How contracts cancelled by MoH left govt with Sh40.7 billion pending bills
By Patrick Kibet
| July 6th 2021
An audit report has revealed how contracts cancelled by the Ministry of Health more than 25 years ago left the government with Sh40.7 billion in pending bills.
Auditor General Nancy Gathungu, in her 2019-2020 report, reveals that two contracts totalling about Sh1.2 billion ballooned to Sh33 billion following court awards, legal fees and accrued interests after the government failed to pay the suppliers.
In one of the cases, a supplier moved to court on July 31, 2000, for loss of profit due to the cancellation of a contract entered in 1996.
The auditor general notes that the goods supplied amounted to Sh57 million while the claim for loss was Sh20 million, all totalling to Sh78million.
On October 9, 2015, the court awarded the supplier Sh1.9 billion for the pending amount and lost profits.
“This comprised of the principal amount of Sh78 million, legal fees of Sh27 million and compounded interest of two per cent per month from May 31, 2000, running to the date of judgment,” the audit report notes which reveal that by 2017 the amount had accumulated to Sh2 billion but was revised downwards to Sh1.75 billion following negotiation between the supplier and ministry.
On 30 June 2020, the Ministry paid the supplier Sh751 million through the Attorney General, leaving a balance of Sh1 billion which continued to attract compounded interest at two per cent per month.
“It is not clear why the Ministry did not appeal the ruling, considering the effect the award was to have on the Ministry’s budget and the precedent created which is likely to result in similar action by other suppliers,” the audit notes.
Another Sh1.2 billion contract signed in 1996 for the supply of insecticides, malaria control equipment drugs and protective clothing was to be implemented from July 14, 1996, to June 30, 1997, but the Ministry was sued for breach of contract after it failed to pay the supplier.
After a court duel, the supplier was awarded Sh1.9 billion plus interest compounded at 18 per cent per annum from March 1, 1999, to January 31, 2020, amounting to Sh80.5 billion.
However, upon negotiations out of court, the award was revised to Sh15 billion, resulting in an escalation of Sh13 billion.
The report also revealed that the Ministry entered various contracts for the supply of haemoglobin scale books and throat swabs, insulin, surgical dressing and sutures, Darrow’s solution and disposable needles all at a cost of €1.8 million (Sh197) million in the 1992-1993 financial year.
Due to failure to make payments as per the agreement, accrued claims stood at Sh17.8 billion by June 30, 2020.
The audit also revealed that the Ministry failed to spend Sh1 billion, a grant received from donors for a two-year HIV/Aids project, initiated on October 1, 2015.
During the project tenure, the Ministry received Sh3.8 billion but according to the audit by June 30, 2020, the unspent funds were likely to be refunded to the donor after the Ministry failed to get a project extension.
Gathungu notes in the report that value for money for the program may not be achieved due to underutilized funds.
The audit report also flagged the delayed construction of the East Africa Kidney Institute in Nairobi for which the Ministry obtained a 35-year loan for its construction which was to start from December 17, 2014, to December 2019.
However, due to delays, this was reviewed from June 30, 2020, to December 31, 2020.
A project monthly progress report of June 2020 indicates that the tender for construction of the East Africa Kidney Institute was signed on 18 July 2019.
By June 30, 2020, the construction works had achieved seven per cent completion while the time-lapse was at 79 per cent and possession of site by the contractor was on 28 August 2019.
“Clearly, the project is behind schedule and the delays have adversely affected the project implementation and related activities,” the Audit concludes.
According to the Auditor General, the Ministry had advertised 361 vacancies but employed 1,009 staff for 28 departments, resulting in an over the employment of 648 staff and “no explanation has been provided for the over the establishment,” the report notes.
The audit flagged Sh27 million spent on purchase of 198 desktop computers, 50 laptops and 13 printers, yet according to the report, the prevailing market prices for the equipment was Sh19 million, resulting in an overpayment of Sh7.5 million.
The Ministry was further fingered for Sh41.7 billion pending bills which were not settling during the financial year, which the report says will adversely affect the budgetary provisions for the subsequent year as they form a first charge.
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