Puzzle of Sh12 million contract that will cost taxpayer Sh352 million 

It will now cost the taxpayer more than Sh352 million for a contract that was irregularly procured by government officials and which was to cost only Sh12 million. 

Auditor-General Nancy Gathungu in her audit report for the 2018/19 financial year accounts of the Tourism ministry, has flagged the matter, which puts to question the integrity of government officials in entering into such deals. 

Documents before the Public Accounts Committee (PAC), which is considering the audit report, shows that Tele-News Africa and Atlantic Region, a private media firm, was contracted in 2004 at Sh12 million by the Ministry of Trade to undertake consultancy services. 

The services included advertising and promotion of business opportunities in Kenya on behalf of the government. 

What caught the attention of PAC, a National Assembly watchdog committee chaired by Ugunja MP Opiyo Wandayi, is the fact that although the contract ended on June 9, 2004, having been fully paid for the contract period, the firm continued advertising. 

To date, the State Department for Trade, which has since been transferred to the Ministry of Tourism, has paid the media firm more than Sh290 million in accumulated interest, with Sh62 million still owed. 

Mr Wandayi and PAC members Aden Duale (Garissa Township), Joseph Ngugi (Gatanga) and Wilberforce Oundo (Funyula) wondered how it doesn’t prick the conscience of some ministry officials to occasion the taxpayer such huge costs in questionable contracts. 

“Does it prick your mind to continue subjecting the public funds to such payments?” Mr Wandayi asked, as Tourism Principal Secretary Safina Kwekwe, appearing before the committee, struggled for answers. 

“It disturbs us because it means that further delay in settling the pending bill means an enhanced cost on the taxpayer,” Mr Wandayi added. 

Loss of public funds

Even as MPs raised their concerns, there is a risk of further loss of public funds through continued accumulated interest and penalties occasioned by the Ministry’s officials should the delay to pay the amount persist.

Ms Kwekwe, who blamed her predecessors for allowing the company to participate in the third phase of the programme without a valid contract and budget, said the State Law Office rebuffed the ministry’s efforts to block the payments. 

“We are equally disturbed because the payments are putting us in a bad light,” Ms Kwekwe told the committee on Monday. 

“We registered our concerns with the State Law Office but what we were told is to go and pay,” the PS added. 

The Public Finance Management (PFM) Act bars government accounting officers from entering into contracts without a budget.

The State Law Office had, in 2006, observed that the ministry was obligated to settle the claim since it agreed to participate in the disputed third phase of the programme.

Mr Duale said the payment should have been dealt with a long time ago to save the government from unnecessary costs, even as he questioned the seriousness of some officials in government. 

“The lawyers were keen to have the money deposited in their accounts. Did you seek the advice of the counsel seconded to your ministry from the State Law Office?” Mr Duale asked Ms Kwekwe. 

Project without valid contract

Mr Ngugi said the fact that the government has gone on to pay in excess of what it contracted to pay, is not only outrageous and an impropriety, but insensitive to the prudent use of “limited” public funds. 

“This is wrong because the government is paying for a project that did not have a valid contract. It is not easy to believe that this matter has been pending for all this time,” Mr Ngugi said. 

Dr Oundo, the Funyula MP, was not amused either: “This sounds very intriguing! Having a Sh12 million figure balloon to over Sh300 million is unimaginable, given the current circumstances where the government is struggling to raise revenue to finance its operations. 

“Is this person a Kenyan? That his conscience does not prick him to get paid in this manner for what he has not delivered!”

On June 8, 2020, the PAC directed the State Department to settle all the monies owed to Tele News without further delay. 

Mr Wandayi notes that the decision was informed by the dangers of continued cost accruals to the public in case of further delays. 

However, Ms Kwekwe said that because the budget cycle for the preparation of the 2020/21 financial year was at the tail end, they had to wait for the year’s first supplementary budget. 

The amount was not allocated, with Ms Kwekwe pushing for the supplementary II of 2020/21, which is yet to be passed.  

Escalated interest

The document by the PS further notes that there was negligence on the part of the Ministry of Trade officials in not adhering to the professional advice of August 2011 by the State Law Office. 

The AG had advised the ministry to pay the outstanding amount and negotiate the interest payable, even though there was no formal contract for Phase III.

However, the ministry failed to accede to the AG’s advice, prompting the company, through Maosa and Company Advocates, to seek court redress for the non-payment.

By the judgment of July 24, 2012, the firm was awarded Sh110.06 million, being the initial Sh12 million, plus 26 per cent interest backdated to April 2004. 

By dint of the judgment, the court escalated the interest from 3 per cent to 26 per cent. 
Interestingly, the judgment was not appealed. 

Part payment of Sh65 million was made in July 2013 as interest continued to accumulate. As at December 2016, the outstanding bill had accumulated to Sh210 million. 

“We are going to be strict with this issue because you are taking us in circles. The court just gave a blanket figure of 26 per cent. This judgment was not appealed and portends good business for suppliers that you can work for Sh12 million and sit back to see the amount accrue to Sh300 million,” said Mr Wandayi. 

The audit report notes that had the Attorney-General’s advice been followed, it could have saved the government at least Sh198 million in accumulated interest.

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