanation given by Comelec, it is clear that the Commission further desecrated the law on public bidding by permitting the winning bidder to change and alter the subject of the Contract (the software), in effect allowing a substantive amendment without public bidding.

This stance is contrary to settled jurisprudence requiring the strict application of pertinent rules, regulations and guidelines for public bidding for the purpose of placing each bidder, actual or potential, on the same footing. The essence of public bidding is, after all, an opportunity for fair competition, and a fair basis for the precise comparison of bids. In common parlance, public bidding aims to “level the playing field.” That means each bidder must bid under the same conditions; and be subject to the same guidelines, requirements and limitations, so that the best offer or lowest bid may be determined, all other things being equal.

Thus, it is contrary to the very concept of public bidding to permit a variance between the conditions under which bids are invited and those under which proposals are submitted and approved; or, as in this case, the conditions under which the bid is won and those under which the awarded Contract will be complied with. The substantive amendment of the contract bidded out, without any public bidding — after the bidding process had been concluded — is violative of the public policy on public biddings, as well as the spirit and intent of RA 8436. The whole point in going through the public bidding exercise was completely lost. The very rationale of public bidding was totally subverted by the Commission.[52]

          In sharp contrast, the extension of time for the exercise of the purchase option under the 2009 Contract is not a substantial amendment that would render the other qualifying bidders disadvantaged.  The issue of substantial amendment of the awarded contract for the AES can be framed in this wise: would stretching the period for the COMELEC to exercise the OTP from 31 December 2010 to 31 March 2012 have given an unfair advantage in favor of Smarmatic-TIM and unduly prejudiced the other qualifying bidders?  The answer is no. 

In this particular case, the period for exercising the purchase option in the lease arrangement is insignificant, as it does not materially promote the position of the winning bidder vis-à-vis that of the other bidders.  In fact, petitioners conceded that, had the alteration of the period been mutually agreed upon before the original deadline set in the 2009 AES Contract, no legal issue would have arisen:

JUSTICE ABAD

Since that option to purchase is part of the lease agreement awarded as a result of competitive bidding, why should the exercise of that option still require competitive bidding?

ATTY. ESPEJO

Because the option has expired, Your Honor.

JUSTICE ABAD

But supposing it was extended, the option is validly extended, it would be alright?

ATTY. ESPEJO

The extension must be in accordance with the procurement law. In other words, it must refer to the same subject matter.

JUSTICE ABAD

Well yes, assuming that it is done properly, would the agreement to lease with option to purchase be valid?

ATTY. ESPEJO

It will be valid, Your Honor.[53] (Emphasis supplied)

The above exchange only emphasizes the nature of the extension of the period as one that is not an intrinsically prohibited amendment as would amount to a substantially modified contract.   Despite the lapse of the original OTP period and the delay in the exercise of the purchase option by the COMELEC, Smartmatic-TIM not only allowed the extensions but maintained the same purchase price the latter had originally bid out. Hence, Indra, the other qualifying bidder, cannot claim unfair treatment, since it could not have offered superior price terms based on its submitted bid in 2009.   Smartmatic-TIM did not insist on a higher purchase price from what was originally set in the 2009 Contract, which was pegged at ₱2,130,635,048.15.[54] Under the Deed of Sale,[55] COMELEC would only be paying for₱1,833,274,457.09 for the remaining units (minus the 920 units earlier purchased and those that have been lost or have become unserviceable), subject to a hardware acceptance test.[56]

If any disadvantage resulted from the extension of the OTP period, it was against the interest of the winning bidder, Smartmatic-TIM. Allowing the COMELEC to vacillate in its decision on whether to exercise the OTP was not without financial cost to Smartmatic-TIM. From 01 January 2011 to 30 March 2012, the latter shouldered the costs of storing and maintaining the PCOS machine units.  It did not pass on these costs during the period of COMELEC’s indecision.  

          We have demonstrated that the OTP is an intrinsic part of the 2009 Contract and should thus be covered by the legal protection of the public bidding conducted in 2009.

          The next question that should be asked is whether that legal protection can extend to the purchase under an option that has previously expired.  To answer this question would require examining the exchanges of communication between the parties on the extension of the option period.

          The exchange of letters between the COMELEC and Smartmatic-TIM outlined below strongly evinces the indubitable mutual intention of the parties to continually negotiate the former’s exercise of the OTP granted to it, including their intention to continually extend the option period to allow the negotiation.  Thus, the option period never expired. Significantly, in none of the letters did COMELEC show any intention to repudiate the extensions granted to it by Smarmatic-TIM; much less, to repudiate the former’s right to exercise the option itself.

         

          The first of four extension letters was sent to COMELEC by Smartmatic-TIM on 18 December 2010. In the letter, the company reminded the COMELEC of the impending expiration of the option period on 31 December 2010 and assured the latter that it understood that “COMELEC is still finalizing its evaluation of the automated election system, in order [for the Commission] to make a decision on the Option to Purchase.” Smartmatic-TIM then informed COMELEC that it was granting the latter its first three-month extension from 31 December 2010 to 31 March 2011 “in order to allow the Commission to meet [sic] its decision regarding the option to purchase on the PCOS machines.”[57] As an added concession, the company said that it was waiving the storage cost, as well as the maintenance cost related to keeping the machines in the Philippines.

On 23 March 2011, Smartmatic-TIM sent a second letter of extension to the COMELEC informing the latter of the impending expiration of the first extended option period on 31 March 2011. It also informed COMELEC of a 10 percent increase in the price of the PCOS machines to be maintained until 30 September 2011.[58] Alternatively, it was offering COMELEC a right of first refusal effective until 31 December 2011, for which there would be no price escalation for the PCOS machines. However, COMELEC was to pay for the warehouse and security costs for the machines until 31 December 2011. The COMELEC was reminded that if it did not purchase the PCOS machines, it would be sacrificing significant financial savings.

On 30 March 2011, within a week of receiving the second extension letter from Smartmatic-TIM, the COMELEC, through Commissioner Rene Sarmiento, wrote a formal clarification letter on the aforesaid options outlined in the second letter.  The latter sought a clarification of whether the company would still absorb the warehousing costs if the Commission exercised the option by 30 September 2011, among other things. It then requested Smartmatic-TIM to “set a date to continue our discussions and negotiations on or before 31 March 2011 xxx.”

In response to the clarifications sought by COMELEC, Smartmatic-TIM wrote a letter dated 1 April 2011 explaining the offers it made to COMELEC in the company’s second letter of extension dated 23 March 2011. Smartmatic-TIM reiterated that, beginning 1 April 2011, there would be a price increase of 10 percent to be maintained until 30 September 2011. It also said that the warehousing costs would be paid separately by COMELEC. It assured the COMELEC that the former was “still very interested in COMELEC exercising the option to purchase...” and would be willing to maintain the original 2009 prices until December 2011 in a right of first refusal arrangement. It also outlined the benefits of exercising the OTP.

