How taxpayers lose billions in state corporation projects
Chairperson of the Public Investment Committee Abdulswamad Nassir (centre) with other members during a committee sitting on January 27, 2022.
Irregular procurement, poor management of contracts and delayed payment of contractors are causing taxpayers to lose billions of shillings, according to a report on audited accounts of state corporations.
The report on 30 state corporations by the National Assembly Public Investments Committee unearthed how procurement officers fail to follow the law, leading to penalties from contractors that are borne by the taxpayers.
“The committee noted with concern that some state corporations undertook procurement processes irregularly, contrary to the provisions of the Public Procurement and Assets Disposal Act, 2015 regulations and government circulars leading to inflated costs of projects,” it reads.
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“The chief executive officers, managing directors of state corporations should ensure proper planning of projects is undertaken, with credible feasibility studies done to reduce variations during contract implementation.”
A case in point the committee noted is the award of the Sh64 billion tender to a Chinese firm by Kenya Airports Authority (KAA). It was done before the contractor could even identify a financier as required by law. According to the contract, one of the requirements was that the contractor get a financier prior to signing of the contract, but this was never done.
Although it was later cancelled amid claims that its cost had been inflated by Sh9 billion, taxpayers still paid the contractor Sh4.3 billion for no work done.
Another example given by the Abdulswamad Nassir-chaired committee is the Sh615 million Lamu Port Housing Project, which was to be undertaken by the Ministry of Transport, Infrastructure, Public Works, Housing and Urban Development but was later varied to over Sh900 million without reason. The report says the Kenya Ports Authority was directed, after the variation, to take over the project and finance it under unclear circumstances.
“There were myriad audit reservations raised on the preliminary implementation of the project that the management of Kenya Ports Authority could not respond to since it was not the implementing agency then.”
The committee noted that KPA could not justify the variation of the project, accounting for engineers’ expenses and whether the project had been budgeted. It points out that with prudent management of procurement procedures and sticking to government circulars, taxpayers could save billions paid to contractors emanating either from cancellation of contracts or delayed completion of projects
To cure the wastage of public resources, the lawmakers now want heads of state corporations who ignore procurement laws to be surcharged the extra amount.
“The chief executive officers, who exceed the maximum contract variation of 25 per cent provided for under Section 139(4) of the Public Procurement and Asset Disposal Act, 2015, should be surcharged for the variation in price incurred by their corporations over and above the allowed threshold in law,” says the report.
One of the corporations flagged for incurring huge interests is the Kenya National Highways Authority (Kenha), which had an accumulated interest on delayed payments of Sh6.4 billion. The MPs now want accounting officers to ensure the existence of a budget before contracting any person to implement a project.
They have warned the officers and board members against unreasonably delaying payments, saying they will be held responsible for the loss of public money. They also observed that several suits concerning ownership of land of state corporations and other legal matters have been pending, some for over a decade, at the taxpayers’ expense.
