Murphy’s Law and poll automation, and a (night)cap on liquidated damages

"If something can go wrong, it will."
"If something can go wrong, it will."

The difficulties of enforcing a poll automation contract can be gleaned from a consideration of the provisions on damages in the Smartmatic-TIM contract with Comelec.  Said contract provides for a “performance security” (in effect, a bond) of 5% of the value of the contract, and also a cap on liquidated damages at 10% of the value of the contract.  On the face of it, it looks like the Smartmatic-TIM joint venture can easily and readily make a clear guaranteed profit so long as their gross profit margin is more than 10% of the contract amount.

The reality may be a bit more complex.

Liquidated damages

The Smartmatic-TIM joint venture (known as the “Provider”) is liable for liquidated and other damages.

Liquidated damages are mentioned in Art. 11.1.1 in the event of default, but are to be computed on a daily basis on the basis of “delay in delivery.”  Such damages are subject to a cap of not more than 10% of the total value of the contract.  In other words, Smartmatic-TIM may “lose back” to Comelec 10% of what it would have received under the contract.

In case of extreme delay in delivery, the contract also provides for Comelec “to rescind” the contract.  Rescission ordinarily means that Smartmatic-TIM would have to return all monies to Comelec, but it seems that the contract cap of 10% would prevail because of the way the contract is written.

Liability imposed by law

The contact also provides for liability as provided by law (and not by stipulation) in case Smartmatic-TIM were to commit an administrative or penal offense.  Art. 11.1.2.

But what happens if, for example, the machines delivered were faulty owing to incompetence of Smartmatic-TIM and not something due to delay in delivery, administrative violation, or criminal act?  Would Smartmatic-TIM be liable?

It is submitted that Smartmatic-TIM would be liable, and that the 10% cap in Art. 11.1.1 does not apply in this situation.  The reason is based on the application of Art. 2228 of the Civil Code, which states:

When the breach of the contract … is not the one contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

In its presentations to Comelec, there is no suggestion by Smartmatic-TIM that somehow there would be any risk that it might breach the contract because of incompetence.  In other words, it is not a situation “contemplated by the parties,” especially Comelec, when it agreed to the liquidated damages provision of the contract.  In short, a failure of elections because of an inherent defect in the software or hardware provided by Smartmatic-TIM subjects the latter to liability by law.  Comelec may recover on actual damages, moral damages, and exemplary damages.

Of course, if harm were caused not by incompetence on the part of Smartmatic-TIM but by Comelec, the former would not be liable.  Thus, decisions made by Comelec at various points in the process of a poll automation exercise may cause problems for which Smartmatic-TIM would not be responsible.  It is difficult to imagine what can go wrong, but certainly, the fact that poll automation is new to the electorate suggests the likelihood of the working of Murphy’s Law (“If something can go wrong, it will”).  Murphy’s Law is of course another reason why there was a pilot test condition precedent embedded in the poll automation law (RA 9369).  Those who argue that the pilot test is not or should not be a requirement  for full nationwide automation are perhaps too sanguine about Murphy’s Law.

Joint or solidary liability of the principals?

A further provision in the contract makes the co-venturers Smarmatic and TIM solidarily liable with the Smartmatic-TIM joint venture in cases of breach and other defaults. Art. 24.

The fact that the principals in the joint venture (Smartmatic and TIM) are solidarily liable with the joint venture itself means that Comelec should have some way of attaching any of their assets in case of damages.  That may be difficult in the case of a foreign corporation such as Smartmatic.  Difficulty would also arise if the local co-venturer does not have sufficient assets to make good on damages.

Relevant contract stipulations

ARTICLE 11

PENALTIES AND CHARGES

11.1 In the event of any default or any violation materially affecting the implementation of the Project, by the PROVIDER, COMELEC shall:

11.1.1 In the event of any default, deduct for every day of delay in delivery after the stipulated period,

liquidated damages in the amount of one-tenth of one per centum (1/10 of 0.01) of the total value of this Contract, or in the event of partial fulfillment of this Contract, of the total value of the unfulfilled portion thereof.

Such amount shall be deducted from any money due or which may become due to the PROVIDER, or

collected from any securities or warranties posted by the PROVIDER, the Performance Security provided for in Article 8.1 above included, whichever is convenient to COMELEC.  In no case shall the total amount of the liquidated damages under this Contract exceed 10% of the Contract Amount. Once the cumulative amount of liquidated damages reaches said 10%) COMELEC may rescind this Contract;

11.1.2 In case the violation constitutes an administrative or penal offense and in addition to

Article 11.1.1 above, impose such other penalties or sanctions as may be prescribed under Republic Act No. 9184 (Government Procurement Reform Act) and other applicable laws.

11.2 The penalties for non-performance or incomplete service are provided for in the Service Level Agreement, attached hereto as Annex “N”.

8.1 Within three (3) days from receipt by the PROVIDER of the formal Notice of Award from COMELEC, the PROVIDER shall furnish COMELEC with a Performance Security in an amount equivalent to five percent (5%) of the Contract Amount; which Performance Security as of this date has been duly received by COMELEC.

24.1 TIM and SMARTMATIC bind themselves jointly and severally for all the obligations and all liabilities that might arise out of this Contract, and so the PROVIDER, TIM and SMARTMATIC commit to be solidarily liable individually or in combination for the entire obligation.