On 23 September 2011, Smartmatic-TIM sent COMELEC the third letter extending the option period to 31 December 2011. However, there would be a 20 percent price increase. It also said that after the new extended period, it would “update COMELEC if we are willing to further extend the option, and if any price increases were to be decided on by our corporate headquarters.” It then outlined again the benefits of exercising the option.[59]

On 28 December 2011, Smartmatic-TIM sent its fourth letter of extension to COMELEC.[60] Aside from “again granting an extension on the option to purchase for another three (3) months” or until 31 March 2012, the company also dropped the price increase it had imposed in previous extensions.[61]Furthermore, Smartmatic-TIM also outlined the advantages and benefits to be obtained by COMELEC from exercising the OTP. Additionally, it offered to provide the additional PCOS machines that it heard COMELEC would need if the latter would increase the number of poll precincts.

The exchange of letters above clearly shows the intention of the parties to extend the option period to allow them to continue their negotiations for COMELEC’s exercise of the OTP. Thus, the option period never expired.

In fact, the intention of the parties to extend the period for the exercise of the OTP by the COMELEC to 31 March 2012 was finally formalized and embodied in an extension agreement signed on 30 March 2012. In the said agreement, the parties noted that “while such extension normally leads to an increase in the price of the hardware and the software, subject of the option to purchase, due to warehousing and maintenance costs, the PROVIDED [Smartmatic-TIM] offered to sell them at the same price [2009 AES Contract] without such increase.”[62]

          If we were to use the analysis in Helex, and go by the principles continually stated in Philippine cases, a government procuring entity need not treat the expiry of the period, or even a material breach of the contract, as a bar to waiving the right to continue the contract, provided that the other party agrees.  In Helex, the continued supply of helium by the private corporation and the continued ordering of supplies by the government, despite the notice of termination earlier sent by the latter, was considered as evidence that the contract continued to be alive.

          So also, the exchange of communication by the parties indicates (1) that Smartmatic-TIM did not want the option to expire and was in fact unilaterally extending it several times; and (2) that COMELEC was contemplating making use of the option but, for different reasons, was not in a position to immediately and definitively arrive at a decision on the manner.  In other words, neither of the parties wanted to demand the termination of the option, and both of them eventually waived the expiry of the original option period.

          In the face of this evidence, the Court cannot conclude that the option period, given the contrary intervention of the parties, has already expired.

          Even assuming arguendo that the option period has expired, this Court, under the circumstances, cannot deny the revived option the benefit of the successful bidding conducted in 2009.  This matter will be discussed in the immediately succeeding portion.

II

Did the COMELEC Commit Grave Abuse of Discretion in Executing the Deed of Sale?

          We have already ruled that the period to exercise the option to purchase, under the principles of contract law, was extended by the mutual agreement of the parties.

          We have also posited that, even assuming that the period to exercise the option has expired, the parties have agreed to revive the option, and this revived option is valid.  While this principle finds ready application to private parties, it is also applicable to a government contract, provided that other relevant laws are not violated, and government is not placed at a disadvantage.  We hold this to be so, and because of the circumstances surrounding the revival of the option in this case, the revival herein is valid.

          We now also rule that the COMELEC did not commit grave abuse of discretion in executing the Deed of Sale, and that the successful bidding in 2009 satisfies the requirement of the GPRA; again, only because of the unique circumstances of this case.

COMELEC Could Not Have Been Legally Required to Commit to Availing or Not Availing Themselves of the Option Before the Original Expiry Thereof on 31 December 2010.

          A test of grave abuse of discretion here could be propounded thus: Were then COMELEC Chairperson Jose A. Melo and Commissioners Rene V. Sarmiento, Nicodemo T. Ferrer, Lucenito N. Tagle, Gregorio Y. Larrazabal, Armand C. Velasco and Elias R. Yusoph remiss in their lawful duties if they failed to exercise the option to purchase before it expired on 31 December 2010? Another way of putting it is: could they be justified in failing to immediately act on the option if as these COMELEC members claim, the exercise of the option is after all advantageous to the Republic?

While procurement laws seek to prevent abusive exercise of discretion, they do not unreasonably require government agencies to abandon their duty to exercise care and good judgment.[63] In this case, the decision to purchase the PCOS machines under the OTP was actually an exercise of sound discretion afforded to the COMELEC to implement our electoral laws, given the limited circumstances and the viable options open to it at that time.

For petitioners to singularly target the fact that the OTP had already lapsed without COMELEC exercising the option or accepting the offer to extend the period is to ignore the factual context in which it was at that time. It is an overly strict construction of a government contract that would only prejudice the voting public. At the time that the initial OTP period was to expire on 31 December 2010, the COMELEC had just finished conducting the first nationwide automated national elections and was facing the myriad consequences of such electoral exercise. Aside from deciding and ruling on various local electoral protests, it had to reschedule and conduct special elections in affected areas. Prior to the Court’s Decision in Kida v. Senate,[64] the Commission was also faced with preparations for the elections in the Autonomous Region of Muslim Mindanao previously scheduled on 08 August 2011, but since been reset and synchronized with the 2013 national and local elections. Of course, it did not help that the COMELEC at the beginning of 2011 was also undergoing changes in its composition with the retirement of COMELEC Chairperson Melo and Commissioners Ferrer and Larrazabal, as well as the consequent appointment of present COMELEC Chairperson Sixto Brillantes and Commissioners Christian Robert S. Lim and Augusto C. Lagman.

More compelling than these daily operational constraints is the budgetary limitation imposed by Congress itself on the financial capabilities of COMELEC. It must be remembered that from the latter’s initial request for a ₱10,436,300,399 budget for the procurement of an AES for the 2013 elections, the budget was significantly reduced to only ₱7 billion. Out of that amount, it could only use ₱2.2 billion for sourcing the AES, whether through purchase or lease. If we were to reckon the lowest calculated responsive bid from its experience in 2009, the COMELEC will have to spend a minimum of ₱9 billion in order to secure a viable AES through public bidding. This fact only highlights the limitations imposed by its reduced budget grant of ₱7 billion. The Court cannot summarily ignore these financial constraints imposed upon the COMELEC.

It has been posited, in response to these financial considerations, that COMELEC could still request an additional budget for the lease or purchase of an AES in time for the 2013 elections and still undergo a new public bidding process. This proposition asks the Court to make several leaps of faith which is simply untenable and too fraught with peril to warrant any proper consideration, especially since we are dealing here with something that directly impacts elections, which are at the heart of our representative democracy.

First, the proposed alternative route of going to Congress for additional budget presupposes that there are available funds for re-allocation to answer the needs of COMELEC. In addition, the alternative likewise assumes that the process of approving additional funding requirements would immediately and swiftly pass through Congress and the Senate and achieve Presidential approval, all in time for COMELEC to receive the needed appropriation, request proposals, and conduct another public bidding. The alternative route already assumes that no opposition to an increase in funding would be raised and thus prolong discussion and delay eventual approval. Of course, all of this should be achieved in sufficient time before the conduct of the 2013 elections which is less than a year from now.[65] 

Second, the proposition heavily relies on the existence of other qualified bidders who would willing to submit offers within the limited budget provided under the 2012 General Appropriations Act. Lest it be forgotten, during the public bidding for the 2009 AES, the next best bid after Smartmatic-TIM’s offer of₱4,327,876,279.86 for 82,200 PCOS machine units was Indra’s bid of ₱8,360,000,000 for only 57,231 units. The Court has been given no assurance that the market for these machines has improved since 2009 such that greater interest and participation from qualified suppliers would be generated.

