How Sh70m Defence bill from 1990 ballooned to Sh1.4bn

The Ministry of Defense failed to pay a Sh70 million bill 31 years ago, and now Kenyan taxpayers will have to fork out Sh1.4 billion to settle it.

The debt was flagged by Auditor-General Nancy Gathungu in her report on the audited financial statements of the Department of Defense for the 2019/20 financial year.

The details emerged during a meeting of the National Assembly’s Public Accounts Committee (PAC), which is examining DOD accounts for the year under review.

Yesterday, Defense Principal Secretary Ibrahim Mohamed told PAC, that Kay Construction Ltd was awarded a tender to rehabilitate the 4.5km Laikipia Airbase runway for Sh229.80 million in 1990.

The watchdog committee, chaired by Ugunja MP Opiyo Wandayi, heard that the contractor completed the works in 1994 and handed over the runway to the DoD for use by Kenya’s fighter jets and others.

The government paid part of the contract sum, leaving a balance of Sh70 million.

Mr Wandayi and committee members asked Mr Mohamed why the ministry allowed the unpaid bill to accumulate to the mind-boggling figure of Sh1.4 billion.

“How did we fail to settle this bill when it was due if at all this was a normal contract procured within a normal budget? This is a lot of money,” Mr Wandayi said. 

Of the Sh1.4 billion, Mr Mohamed said, the government paid Sh350 million in the 2019/20 financial year but did not indicate when the balance will be cleared.

“The ministry was not able to pay the balance of Sh1.07 billion to Kay Construction Ltd as there was no budgetary provision for the 2019/20 year,” he said.

Garissa Township MP Aden Duale demanded to know how the contractor was paid Sh350 million in 2020 if there is no settlement agreement capping the payments.

“So how did you pay the Sh350 million that the National Treasury gave you? Are you ready to pay the remaining Sh1.1 billion?” Mr Duale said.

With no provision for paying the bill in the ministry’s budget for the current financial year, the interest on the balance will only continue to increase.

Mr Mohamed said the payment issue is still in court and the parties are still in negotiations even as he claimed that it is in the interest of the ministry to settle the matter.

The contract was later varied to Sh247.08 million from the Sh229.7 million that had been signed in 1990, the Auditor-General said.

The contract period was for 18 months, from November 1, 1990 to June 1, 1992.

But the contractor did not finish the work within the stipulated period and an extension of seven months was granted.

The new completion date was January 2, 1993.

The work was handed over to the ministry on November 4, 1994.

The ministry paid the contractor Sh18.6 million in July 1998 and Sh4.48 million in October 1999, leaving a balance of Sh70.56 million.

At that point the claimant sued and in a February 18, 2005 letter submitted a claim of Sh1.062 billion to the Ministry of Defense.

The claim included the principal amount of Sh70.56 that the government owed and accrued interest of Sh992.33 million.

The claim was forwarded to the pending bills closing committee at the National Treasury. The panel established that the contractor owed the government Sh18.366 million in taxes while the government owed the contractor Sh363,452.

Officers from the Office of the Auditor-General attached to PAC said this was communicated to the claimant, who disagreed and commenced arbitration proceedings in court.

On April 21, 2009, the court awarded the contractor Sh336.605 million plus interest at the rate of 16 percent per annum.

That is the money that has ballooned to the current figure.

The Ministry of Defense told lawmakers that they had negotiated the bill with the contractor downwards to Sh700 million but the Treasury’s failure to release the money saw it grow to Sh1.4 billion.