Taxpayers could fork out Sh33 billion to settle claims by two contractors awarded controversial tenders by the Ministry of Health some 29 years ago.
Auditor General Nancy Gathungu has warned that unless the ministry either appeals against the claims or pays out, taxpayers will pay dearly.
Details by the public auditor show that blunders by the ministry have seen payments due to Equip Agencies Ltd and another undisclosed firm balloon over the years.
The report says that Equip Agencies Ltd is claiming Sh15.3 billion from a contract whose initial value was Sh1.15 billion in 1992 during President Moi’s era.
Another contractor – yet to be identified – is claiming Sh17.8 billion from a contract entered in the financial year 1992-93 at a cost of only Sh196 million.
The two unsettled bills account for 81 per cent of the ministry’s Sh41 billion pending bills as of June 2020, weaving the ministry into a massive debt trap.
The auditor is concerned that the amount has ballooned over nearly three decades without Afya House remedying the situation.
Another case involves a supplier whose contract was terminated and was awarded Sh1.8 billion in damages after suing MoH.
MoH has settled Sh750 million of the claim, leaving a balance of Sh1 billion that is accruing compound interest of two per cent per month.
Equip Agencies was contracted to supply insecticides, malaria control equipment, drugs and protective clothing from July 1996 to June 30, 1997.
The claim has since increased by Sh13.4 billion from the initial award of Sh1.9 billion assigned by court after the contractor sued for breach of contract citing nonpayment.
The court granted the firm Sh80.5 billion in damages – being Sh1.9 billion, plus a compounded interest at 18 per cent per annum from March 1999 to January 31, 2020.
Afya House negotiated with the contractor and reached a deal for the Sh15.3 billion, which the ministry has yet to settle.
At least three court judgments have been rendered following the row, all of them in the company’s favour.
The first ruling was in 1999, the second on December 2, 2011, while the last was by Justice Aburili back in 2017.
The second tender involved several contracts Afya House entered for the supply of various hospital consumables at Sh196 million during the financial year 1992-93.
The firm, whose details have yet to be revealed, supplied haemoglobin scale books and throat swabs, insulin, surgical dressing and sutures, Darrow’s solution and disposable needles.
The agreement provided that payment was to be made strictly within 30 days from the date of the invoice or delivery of the goods.
Any delay in payment was to attract interest at 1.5 per cent or 2 per cent per month on the outstanding amount.
Gathungu reveals, in an adverse opinion of Afya House accounts, that the claim by the supplier stood at Sh17.8 billion as of June 30, 2020, from the initial amount of Sh196 million.
In the third case, the auditor said a contract which a supplier used to sue for a claim of loss of profit was not availed for audit verification.
In the claim, the supplier sued the Health ministry in July 2000 for failure to pay for goods supplied in 1996, and for loss of profit on cancellation of the contract.
In what exposes the cost of termination of contracts, taxpayers are set to pay Sh1.7 billion for a contract initially valued at Sh57 million.
The supplier, after the suit, was awarded Sh20 million in claims for loss, bringing the total claim to Sh77 million.
In October 2015, the court awarded the supplier Sh1.8 billion for pending amount, outstanding accounts and lost profits.
It comprised the principal amount of Sh77 million, Sh26.6 million legal fees, and compounded interest of two per cent per month from May 31, 2000 to 2015 – the date of judgment.
The amount had accumulated to Sh3 billion by 2017, but the ministry entered into negotiations with the contractor and set the figure at Sh1.8 billion.
MoH paid the supplier Sh751.4 million on June 30, 2020, leaving a balance of Sh1 billion which earns a compounded interest at two per cent every month.
Gathungu questioned why the government has not appealed the awards, warning that the precedent created is likely to result in similar action by other suppliers.
“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,” the auditor says in her latest report.
The auditor says that the same was shared by the Solicitor General in a letter dated October 30, 2019, addressed to the Principal Secretary, in which he expressed reservations.
The auditor is further concerned that the ministry has not resolved prior year audit matters, some of which exposed the grave situation of graft at Afya House.
Also queried are payments of Sh3 million for hiring of transport and a variation of Sh1.12 billion for leased managed equipment services whose payment vouchers were not availed.
Gathungu has also flagged an overpayment of Sh7.5 million relating to the purchase of 198 desktop computers, 50 laptops and 13 printers.
She argued that according to the prevailing market price index at the time, the amount payable was Sh19.1 million and not the Sh26 million the ministry reported.
In terms of staff, the audit revealed that 26 employees had a net salary of negative Sh1 million but received Sh1.6 million in their bank accounts, causing an overpayment of Sh2.6 million.
MOH has also been cited for over-employing 648 staff in 28 departments, over and above its approved establishment of 361 vacant positions.
Gathungu, revealed that there were 30 employees who had attained the mandatory retirement age of 60 years but were still in the ministry payroll.
Edited by Henry Makori