The final leap of faith required by the Court under this alternative route would be to assume that a new bidding would result in the procurement of an AES that is perfect and free from technical glitches of the kind complained of here. In fact, even Commission Lagman admits that there is no guarantee that the new machines to be procured by the COMELEC would be problem-free.[66]

Rather than make these three giant leaps of faith, the more defensible and reasonable position is to dismiss the convoluted argument of petitioners that the exercise of the OTP cannot be mutually extended and affirm that the purchase option was validly extended and consensually agreed upon by the contracting parties.

The GPRA recognizes exceptional circumstances that would dispense with the requirement of public bidding, considering the overarching need to promote economy and operational efficiency. These alternative methods of procurement, which would allow for dispensing with the requirement of open, public and competitive bidding, include limited source bidding, direct contracting, repeat order, shopping and negotiated procurement.[67] The limitation is that in resorting to these modes of procurement, the “Procuring Entity shall ensure that the most advantageous price for the government is obtained.” The underlying consideration in these alternative modes is that requiring strict compliance with the statutory processes of bidding under the GPRA would burden the procuring entity with needless technicalities, even if there are adequate safeguards to prevent corruption and ensure transparency in the procurement of goods and services.

Of particular significance to the present case is the repeat order method under the GPRA, whereby the procuring entity obtains goods from a winning bidder previously awarded through competitive bidding, whenever there is a need to replenish those goods.[68] Specific conditions are outlined

under the GPRA[69] and its implementing rules and regulations[70] before repeat orders can be resorted to by a government agency:[71]

a.          Previous Award - Existence of a supply contract awarded through full competitive or public bidding;

b.         Unforeseen Need - Need of procuring entity for additional quantity of goods supplied under the contract due to unforeseen cause;

c.          Non-splitting of Contracts - The procurement must no result in the splitting of contracts, requisitions, or purchase orders under Section 54.1 of the IRR-A;

d.         Time Requirement - Must be availed within six (6) months from the date of the Notice to Proceed arising from the original contract except in cases approved by the Government Procurement Policy Board;

e.          Same or Lower Price - Unit prices must be the same as, or lower than those in the original contract, and still the most advantageous to the procuring entity based on price verification;

f.          Quantity Limitations - The procurement shall not exceed twenty-five percent (25%) of the quantity of each item in the original contract.

Similar to direct contracting,[72] repeat orders are made by the procuring entity directly to a specific and winning bidder for the purchase of specific goods. The policy rationale for this alternative mode is that these goods have already been prescreened under a previously conducted competitive bidding. It would be redundant for the procuring entity to go through another round of bidding in this instance, because the goods have been qualified under the GPRA. 

To some reasonable extent, there is enough room for this Court to apply the rationale for repeat orders to the questioned OTP, in order to justify the exemption from the requirement of public bidding, even if we cannot strictly categorize the purchase as a repeat order.

First, the PCOS machines sought to be purchased have previously gone through competitive bidding and qualified under the technical requirements of the COMELEC as a procuring entity. The goods to be purchased by it under the OTP are the same machines that were used under the 2009 AES Contract for the 2010 national and local elections. Subject only to the Hardware Acceptance Test under the Deed of Sale, these PCOS machines have presumably passed the technical requirements for the AES in 2009. None of the petitioners have put into question the regularity in the conduct of the public bidding that gave rise to the 2009 AES Contract. To conduct another round of public bidding for the PCOS machines, when they have been previously proven to have satisfied the COMELEC requirements, would be superfluous.

Second, the purchase price for these PCOS machines has not increased and continues to be the superior bid as opposed to the proposal of the other bidder, Indra. None of the petitioners claims that the 2009 AES Contract should have been awarded to any other supplier. In fact, the bid of Smartmatic-TIM was found to be the “single complying calculated bid” after an evaluation of its technical and financial proposal.[73] These strongly indicate that both its product and the purchase price are superior to those of the others and more advantageous to the government.

In the final analysis, not only is the extension of the OTP and the exercise thereof compliant with the objectives of competitiveness and transparency under the GPRA, but these are also the most advantageous options available to the COMELEC considering the present factual circumstances, the urgency of the upcoming mid-term elections, and limited financial resources.  

There is no overwhelming necessity for the Court in the instant Petition to make definitive findings on the alleged technical defects of the PCOS machines at this time.

Petitioners have highlighted the technical defects of the PCOS machines to demonstrate their failure to comply with the requirements under the AES Law. On the other hand, respondents COMELEC and Smartmatic-TIM argue that the claimed deficiencies of the PCOS machines are either attributable to human intervention and not to the machines themselves or alternatively, are not critical to render the units unacceptable for purposes of conducting the 2013 elections.

We understand the concerns of petitioners. Any doubt as to the functionality of the PCOS machines would put the integrity of the electoral process under serious suspicion and hence, cast disconcerting shadows on the legitimacy of their results. Elections are “indispensable in a true democracy,”[74] so that, “without it, democracy would not flourish and would be a sham.”[75]  

Nevertheless, petitioners have not sufficiently demonstrated to this Court that the PCOS machines have technical insufficiencies of such magnitude as would support our exercise of judicial review over the exclusive mandate of the COMELEC to administer the election process.

The Constitution empowered the COMELEC to “[e]nforce and administer all laws and regulations relative to the conduct of an election, plebiscite, initiative, referendum, and recall.”[76] No other body is granted such plenary powers with regard to elections under the Constitution. In recognition of this Constitutional mandate, the Court has, in a long line of cases,[77] given the COMELEC wide latitude in devising means and methods that will insure the accomplishment of the great objective for which it was created – “free, orderly, honest, peaceful, and credible elections.”[78]

The “COMELEC deserves to be accorded by the Court the greatest measure of presumption of regularity in its course of action and choice of means in performing its duties, to the end that it may achieve its designed place in the democratic fabric of our government.”[79]   Sumulong v. COMELEC,[80]underlined the distinct role of the COMELEC and highlighted the Court’s policy of non-interference, even if the Court may not fully agree with the Commission’s choice of means:

The Commission on Elections is a constitutional body. It is intended to play a distinct and important part in our scheme of government. In the discharge of its functions, it should not be hampered with restrictions that would be fully warranted in the case of a less responsible organization. The Commission may err, so may this court also. It should be allowed considerable latitude in devising means and methods that will insure the accomplishment of the great objective for which it was created - free, orderly and honest elections.We may not agree fully with its choice of means, but unless these are clearly illegal or constitute gross abuse of discretion, this court should not interfere. Politics is a practical matter, and political questions must be dealt with realistically — not from the standpoint of pure theory. The Commission on Elections, because of its fact-finding facilities, its contacts with political strategists, and its knowledge derived from actual experience in dealing with political controversies, is in a peculiarly advantageous position to decide complex political questions.

xxx                  xxx                  xxx

There are no ready-made formulas for solving public problems. Time and experience are necessary to evolve patterns that will serve the ends of good government. In the matter of the administration of the laws relative to the conduct of elections xxx we must not by any excessive zeal take away from the Commission on Elections the initiative which by constitutional and legal mandates properly belongs to it. Due regard to the independent character of the Commission, as ordained in the Constitution, requires that the power of this court to review the acts of that body should, as a general proposition, be used sparingly, but firmly in appropriate cases. We are not satisfied that the present suit is one of such cases.  (Emphasis supplied.)

