Youth Fund director’s firms caught up in controversial tender dispute

Fresh revelations show that some directors of the suspended Youth Enterprise Development Fund board were doing business with the Fund.

Documents in our possession indicate that one of the directors exerted "undue pressure" on the credit unit of the Fund to irregularly issue bid bonds to two companies associated with him.

And when the issuance of the two bonds worth only Sh200,000 was rejected, the two companies demanded an accrued payment of Sh7.9 million. They said the colossal increase in payment resulted from costs incurred in trying to secure the bonds plus interest.

The bid bonds are credit facilities offered to youth groups seeking to secure a government tender to provide a service or supply goods.

Because these groups may be short of cash to pay for tender processing fees even before tenders have been awarded, the Youth Fund provides bonds equivalent to these facilitation fees which can be redeemed in commercial banks.

The bonds are offered to registered groups, partnerships and companies owned and ran by individuals aged between 18-34 years. They can get bonds of up to Sh2 million.

It is under this arrangement that Bouncy EA Ltd and Sos & Clem Investment Company Ltd applied for a bond on a Friday afternoon for an Uwezo tender which was lapsing on Monday.

Youth Enterprise Development Fund Board members Wenza Metunda, Nicholas Mwaniki, Simon Macharia, Clement Ayungo, Michael Wamae and Timothy Gakuo when they appeared before National Assembly Public Investment Committee at Parliament Buildings to shade light on the financial scam. (PHOTO: FILE/ STANDARD)

"Despite stating the requirements that applications should be done three days prior to the date of submission of the bid, the clients insisted on having them done on Friday 13th November 2015 with the full knowledge of the tender closing date of Monday 16th November 2015," an internal memo from the Credit Unit of the Fund states.

The application did not have all the documents that were required and some had to be sent via email or through the Whatsapp mobile application.

According to the memo, officers at the Credit Unit mistakenly recorded the wrong tender number, UWZ/NCB/001/2015-2016 instead of UWZ/NCB/002/2015-2016 in their approval document "due to high and undue pressure from one of the Fund's board of directors."

The Fund together with the parent ministry had published an addendum correcting the tender number following the original advertisement in the papers. In the mistake, the Youth Fund officials captured the original erroneous tender number.

On November 16, 2015 when the tender lapsed, an initial attempt to correct the tender number was thwarted by a power outage.

The Credit Unit's officers were, however, able to correct it by 9.45am and rushed the tender documents to the 16th floor of Lonrho House where Uwezo Fund, the procuring entity, is based and where a contact of the two companies was waiting.

Ultimately the bid documents were handed over to a representative of the two firms.

Later on the same day, a strange demand letter was received from a Nairobi-based law firm. Addressed to the CEO, the letter asked the Fund to take full responsibility for the delayed issuance of the bonds and the initial mistake in the tender number.

"The said bids were rejected by the procuring entity for having quoted a non-existent tender. This was occasioned by your lack of due diligence, gross incompetence and/or negligence," the letter from the law firm read.

The letter said the corrected bid bonds were issued out of time "well past the 10am" deadline for the two tenders. Further the law firm accused the Fund of purporting to backdate the tender documents and claimed its clients had spent over Sh400,000 in preparing for the tender and were "traumatized that all their efforts had come to naught" as a result of the rejection.

"Our clients have suffered irreparable loss of revenue, time and their businesses have suffered irreparable damage," the letter said.

Their list of demands included a "written unequivocal apology", repayment of Sh2,000 paid to the Fund for issuance of the bid bonds, repayment of the Sh400,000 to compensate for the expenses incurred together with interest of 12 per cent, repayment of "collection fee" of Sh50,000 and payment of Sh7.9 million "which is the total value of the two tenders that have now come to naught due to your (in)action(s)."

The letter warned that failure to pay the monies in five days may lead to "increased costs and incidentals thereto."

On the following day, Susan Maingi, a legal officer at the Fund, wrote an internal memo to the CEO contesting the letter from the Nairobi law firm and warned that the matter may blow up if it is escalated.

"This will have an implication on the Youth Fund Board as a whole and expose the director in question to legal suits which will tarnish the image of the Board, especially when it reaches a point where he will be summoned to appear as a witness," Ms Maingi warned in relation to the board was suspended last week.

Besides, she said in the memo, the applications by the two companies were illegal from the very beginning since it had been established in May 4, 2015 that a board member of the Fund was also a director at Bouncy East Africa Limited.

"The current CR12 application dated September 18, 2015 has his name removed as a shareholder. If due diligence is applied by conducting a search of particulars of directors and shareholders at the company registry, the past records will show his directorship which will bring about the issue of conflict of interest," the memo stated.

Maingi also raised the question of abuse of office. She said the use of staff in personal engagements "and especially in regards to this particular issue at hand" was contrary to ethics and code of conduct. She said although five days are required in processing of bonds they were shortened to three.

"The said application was done way below the time given. It was out of high and undue pressure from the director to beat the deadline, that the error of quoting the correct tender number was inadvertent," she said.

She proposed that the chairman of the Fund advises the director to withdraw his instructions to the Nairobi law firm. She also proposed that both parties agree on settling the expenses incurred during the processing of these tenders documents subject to the production of receipts.

She also proposed that the law firm writes a letter withdrawing the intended suit and copy it to the Cabinet Secretary, Principal Secretary and the chairman of the Commission on Administrative Justice. The three officers had been copied in the law firm's demand letter.