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How procurement deals are costing taxpayers billions

By Moses Michira | Oct 7th 2014 | 6 min read
By Moses Michira | October 7th 2014
President Uhuru Kenyatta with Deputy President William Ruto are taken through Electronic Procurement and payment System by the Director of IFMIS at The Treasury Mr. Jerome Ochieng

Fred Onunga picked a packet of milk and a loaf of bread while shopping for breakfast. He had Sh200 and intended to use the change to pay for his bus fare. Shopping for breakfast at the supermarket saves him about Sh8.

The corner shop near his home in Kangemi is more expensive, he says.”It is simple math,” Mr Onunga, who is employed as a computer shop attendant told Business Beat. The math might not be that simple for the State, however, where an ordinary biro pen costs Sh50 and a packet of milk Sh100.

The two items are on the long list of basic items bought at inflated prices in scandalous procurement deals that have seen the taxpayer lose over Sh20 billion a year. Gaps in the Government’s system of making purchases has allowed public workers to be the main suppliers – a major conflict of interest that has seen basic computers delivered at a price of Sh250,000 – about five times the market rate.

“Abuse of public procurement guidelines is rampant, says Public Procurement Oversight Authority (PPOA) Director General Maurice Juma. “There are many procurement processes we have directed to be restarted; some have been forwarded to the anti-corruption agency for further investigation.” PPOA is the agency tasked with monitoring the procurement process in public offices to ensure the State gets a fair deal. However, entrenched corruption among State officials has exposed the public sector to abuse, especially in the procurement of small daily supplies like stationery.

Mr Juma also reckons that abuses are more likely to occur in procurement for tenders worth Sh500,000 and below, which fall below the radar of the PPOA. Now, the agency is considering lowering the threshold for the value of tenders on its watch, but that might not be immediate since it would require a change in PPOA’s legal framework. Business Beat has established widespread abuses in procurement in the public sector where tendering rules are widely disregarded to benefit civil servants who supply directly or through agents.

 Overshooting expenditure

In a well-documented review of procurement at the Kenya School of Government (KSG), for instance, the institution lost over Sh675,000 by purchasing Pishori rice from suppliers who delivered the commodity at Sh165 per kilo. Another supplier who had tendered to deliver the same quality of rice at Sh100 per kilo was not considered without any explanation. In fact, the higher bidder of the two successful suppliers delivered more than half of the 12 tonnes required.

From the single commodity, KSG overshot its expenditure from Sh990,000 budgeted for the purchase of rice to the Sh1.8 million paid to the two suppliers who quoted Sh150 and Sh165 per kilo, respectively. Rice was among dozens of goods and services that the PPOA found to have been bought at exorbitant prices and in disregard of all procurement guidelines. It is easy to see the effect of such abuses on the Government’s recurrent expenditure estimated at Sh1 trillion in the last financial year. Supplies take up a huge proportion of the recurrent expenditure, only second to salaries.

The sum total of such abuses have the obvious effect of bloating the Government’s expenditure, which is up to 95 per cent funded by direct and indirect taxes on citizens like Mr Onunga. “We are losing more than Sh20 billion a year through inflated prices on consumables,” Planning Principal Secretary Peter Mangiti said in a past interview. He said the State buys consumables in huge volumes every year, a factor that amplifies the losses. Eng Mangiti acknowledged that some civil servants could be implicated in the scam adding, “It is very possible but we are addressing it.”

His boss, Devolution Cabinet Secretary Anne Waiguru, also confirmed that the State was paying exorbitant rates for goods and services, above the stipulated price guides. Sh20 billion is equal to the allocation to the Parliamentary Service Commission for all its expenses including salaries for its entire staff including MPs and senators who are among the best-remunerated public officers in the World.

Kenya could also use the amount to gift every citizen Sh500 every year, a significant transfer in a country where nearly 40 per cent of Kenyans live on less than Sh170 ($2) a day- in the World Bank’s estimation. Mangiti’s sentiments could be the first indication yet on how President Uhuru Kenyatta’s government plans to contain the runaway expenditure in recently introduced austerity measures.

  No tea

Kenyatta has knocked off tea and coffee from the budgets of all ministries and State parastatals, for starters. PPOA publishes price guides every quarter that list the average cost for virtually every commodity and service that the Government procures. In the latest guide, the average price for an ordinary biro pen is Sh13, while the fine tipped one retails at Sh21.

The typical laptop used in Government offices today cost about Sh45,000 on the market in PPOA’s published prices, while the State pays more than four times the retailing rates. The Auditor Genera Edward Ouko has also raised questions on the inflated rates at which the Government procures goods and services.

An officer we talked to revealed that most Government supplies at his ministry were delivered by himself and colleagues. “It is normal practice here for staff to be the suppliers; most of my colleagues are pretty rich,” said our source, who requested anonymity. He has provided ticketing services for his department, taxi services and even supplied laptop computers through his own companies but registered in the names of family members.

Since joining the ministry in 2004, procuring from insiders has only gotten worse, he says. Local and foreign trips were until last year open to almost anyone who applied to go for training sessions and seminars. The motivation for such trips is per diem allowances, which would be anywhere around Sh6,000 a day within Kenya to about Sh10,000 ($120) for foreign travel.

Such seminars are often organised by development partners such as the World Bank which would typically cover all costs for participants. Former Information PS Bitange Ndemo told the World Bank that the flawed public procurement process was helping public servants to steal as much as Sh86 billion every year.

 Flouting procedures

Mr Ndemo said that getting procurement right could be save the country more cash than foreign aid received from donors and other development partners. “What’s really important is procurement. We could save up to Sh87 billion billion annually,” Ndemo said at the launch of an open-data portal three years ago. In his position as the chief accounting officer at the Information ministry then, his estimates would be accurate.

Ndemo also accused civil servants of flouting the procurement laws to become suppliers themselves, either directly or through proxies. It was envisaged that the open data portal would be a central point for information for all stakeholders including suppliers, on how much specific commodities and services actually cost. It would also enable large retailers to bid directly for government tenders. “The much more powerful thing about open data is making the public aware.

If we put the prices for toilet paper in the public eye, the public will ask, “Are you buying this for toilets made of gold?” he posed.

It was however, a false start for the portal which has not been useful. The most recent information uploaded to the site is from surveys dating as far back as 2009. Lack of co-operation from respective ministries in sharing of information has been blamed in part for the outdated information on the portal. Mangiti says the Government is betting on the Integrated Financial Management Information System (IFMIS) to tackle the procurement menace, once and for all.

The National Treasury has included the entire procurement process on the financial management portal where market indicative rates for goods and services will also be embedded. IFMIS, which tracks all public expenditure, will now include the tendering process starting from the pre-qualification of suppliers to the actual payment after delivery. “It should be easy for the system to flag ridiculous bids, which we often learn about after the procurement process has been concluded,” said Mr Juma. Mangiti said the benefits of embracing e-procurement include shortening the process of buying and payment, while making it possible to track how the suppliers were selected to increase transparency.

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