In Roque v. COMELEC,[81] this Court upheld the very same 2009 Contract between the COMELEC and Smartmatic-TIM containing the OTP exercised by the Commission. Reiterating its pronouncement in Sumulong, the Court explained:

The COMELEC is an independent constitutional body with a distinct and pivotal role in our scheme of government. In the discharge of its awesome functions as overseer of fair elections, administrator and lead implementor of laws relative to the conduct of elections, it should not be stymied with restrictions that would perhaps be justified in the case of an organization of lesser responsibility. It should be afforded ample elbow room and enough wherewithal in devising means and initiatives that would enable it to accomplish the great objective for which it was created — to promote free, orderly, honest and peaceful elections. This is as it should be for, too often, COMELEC has to make decisions under difficult conditions to address unforeseen events to preserve the integrity of the election and in the process the voice of the people. Thus, in the past, the Court has steered away from interfering with the COMELEC’s exercise of its power which, by law and by the nature of its office properly pertain to it. Absent, therefore, a clear showing of grave abuse of discretion on COMELEC’s part, as here, the Court should refrain from utilizing the corrective hand of certiorari to review, let alone nullify, the acts of that body. xxx. (Emphasis supplied.)

Rather than employ excessive judicial zeal, this Court has generally deferred to the discretion of the COMELEC in the performance of the latter’s constitutional mandate. Oftentimes, we have steered away from unduly interfering with the administration of electoral exercises by COMELEC and refrained from substituting our own wisdom. This judicial policy of guarded review holds especially true in administrative matters, such as the determination of which voting machines to use for purposes of the automated elections.

Hence, restraint in ruling on the discretion regularly exercised by the COMELEC is the better part of prudence, especially in administrative matters; otherwise, excessive meddling may create adverse critical consequences. In questioning the decision of the constitutional body, petitioners bear a heavy burden of proving that it acted with grave abuse of discretion.

The defects of the PCOS machines have not been sufficiently demonstrated to support a judicial finding that they failed to comply with the technical requirements under the AES Law.

The issue raised by petitioners is whether the modern voting machines used and purchased by the COMELEC will accurately reflect the will of the people in a manner that also complies with the AES Law.

In praying for the nullification of the Deed of Sale of the PCOS machines, petitioners cite five areas of special concern in which the integrity, security and auditability of the AES, as required by the AES Law, may be particularly vulnerable: (a) absence of a digital signature; (b) lack of verified paper trail; (c) lack of ultraviolet marks on the ballots; and (d) last-minute configuration of the compact flash disks in 2010.

Although petitioners cited the presence of the open console port as another technical defect of the PCOS machines which, according to them, allowed unauthorized access to the operating system thereof,[82] this purported defect is not expressly required under the AES Law and need not be discussed at length. Suffice it to say that Smartmatic-TIM easily remedied the defect by physically closing the port with tamper-proof mechanical seals[83] and installing new firmware to prevent unauthorized access to the system.[84] That this defect was remediable was even candidly admitted by Commissioner Lagman during the oral arguments.[85]

On the other hand, respondents have presented arguments to refute these claims of alleged defects. They argue that the cited technical insufficiencies of the purchased PCOS machines will not pose substantial and critical threats to the integrity of these machines. Respondents likewise insist that most of the errors are not attributable to the PCOS machines themselves, but more to human intervention.

A summary of the opposing arguments of both sides are presented below:

A.      Digital Signature

The AES Law, as amended, provides for the manner in which the electronically transmitted election results are authenticated:

The manner of determining the authenticity and due execution of the certificates shall conform with the provisions of Republic Act No. 7166 as may be supplemented or modified by the provisions of this Act, where applicable, by appropriate authentication and certification procedures for electronic data, electronic documents and electronic signatures as provided in Republic Act No. 8792 as well as the rules promulgated by the Supreme Court pursuant thereto.[86] 

Hence, the digital signature is the primary means of ensuring the authenticity of electronically transmitted election returns. In fact, only a digitally signed election return is considered as containing official election results.[87]

Petitioners point to the failure of the PCOS machine to ensure the security of the election results because of the lack of a digital signature. According to them, the machines are incapable of embedding digital signatures as required by the AES Law.[88]

In response, Smartmatic-TIM explained that the PCOS machines can be programmed to have several types of digital signature including self-generated ones or even those generated by a third-party certifying authority.[89] However, COMELEC allegedly disabled the feature that would have enabled the Board of Election Inspectors (BEI) to put additional personal digital signatures generated by a third-party certifying authority, because a certifying authority had not been established by law, among other reasons.[90]  Despite these instructions by the COMELEC to disable the said feature, Smartmatic-TIM argues that the separate i-Button gadget could be considered as sufficient compliance with the digital signature provision of the AES Law.[91]

B.      Voter Verified Paper Audit Trail

One of the other minimum capabilities required by the AES Law was that the voting machine should have a provision for voter verified paper audit trail[92] and allow the voter a system of verification to find out whether or not the machine has registered his or her choice.[93] The objective of this requirement is to allow voters to confirm that their choices as marked in their ballots have been properly read and counted.

Petitioners claim that no such voter verified paper audit trail was provided to the voters during the 2010 elections.[94]  They allege that even COMELEC admitted to disabling this feature for logistical reasons, specifically the lack of ink for printing the paper audit trail.[95]  

Again, Smartmatic-TIM argues that this capability was actually present in the PCOS machines except that it was also disabled by the COMELEC.[96] No adequate explanation has been offered by the COMELEC why this feature was rendered inoperative, even if the PCOS machines were capable of performing them.

C.      Deactivation of the UV Mark Detectors

Another of the cited problems is the disabling of the UV marks detection capability of the PCOS machines, which compromises the security of the ballots.[97]

Respondent COMELEC admits that it intentionally disabled the detectors because of printing problems and the belated decision to change the UV marks design from that of the COMELEC to that of the National Printing Office.[98] According to Smartmatic-TIM, the delay in its printing schedule necessitated fast-tracking of the UV-mark printing using less UV-ink concentration. The reduced concentration resulted in unreliable UV detection. Thus, COMELEC deactivated the UV detectors and decided to use handheld UV lamp detectors instead. [99] The PCOS machines, however, have the capability to read UV marks.

D.      Reconfiguration of the Compact Flash Cards

Finally, petitioners cite the much publicized recall and reconfiguration of the compact flash cards a week before the conduct of the 2010 elections.[100] This controversy fuelled speculations of attempts to abandon the AES, resort to the vulnerable manual voting, perpetrate massive fraud, and reduce voter confidence in the process.[101]

COMELEC admits that during the Final Testing and Sealing (FTS) a week before the 2010 elections, it was discovered that the PCOS machines did not properly read the local side of the ballot.[102] It explains that this was because the CF cards were configured to read a ballot design that used single-spacing for the local side of the ballot, while COMELEC belatedly decided to use double-spacing, because the local side was relatively empty in comparison with the national side which was full due to the lengthy list of party-list candidates. The decision to use double-spacing was not timely communicated to Smartmatic-TIM. This omission led to the nationwide recall of the CF cards to correct their configuration, so that the PCOS machines would read the local side of the ballot as double-spaced, instead of single-spaced.[103] The recall of the CF cards did not impact the technical fitness of the PCOS machines.

