damages could have been deducted from the payment for incomplete delivery of
the drugs and medicines.
7.13 In view of the foregoing, the payment for the partially delivered drugs and
medicines, coupled with the inability to enforce the collection of liquidated
damages, undermines the integrity of the procurement process.
7.14 The release of funds without securing full compliance from the supplier
compromises the principles of transparency, accountability, and value for money
in government procurement. Moreover, the agency’s failure to impose liquidated
damages—as a standard contractual remedy for non-performance—may set a
precedent for supplier leniency, weaken future enforcement of contract
provisions, and reduce supplier accountability.
7.15 Moreover, the non-delivery of the remaining drugs and medicines has caused a
delay in the availability of essential medical supplies needed by the CHU, thereby
adversely affecting the timely delivery of healthcare services to the city’s
constituents. This may have public health implications, especially if the
undelivered items are essential, time-sensitive, or used in urgent care programs.
7.16 This observation is communicated to Management through Audit Observation
Memorandum (AOM) No. 2025-09(24) dated April 10, 2025.
7.17 We recommended and Management agreed to:
a. Enforce the terms and conditions of the contract, particularly on full
delivery requirements before payment, unless partial delivery is
explicitly authorized and clearly provided for and stipulated in the
contract, including delivery and payment schedules;
b. Impose liquidated damages, in accordance with the contract and RA
9184, in all instances of delayed or incomplete delivery, unless a valid
reason supported by documentation is accepted and approved by the
HOPE; and
c. Develop and adopt standard guidelines on the handling of partial
deliveries and payments to ensure consistency, legal compliance, and
alignment with government procurement principles of transparency,
efficiency, and accountability.
7.18 Management commented that the payment was made based on quantum meruit
which means that a person may recover a reasonable value of the thing delivered
or the services rendered.
7.19 Moreover, the LGU has compelled payment of liquidated damages through the
City Legal Officer.
59
