State risks losing Sh3.9bn over cancelled medical equipment deal

Auditor-General Nancy Gathungu has warned that the government risks losing at least Sh3.92 billion in breach of agreement after the Ministry of Health, without notice, cancelled the Healthcare Information Technology (HCIT) solutions contract for the Managed Equipment Service (MES).

The Sh4.9 billion HCIT project, part of the Sh62 billion MES contracts, was awarded to Seven Seas Technologies Limited, a local ICT firm, on October 2, 2017.

It entailed provision of HCIT solutions, including software and hardware interfaces, training and maintenance.

The latest revelations, coming even before the multi-billion-shilling Covid-19 scandal at the Kenya Medical Supplies Agency (Kemsa) is settled, are contained in the Auditor-General’s report on the accounts of the Health ministry for the 2018/19 financial year.

The HCIT project, whose cancellation by Health Principal Secretary Susan Mochache remains a controversy, was to take five years from the contract date and was to cover 98 public hospitals under the government’s MES plan.

“Information available indicates that although the project had not commenced as at June 30, 2019, the ministry, vide a letter dated November 18, 2019, terminated the contract without notice, thereby exposing the government to the risk of litigation and damages,” the report, signed by Ms Gathungu, warns.

Clause 39.2 of the HCIT contract provides that in the event of termination by the procuring entity (Ministry of Health), the entity shall pay the contractor for all the services undertaken and include an additional amount equivalent to 80 per cent of the remaining outstanding contractor’s fees.

This translates to at least Sh3.92 billion. The clause is also detailed under schedule 13 of the HCIT contract.

Ministry’s response

The ministry, in its defence, termed the clause unrealistic and explained why it terminated the HCIT contract with Seven Seas Technologies Limited.

“The management has not explained why the contract was signed with the unfavourable clauses and why the input of the Attorney-General was not sought before the contract was signed,” Ms Gathungu says.

Section 5 of the Office of Attorney-General Act, 2012 empowers the office holder to negotiate, draft, vet and interpret local and international agreements and treaties for and on behalf of the government and its agencies.

The local company was required to develop an ICT infrastructure -- a health strategy connecting all public hospitals to a central database. It is a key component of President Uhuru Kenyatta’s Universal Health Coverage (UHC) plan for the country.

Ms Gathungu also faulted the ministry for varying contracts with three suppliers to lease additional medical equipment worth Sh902.3 million for 24 hospitals in 23 counties under the MES scheme.

The amount is part of the Sh26.34 billion the national government had paid to the various medical contractors and consultants as at June 30, 2019, since the government signed service level agreements with the counties for the MES equipment on February 6, 2015.

About Sh8.8 billion, including the varied Sh902.3 million, was paid during the 2018/19 financial year.

The report notes that the cost of leasing the additional equipment was incurred as the other previously leased MES equipment continued to lie idle in hospitals across the country.

Needs assessment

The report faults the ministry for failing to conduct a needs assessment survey before varying the MES contract with 23 counties for additional equipment.

“A needs assessment report, which informed the decision to lease additional equipment for the 24 hospitals, was not availed for audit verification,” the report says.

On February 6, 2015, the ministry signed agreements with five medical contractors for leasing of the medical equipment to 98 hospitals across the 47 counties.  The equipment was to be delivered in five lots.

Lot one had theatre equipment that included an anaesthetic machine with ventilator, electrosurgical unit, operating theatre ceiling mounted lamp, operating theatre table major, resuscitaries, instrument trolleys, patient stretchers or side rail, resuscitation patient trolley and linen trolley.

Lot three had theatre CSSD surgical instruments and equipment that included surgical instruments set for major operations, gynaecological, minor operations, ENT, ophthalmology and theatre CSSD equipment.

Lot four had renal equipment that had a dialysis machine, dialysis beds, suction machine, vital signs monitor, oxygen concentrator and drug trolley.

The fifth lot included ICU, HDU equipment with lot 7 having radiology equipment.

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