  

The purported technical defects of the PCOS machines are factual issues that are not proper and ripe for the present Rule 65 Petitions.

After evaluating the above factual allegations of both petitioners and respondents, we find that we are unable to make a conclusion of grave abuse of discretion based on these allegations. To every allegation of material defect, respondents are able to give an answer. The Court would need to conduct a hearing on the facts to make a conclusion on which claim is correct.

Had there been adequate time and resources, a third-party review by a proven and competent authority would have been valuable in helping the Court to resolve the supposed technical deficiencies of the PCOS machines. It would be legally improper for the Court to entertain these highly technical disputes in the instant Rule 65 Petition, when the basic legal issue sought to be resolved is limited only to whether the OTP was properly exercised by the COMELEC, and whether the consequent Deed of Sale covering the PCOS machines is legally valid.

In any event, the PCOS machines have been subject to review by SLI Global Solutions (SLI).[104] SLI twice evaluated Smartmatic-TIM’s AES to examine compliance with COMELEC’s technical requirements under the AES Law as well as the request for proposal. SLI likewise used the 2005 Voluntary Voting System Guidelines of the United States Election Assistance Commission to gauge the proposed electoral system. Prior to the May 2010 elections, SLI issued its Final Certification Test Report,[105] in which it concluded as follows:

xxx. While the system conforms to key requirements and is operationally suitable for use, findings remain in areas such as documentation, process and setup. All issues are considered however to be minor in nature or reconcilable using appropriate manual processes and/ or compensating controls. Assuming the above mentioned controls are put into practice and that the AES is properly configured, operated and supported, SysTest Labs finds Smartmatic Automated Election System to be capable of operating properly, securely and accurately and therefore recommends the system for certification and use in the May 10, 2010 election. (Emphasis supplied)

SLI performed another review after the elections to determine the viability of the AES for future elections. On 07 November 2011, SLI issued a Final Certification Test Report, which affirmed its earlier findings and recommended the certification of the system as conformant with the operations requirements: 

xxx. Assuming that the AES environment setup is successfully completed, and the, system is properly configured, operated and supported, and that the compensating controls are implemented, SLI Global Solutions finds that the Automated Election System is functionally capable of operating properly, securely and accurately, although there will continue to be dependence on the vendor for assistance. SLI recommends the system for certification, as it is conformant with the operational requirements and is suitable for use in applicable future elections. (Emphasis supplied.)

The above certification of the SLI, as to the functional viability and suitability of Smartmatic-TIM’s AES for both the 2010 and 2013 elections, deserves sufficient weight. There has been absolutely no claim that the methods used by SLI are doubtful, or that its qualifications are questionable. Petitioners, as well as the Court, cannot simply disregard the approval given by an independent and objective evaluator of the AES.

Fuelling the trepidation to rule on the technical sufficiency of the PCOS machines is the general sense obtained during the course of the oral arguments that these defects do not appear to be critical or intrinsic to the machines. Strangely, many of the complaints focus on the wisdom of the administrative decisions made by COMELEC in the performance of its discretionary authority, i.e., disabling some of the features of the PCOS machines. Although it is not discounted that the PCOS machines may leave room for improvement, it seems that another aspect of the problem may have something to do with the conduct of COMELEC personnel using the PCOS machines, which is already beyond the scope of the issue with respect to the technical compliance of the units with the minimum functional capabilities set by law for an AES.  

Without making set judgment as to the gravity of the defects, it is to be noted that these defects are remediable, as admitted by former COMELEC Commissioner Lagman in his testimony during the oral arguments:

JUSTICE SERENO:

xxx. So, you are basically saying here that these technical proposals are not inherently irremediable. That is the conclusion that we are coming to. There are access devices or accessories that you can attach to machines and it will do what you want it to do. The software can be configured. In other words, in the world of technologies the possibilities are there. Okay?

FORMER COMMISSIONER LAGMAN:

That is correct, Your Honor. I just don’t know whether they can do it in time.[106]

Based on the foregoing exchange, Commissioner Lagman’s concern was whether the defects could be remedied in time. This illustrates the speculative character of some of the concerns raised in these Petitions.

Considering the wide latitude given to the COMELEC in the exercise of its constitutional mandate, the lack of competence of the Court to decide on technical matters, and the apparently adequate explanations given by respondents for the non-intrinsic defects, the Court finds it extremely difficult to declare that grave abuse of discretion attended the decision of the COMELEC to purchase the PCOS machines based on supposed technical insufficiencies.

This Case Is Unique: The Interests of the Government Are Adequately Safeguarded in This Particular Circumstance.

This Court’s Decision is not intended to be a new, wide-open valve that would violate the requirements of the GPRA.  The conditions herein compel us to rule in favor of COMELEC or, rather, to avoid stymieing its exercise of discretion of COMELEC in its planned conduct of future elections.  Government procurement officials are still required to give adequate written notice of their intention to make use of options to purchase in validly executed contracts and to put in writing mutual agreements to extend option periods which must ultimately be justified in the context of the original contract in which the option inheres.

          For the guidance of government procurement officials, we enumerate conditions that, at a minimum, must exist in order that expired OTPs can still be availed of. More conditions may be required if provided for by law, regulation or contract, as follows:

One, there can be no revival of an expired option if the revival is not made within a reasonable time after its expiry. 

Two, the delay in the exercise of the option or the failure to exercise it within the original period must be fully justified under the circumstances.

Three, the exercise of the option must be advantageous to government.

We clarify, however, that the option period in this case has not, under the circumstances, truly expired as to deny the parties the ability to make use of them.

Accordingly, I vote to DISMISS the instant Petitions. Consequently, the Commission on Elections Resolution Nos. 9373 and 9376 dated 06 March 2012 and 21 March 2012, respectively — on the “Agreement on the Extension of the Option to Purchase under the Contract for the Provision of the Automated Election System for the May 10, 2010 Synchronized National and Local Elections” dated 30 March 2012 and the Deed of Sale dated 30 March 2012 by and between COMELEC and Smartmatic-TIM Corporation — are declared VALID.

The Temporary Restraining Order issued by this Court on 24 April 2012 enjoining respondents COMELEC and Smartmatic-TIM Corporation from implementing COMELEC Resolution No. 9376 should likewise be LIFTED.

MARIA LOURDES P. A. SERENO

Associate Justice

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[1] Contract for the Provision of an Automated Election System for the 10 May 2010 Synchronized National and Local Elections, Annex “3” of Smartmatic-TIM’s Comment dated 30 April 201, hereafter “the 2009 Contract.”

[2] In Basilan, First District of Bulacan and some areas of Lanao del Sur.

[3] The original quantity of PCOS machines subject of the option to purchase was 82,200 units. After COMELEC partially exercised the option for 920 units for the special elections, the remaining number of units available for purchase should have been 81,280 units. However, the assailed proposed purchase covers only 80,916 units instead of 81,280, because it appears that some of the remaining PCOS machines have been lost, missing or unserviceable. (Annexes “E” and “E-1” of the Deed of Sale dated 30 March 2012, Annex “16” of Smartmatic-TIM’s Comment dated 30 April 2012.)