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10 thoughts on “Murphy’s Law and poll automation, and a (night)cap on liquidated damages

  1. Oh yes, Murphy’s Law will manifest itself whether there is a pilot test or not. OMR is indeed an accurate and precise technology but very fragile. The front-end processes of about 1600 different ballots being printed according to specs and delivered where they ought to be and 50(?) milion voters filling out their ballots correctly are expected to be fraught with errors anywhere in the 80 thousand clustered precincts. I attended a forum sponsored by the Harvard Club yesterday on ‘electoral reforms and automated elections’. While all my apprehensions with the automated elections remain unaddressed, at least I went away ‘satisfied’ that when all else fails, the COMELEC is prepared for a manual count. What a waste!
    Solid analysis from you, Lando. Congratulations.

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    1. I don’t know if it will be a waste. The manual count at precinct is “adversarial,” which is somewhat of a safeguard. What is really needed, and I don’t know why it feels like Comelec doesn’t want it, is automation of the canvass. We don’t have ballot secrecy problems there, and that part ought to be relatively simple.

      Where was this Harvard Club event?

      And thanks for visiting.

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      1. I was only invited by Bertie Lim of Makati Business Club. The event was held at the Ateneo Rockwell. Guests included Kay Maxwell of World Affairs Forum, Lucenito Tagle of COMELEC,and Tita de Villa of PPCRV.

        I meant with provision for a manual count to be set up in all 80 thousand locations, [since no one will know in advance which specific areas where all automated elections will fail] automation may become a redundancy, – a waste.

        I agree that what is needed if automation is to be pursued in phases is that automation of the canvass should be one of the priorities. Another would be [automated] cleaning up of the voters’ list.

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        1. I see your point on “waste.” Of course, something “redundant” that fails is a waste. But in the larger schema, we would (should) learn from the experience.

          The paradox is this. If we make a lot of noise about problems, officials and contractors will be more on their toes. The problems may not arise, and we could be derided as Chicken Littles.

          But if we keep our misgivings quiet, that leads to complacency and a higher incidence of a Murphy’s Law episode. And in a sense, we would also have ourselves to blame.

          But I’d prefer to be a part of a Failed Chicken Littles Club on poll automation, rather than in a moralizing “I told you so” claque.

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  2. To quote you:
    “Those who argue that the pilot test is not or should not be a requirement for full nationwide automation are perhaps too sanguine about Murphy’s Law.”

    Tell that to the Senators who just filed a motion for intervention before the Supreme Court on the Roque case. In gist, the Senators affirmed that a pilot test is NOT a condition predecent to full automation in 2010 and this is manifested in Congress’ approval of the budget for full automation.

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  3. Now I see your “shallowness” comes from a premeditated conviction that a pilot test is a must. What you are missing here is the law’s requirement that the AES system must have a demonstrated capability and this is defined…”With respect to the May 10, 2010 election and succeeding electoral exercises, the system procured must have demonstrated capability and been successfully used in a prior electoral exercise here or board.” Congress recognizes that if this system have demonstrated its capability and success in either a local or foreign electoral exercise, then there no need to pilot test it. This system have been successfully implemented in different parts of the world and this is the reason why the jet engine analogy is flawed, it assumed that it hasn’t been tested but it was and successfully at that. The jet engine was tested successfully in the body of a Boeing757 and this same engine technology is now being placed in the executive jet.

    Let me leave you with a quote from Sutherland, the foremost authority on statutory construction:

    The Intent of Statute is the Law. — If a statute is valid it is to have effect according to the purpose and intent of the lawmaker. The intent is the vital part, the essence of the law, and the primary rule of construction is to ascertain and give effect to that intent. The intention of the legislature in enacting a law is the law itself, and must be enforced when ascertained, although it may not be consistent with the strict letter of the statute.

    When Congress approved RA 9525 to appropriate funds for FULL automation of 2010 elections, the lawmakers where in effect saying that in their eyes they are fulfilling the intend of of RA 9369. The provision that public funds should be expended in strict compliance with the law is just a standard disclaimer or waiver in any approriations act. But when the lawmakers passed RA 9525, they did under the assumption that they were not breaching any laws.

    Murphy’s Law will always be Murphy’s Law. a general probability statement.

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    1. Hello. “Shallow” is not my word. It was yours. Still is. Good luck with Sutherland vs. Art. 10 of the Civil Code. There is actually legal scholarship (divided at that) on the issue of whether intent is “etched in stone.” Obviously, I don’t see granite everywhere, even if you want it that way.

      Btw, I have no hankering for executive jets. A retro tail-dragging Piper Cub on pontoons would better suit the needs of our 7,100 islands. But before I take delivery, I will insist on FAA certification, which I’m sure includes pilot testing. It is really a case of putting something through “hell” to see if it survives. You can’t say that of the thing being sold by Smartmatic, with its truncated design, and Smartmatic’s not-quite-great experience with US elections.

      But I agree with you about Murphy. You can overcome it, but it takes goodwill and effort. Thanks for your views, even if we can’t agree.

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    2. PS. Implied repeal is not favored as a rule. This means it is difficult to argue that the appropriations act (RA 9525) effectively repealed RA 9369. “Strict compliance” may be boiler plate but it has meaning — no agency may spend money in a cavalier fashion. And if the law does not yet grant Comelec authority to automate nationwide (one of the issues before the Supreme Court), then the availability of public funds is immaterial. It is there but it cannot be spent except in accordance with law.

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