[4] “ARTICLE 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:

(1)Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;

(2)Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality. (n)” (Civil Code)

[5] Roxas v. Binay, docketed as PET Case No. 004, is a Protest filed under Rule 15 of the 2010 Rules of the Presidential Electoral Tribunal.  Protestant Manuel A. Roxas seeks the annulment of the proclamation of protestee Jejomar C. Binay as the duly elected Vice-President of the Republic of the Philippines after the 10 May 2010 synchronized elections due to “fraud, anomalies, irregularities and statistical improbabilities in certain clustered precincts,” among other grounds. The fraud, anomalies and irregularities were alleged to be due to the “complete and utter disregard by COMELEC and Smartmatic-TIM of the mandated minimum system capabilities for an automated election system under the AES Law.”  It is alleged that the two were “complicit in disabling or entirely removing crucial safeguards that should have prevented the occurrence of system-wide electoral fraud in the Vice-Presidential Contest.”Among the mandatory requirements and security safeguards allegedly disregarded or deactivated were the voter verified paper trail, the digital signatures, the ultraviolet (UV) verification capability, the source code review and the configuration of the compact flash (CF) cards in a way that made them unable to read votes for the protestant.

[6] “A contract can be renewed, revived or extended only by mutual consent of the parties.” (Light Rail Transit Authority v. CA, 486 Phil. 315,329 (2004); Thunder Security and Investigation Agency v. NFA (Region I), G.R. No. 182042, 27 July 2011, 654 SCRA 714, 725).

[7] ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, VOLUME FOUR, 559-560 (1987).

[8]ARTICLE IV, Sec. 10.  Competitive Bidding. – All Procurement shall be done through Competitive Bidding, except as provided for in Article XVI of this Act.

[9] “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 Act.” (GPRA, Sec. 46)

[10] Part A, Rule XIV, Sec. 46.

[11] GPPB NFM No. 065-2007 dated 03 December 2007 available at http://www.gppb.gov.ph/opinions/view_opinion.asp?o_id=447 (last visited on 05 June 2012).

[12] WTO Agreement on Government Procurement, Art. 1 (2).

[13] 48 C.F.R. 7.402 (b) (2).

[14] IRR-A of the GPRA, Annex “D,” Sec. 1.1.

[15]IRR-A of the GPRA, Annex “E,” Contract Implementation Guidelines for the Procurement of Infrastructure Projects, Sec. 10.

[16]If the government agrees to extend the period, however, the winning bidder of the infrastructure project is obliged to increase or extend its performance security to cover the approved contract time extension:

“For the procurement of infrastructure projects, the winning bidder shall post an additional performance security following the schedule above to cover any cumulative increase of more than ten percent (10%) over the original value of the contract as a result of amendments to order or change orders, extra work orders and supplemental agreements, as the case may be. The winning bidder shall cause the extension of the validity of the Performance Security to cover approved contract time extensions.” (IRR-A of the GPRA, Sec. 39.5.)

[17] 21 Ct.Cl. 222, 543 F.2d 1306, 20 UCC Rep. Serv. 923 (20 October 1976).

[18] Id. at 1313.

[19] AES Law, Sec. 5, as amended by Republic Act No. 9369.

[20] Annex “1,” Consolidated Comment of COMELEC dated 30 April 2012.

[21] COMELEC’s Consolidated Memorandum dated 18 May 2012, p. 7.

[22] Consolidated Comment of COMELEC dated 30 April 2012, pp. 60-61.

[23] Contract for the Provision of an Automated Election System for the May 10, 2010 Synchronized National and Local Elections dated 09 July 2009.

[24] 2009 AES Contract, Art. 4.3, p. 8.

[25]  Contract of Sale dated 23 September 2010.

[26] “6. Partial Temporary Extension - In order to allow the Commission to meet its decision regarding the option to purchase on the PCOS machines, Smartmatic-TIM is amenable to extend the option to purchase, solely on the remaining 81,280 PCOS machines, until March 31^st 2011, waiving the storage costs, and covering the maintenance costs. Would COMELEC exercise the option to purchase before March 31^st, the additional 1 years [sic] warrant would begin to count again.” (Smartmatic-TIC Letter dated 18 December 2010, p. 3)

[27] Smartmatic-TIM letter dated 23 March 2011.

[28] Smartmatic-TIM letter dated 23 September 2011.

[29] Smartmatic-TIM letter dated 28 December 2011.

[30] “Considering it is now end of December 2011, and the Commission is still finalizing its evaluation of the AES in order to make a decision on the purchase of the equipment, we are again granting an extension of the option to purchase for another three (3) months.” (Id.)

[31] Republic Act No. 10155.

[32]Based on COMELEC’s computation, ₱4.8 billion out of the ₱7 billion budget will be used for essential services (₱2.8 billion) and to defray the costs of deployment (₱2 billion). (COMELEC Memorandum dated 18 May 2012, p. 22)

[33] “Thus, the phrase ‘has determined that the critical and major issues on, the Voluntary Voting System Guidelines (VVSG) of the 2010 AES have already been resolved’ (though wrongly phrased as there are no issues on the VVSG-standard used for the review of the software source code) is wrong. SMTT, in fact, is still in the process of presenting the fixes to the Comelec. While fixes on some issues have already been presented, none of [the] said fixes have actually and officially been accepted.” (Additional Arguments for Dissent dated 21 March 2012)

[34] Comment dated 21 March 2012, p. 2.

[35] “The period in which the COMELEC can exercise its option to purchase is extended to 31 March 2012.” (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 dated 30 March 2012)

[36]“2. For and in consideration of the amount of One Billion Eight Hundred Thirty Three Million Two Hundred Seventy Four Thousand Four Hundred Fifty Seven Pesos and Nine Centavos (Php1,833,274,457.09) (“Purchase Price”), the BUYER [COMELEC] hereby purchases the hardware and software listed in Annex ‘E’ and Annex ‘E-1’ from the SELLER [Smartmatic-TIM] subject to the terms and conditions set forth in Annex ‘D’. The Purchase Price shall be paid by the BUYER in accordance with the payment schedule attached as Annex ‘F’. The BUYER shall pay the Purchase Price to the SELLER via irrevocable letter of credit issued by the Land Bank of the Philippines.” (Deed of Sale dated 30 March 2012)

[37] “To formally ACCEPT the offer of SMARTMATIC-TIM to extend the period to exercise the Option to Purchase until March 31, 2012.” (COMELEC Resolution No. 9377 dated 29 March 2012)

[38] “To APPROVE the Deed of Sale between the COMELEC and the SMARTMATIC-TIM attached as Annex ‘A’ hereof to purchase the latter’s PCOS Machines (hardware and software) to be used in the upcoming May 13, 2013 National and Local Elections; xxx.” (COMELEC Resolution No. 9378 dated 30 March 2012)

[39]Petition for Review on Certiorari, Prohibition and Mandamus dated 10 April 2012 (G.R. No 201112); Certiorari and Prohibition dated 03 April 2012 ( G.R. No. 201121); Petition for Certiorari, Prohibition and Mandamus dated 10 April 2012 ( G.R. No. 201127); and Petition dated 26 April 2012 (G.R. No. 201413).

[40] Smartmatic-TIM claims that in addition to the substantial part of the Performance Security, which the COMELEC still retains, the company also has a remaining outstanding claim of ₱23,000,000 for the Command Center that it built at the Philippine International Convention Center upon the instruction of the COMELEC. (Smartmatic-TIM’s Consolidated Memorandum dated 18 May 2012, p. 39)

[41] The performance security was furnished through an irrevocable domestic standby letter of credit, which Smartmatic-TIM opened on 15 June 2009 in favor of the COMELEC. The standby letter of credit remained in effect until its expiration on 10 July 2010. However, in COMELEC Resolution No. 9293 dated 6 October 2011, the COMELEC retained an amount approximately equal to ₱50,000,000 to cover the remaining unfulfilled obligations of Smartmatic-TIM under the 2009 AES Contract. (COMELEC’s Consolidated Memorandum dated 18 May 2012, pp. 54-55.)

[42]8 Cl.Ct. 743, 33 Cont.Cas.Fed., 26 Sept. 1985.

[43] TSN, 02 May 2012, p.12.

[44]Article 1292, Civil Code. See also Evadel Realty and Development Corporation v. Spouses Antero,  409 Phil. 450 (2001) and Transpacific Battery Corporation v. Security Bank & Trust Co., G.R. No. 173565, 08 May 2009, 587 SCRA 536.

[45] Deed of Sale dated 30 March 2012, Art. 9, p. 4.

[46]Cresencio C. Milla v. People of the Philippines, G.R. No. 188726, 25 January 2012 citing Quinto v. People, 365 Phil. 259 (1999).

[47]Inchausti & Co. v. Yulo, 34 Phil. 978 (1914); Pascual v. Lacsamana, 100 Phil. 381 (1956); Tible v. Aquino, 160 Phil. 214 (1975); California Bus Lines v. State Investment House, 463 Phil. 689 (2003).

[48]BPI v. Gooch, 45 Phil 514 (1923).

[49] 450 Phil. 744 (2003).

[50] Id. at 814-815.

[51] 464 Phil. 173 (2004).

[52] Id. at 248.

[53] TSN, 02 May 2012, p. 91.

[54] 2009 AES Contract,  Art. 4.3, p. 8.

[55] Deed of Sale dated 30 March 2012, Art. 2, p. 2.

[56]“4. The SELLER [Smartmatic-TIM] shall retain administrative control and ownership of the hardware and software prior to the conduct of the Hardware Acceptance Test (“HAT”). The control and ownership of the hardware and software shall be transferred to the BUYER [COMELEC] upon acceptance per batch of 20,000 units during the HAT process. For said purpose, the SELLER shall issue a Delivery Receipt of accepted hardware upon acceptance of every 20,000 units. The SELLER shall submit the Inventory List (including the serial numbers) of the hardware and software listed in Annex “E” and Annex “E-1” to the BUYER within three (3) business days after the execution of this Deed of Sale.” (Deed of Sale dated 30 March 2012, Art. 4, p. 2)

[57] “6. Partial Temporary Extension - In order to allow the Commission to meet its decision regarding the option to purchase on the PCOS machines, Smartmatic-TIM is amenable to extend the option to purchase, solely on the remaining 81,280 PCOS machines, until March 31^st 2011, waiving the storage costs, and covering the maintenance costs. Would COMELEC exercise the option to purchase before March 31^st, the additional 1 years [sic] warrant would begin to count again.” (Smartmatic-TIM letter dated 18 December 2010, p. 3)

[58] Smartmatic-TIM letter dated 23 March 2011.

[59] Smartmatic-TIM letter dated 23 September 2011.

[60] Smartmatic-TIM letter dated 28 December 2011.

[61] “Considering it is now end of December 2011, and the Commission is still finalizing its evaluation of the AES in order to make a decision on the purchase of the equipment, we are again granting an extension of the option to purchase for another three (3) months.” (Id.)

[62] “The period in which the COMELEC can exercise its option to purchase is extended to 31 March 2012.” (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 dated 30 March 2012)

[63] Data Recognition Corporation v. State of Minnesota, 2003 WL 23335317 (Minn.Dist.Ct.).

[64] G.R. Nos. 196271, 196305, 197221, 197280,  197282, 197392 & 197454, 18 October 2011.

[65] TSN, 02 May 2012, pp. 66-67, 296-297.

[66] Id. at 192.

[67] GPRA, Sec. 48.

[68] GPRA, Sec. 48 (c).

[69] GPRA, Sec. 51.

[70] IRR-A of the GPRA, Sec. 51.

[71] FLORANTE B. NACOR, THE PHILIPPINE GOVERNMENT PROCUREMENT REFORM ACT (R.A. NO. 9184) AND THE REVISED IRR, ANNOTATED: A HANDBOOK ON PUBLIC BIDDING, Central Book Supply, 541 (2011).

[72] Direct contracting is a method of procurement that does not require elaborate bidding documents because the supplier is simply asked to submit a price quotation or a proforma invoice, together with the conditions of sale, which is an offer that may be accepted immediately or after some negotiations. (GPRA, Sec. 48 [b]; Sec. 50)

[73] Roque v. COMELEC, G.R. No. 188456, 10 September 2009, 599 SCRA 69.

[74]Bato Ali v. Court of First Instance of Lanao, 80 Phil. 506 (1948).

[75] COMELEC v. Tagle, 445 Phil. 667 (2003).

[76] CONSTITUTION, Art. IX, Sec. 2.

[77] Tolentino v. COMELEC, G.R. Nos. 187958, 187961, 187962, 187966, 187967, 187968, 07 April 2010, 617 SCRA 575; Province of Agusan del Norte v. COMELEC, G.R. No. 165080, 24 April 2007, 522 SCRA 94; Pamatong v. COMELEC, G.R. No. 161872, 13 April 2004, 427 SCRA 96; Laban ng Demokratikong Pilipino v. COMELEC, 468 Phil. 70 (2004); Buac v. COMELEC, 465 Phil. 800 (2004); Akbayan Youth v. COMELEC, 407 Phil. 618 (2001); Pelayo v. COMELEC, 132 Phil. 822 (1968).

[78] 1987 Constitution, Art. IX, Section 4.

[79] Id., citing Aratuc v. COMELEC, 177 Phil. 205 (1979).

[80] 73 Phil. 288, 294-296 (1941).

[81] Supra note 73, at 152-153.

[82] Annex “A,” S4S Memorandum dated 18 May 2012; TSN, 02 May 2012, pp. 139, 164-168.

[83] Smartmatic-TIM’s Consolidated Memorandum dated 18 May 2012, p. 82; COMELEC Consolidated Memorandum dated 18 May 2012, p.103.

[84] JUSTICE SERENO: These machines are configurable by the necessary software commands, correct Commissioner?

COMMISSIONER LAGMAN: Yes, Your Honor.

JUSTICE SERENO: Except for the accessible port but even the accessible port cannot be actually disabled.

COMMISSIONER LAGMAN: It can be disabled, Your Honor. (TSN dated 02 May 2012, p. 178; emphasis supplied)

[85] TSN, 02 May 2012, p. 178.

[86] AES Law, as amended by Republic Act No. 9369, Sec. 30.

[87] “The election returns transmitted electronically and digitally signed shall be considered as official election results and shall be used as the basis for the canvassing of votes and the proclamation of a candidate.” (AES Law, as amended, Sec. 22;  emphasis supplied)

[88] Petitioners Capalla et al.’s Memorandum dated 18 May 2012, p. 22; Petitioners Guingona et al.’s Memorandum dated 18 May 2012,  pp. 19-26; Petitioners Solidarity for Sovereignty (S4S) et al.’s Memorandum dated 18 May 2012,  pp. 35-36; Tanggulang Demokrasya (Tan Dem) et al.’s Memorandum dated 18 May 2012,  pp.11-13.

[89] “…The PCOS machine itself has provisions for, and can be programmed to have, several types of digital signatures. SMARTMATIC-TIM will only program the PCOS machines in accordance with the instructions of COMELEC.” (Consolidated Comment of Smartmatic-TIM dated 30 April 2012, p.53). See also TSN dated 08 May 2010, pp. 159-170.

[90] “3.87 For the 2010 elections, COMELEC evaluated different options to implement additional signatures to the PCOS machines, but there were basically three constraints. First, during the preparations for the 2010 elections, a Certification Authority for the use of Public Key Infrastructure had not been established. xxx.

“3.88 Second, the members of the Board of Advisers are selected a couple of months before the elections, while the final data configuration of voting machines and canvassing servers need to be finished by January 2010, making it therefore impossible to add the specific individual certificates and keys in the PCOS machines.

“3.89. Third, there was concern that providing each BEI member with his or her own digital signature would leave success of transmission reliant on the attendance of all tile BEI members. The drop-out rate of BEIs is typically too high to justify essentially giving any one person the "key" to the PCOS. Also, the use of personal digital signatures exposes BEIs to higher probabilities of coercion, violence, and bribery.

“3.90. To reiterate, the PCOS machine has security features as it allows for the addition of multiple keys, on top of the one supplied to the BEI chairman. However, COMELEC discarded this option for the reasons described above. xxx.” (Consolidated Comment of Smartmatic-TIM dated 30 April 2012, pp. 54-55; See also TSN, dated 08 May 2010, p. 161)

[91] “xxx [I]t is not correct to state that the COMELEC ‘did not require’ or use a digital signature in the 2010 elections. COMELEC Resolution No. 8786 defines the processes for the generation of the PCOS machine's digital signature through the use of a proprietary token known as the i-Button, which contains a unique PIN or password (private key) assigned to the specific voting precinct, and which is under the control and custody of the BEl Chairman assigned to that voting precinct. Inside every PCOS machines a digital certificate is implanted, from the moment the machines are configured in COMELEC central. Together with the i-Button provided to the chairman of the BEI and a password, the results are digitally signed and encrypted, thus giving the ER its integrity, confidentiality and non-repudiation properties, and enabling the encryption of the ER data as needed for secure transmission.” (Consolidated Comment of Smartmatic-TIM dated 30 April 2012, pp. 53-54; see also COMELEC Resolution No. 8739, otherwise known as the General Instructions for the Board of Election Inspectors; and TSN, 08 May 2010, pp. 159-170)

[92] AES Law, as amended, Sec. 6 (e).

[93] AES Law, as amended, Sec. 6 (n).

[94] Petitioners Guingona et al.’s Memorandum dated 18 May 2012, pp.15-19; Petitioners Capalla et al.’s Memorandum dated 18 May 2012 , pp. 24-25.

[95] Petitioners Capalla et al.’s Memorandum dated 18 May 2012, p. 25.

[96] “xxx. Sec 6(3) of RA 9369 requires that the AES must at least have the functional capability to provide for voter verified paper audit trail. The law asks that the system has the capability, which it has. It is up to COMELEC to activate it, and not SMARTMATIC-TIM. Thus, it cannot be said that the system lacks the capability.” (Consolidated Comment of Smartmatic-TIM dated 30 April 2012, pp. 55-56)

[97] Petitioners Guingona et al.’s Petition dated 10 April 2012, p. 13.

[98] “177. Third. The PCOS machines are perfectly capable of detecting UV marks. It just so happened that the COMELEC intentionally disabled the UV mark verification feature for reasons extraneous to the PCOS machines- printing problems and the belated decision to use the change the UV mark's design from the COMELEC's to the National Printing Office's ("NPO's").” (COMELEC’s Consolidated Comment dated 30 April 2012, pp. 107; see alsoCOMELEC’s Memorandum dated 18 May 2012, pp. 103-104)

[99] “3.94. The PCOS machines have UV-reading functionality so that the PCOS machine itself would automatically confirm the authenticity of a ballot. However, in the 2010 elections, tight deadlines brought about by legal impediments necessitated fast-tracking of the UV-mark printing with less UV-ink concentration resulting in unreliable UV detection. Since the printing had to proceed given the time constraints, COMELEC decided to disable the UV verification feature on the PCOS. Instead COMELEC procured handheld UV lamps for each polling precinct's BEI to use on election day to verify each ballot's authenticity before handing it to a voter.” (Smartmatic-TIM’s Consolidated Comment dated 30 April 2012, p. 57.)

[100] Petitioners Guingona et al.’s Petition dated 10 April 2012 p. 13; Petitioners Guingona et al.’s Memorandum dated 18 May 2012, p. 12; Petitioners S4S et al.’s Memorandum dated 18 May 2012, p. 34.

[101] Was “malicious software” placed in recalled CF cards?,  http://www.abs-cbnnews.com/nation/05/27/10/was-malicious-software-placed-recalled-cf-cards; Defective data cards for poll machines recalled,http://newsinfo.inquirer.net/topstories/topstories/view/20100504-268027/Defective-data-cards-for-poll-machines-recalled (last visited on 08 June 2012); Erap camp gathering proof of electronic fraud,http://www.philstar.com/Article.aspx?articleId=575062&publicationSubCategoryId=63 (last visited on 08 June 2012).

[102] “146.1. During the Final Testing and Sealing (FTS), it was discovered that the PCOS machines did not properly read the local side of the ballot. This was because the CF cards were configured to read a ballot design that used single-spacing for the local side of the ballot.

        “146.2. The COMELEC made the belated decision to use double-spacing for the local side of the ballot because the local side was relatively empty in comparison to the national side which was full due to the lengthy list of party-list candidates.

        “146.3. The decision to use double-spacing was not timely communicated leading to the recall of the CF cards to correct their configuration so the PCOS machines would read the local side of the ballot as double-spaced, instead of single-spaced.” (COMELEC’s Consolidated Comment dated 30 April 2012, pp. 76-7.)

[103] Id. at 77.

[104] Formerly known as SysTest Labs Incorporated.

[105] Annex “16,” Consolidated Comment of COMELEC dated 30 April 2012.

[106] TSN, 02 May 2012, pp. 186-191.

Source: http://sc.judiciary.gov.ph/jurisprudence/2012/june2012/201112_sereno.htm