Public Procurement in Kenya’s Counties · With regard to legislative and institutional frameworks...

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Public Procurement in Kenya’s Counties

Experiences from three counties

Public Procurement in Kenya’s Counties

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Table of Contents

Abbreviations viAbout us viiExecutive summary viii

1. Introduction 12. Kenya’s procurement frameworks 32.1 What is public procurement? 32.2 What is the role of public procurement? 32.3 Why should public procurement matter to citizens? 32.4 The constitutional and statutory framework 32.5 The institutional framework and procurement procedures 53. Review of Kenya’s nationwide procurement performance 124. Public procurement in three counties 134.1 PublicprocurementchallengesidentifiedbyCOBinthreecounties 134.2 Public procurement challenges experienced in the three county governments 184.3 Causesof thepublicprocurementchallengesexperienced 204.4 Consequencesof thepublicprocurementchallengesexperienced 225 Recommendations 265.1 Development of staff capacity 265.2 Development of procurement plans 265.3 Pre-qualificationof suppliers 265.4 Following due process 265.5 Inventory management 266 References 27

Public Procurement in Kenya’s Counties:Experiences from three counties

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List of FiguresFigure1:Thestagesof theNationalOpenProcurementmethod 7Figure 2: Absorption rates of the recurrent and the development annual budget (FY2013/2014) 23

List of Tables Table1:TrendsinPPARBcasessinceinception 6Table2:ProcurementchallengesinWajirCounty 13Table3:ProcurementchallengesinMombasaCounty 15Table4:ProcurementchallengesinMachakosCounty 16Table 5: Analysis of expenditure on domestic and foreign travel 24Table6:Analysisof MCAsittingallowancesfortheyearFY2013/2014 24

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Abbreviations

COB Controllerof BudgetFY Financial YearIDS Institute for Development StudiesIEA Institute of Economic AffairsIEBC IndependentElectoralandBoundariesCommissionLPO LocalPurchaseOrderLSO LocalServiceOrderMLG Ministry of Local GovernmentOECD OrganisationforEconomicCo-operationandDevelopmentPPARB PublicProcurementAdministrativeReviewBoardPPDA Public Procurement and Disposal ActPPOA PublicProcurementOversightAuthority

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About us

TheAfricaCentreforOpenGovernance(AfriCOG)isanindependent,non-profitorganisationthatprovides cutting edge research and monitoring on governance and public ethics issues in both the public and private sectors so as to address the structural causes of the crisis of governance in this country. The overall objectives of our programme activities are: to promote the implementation of theConstitutionof Kenya2010;strengthenanti-corruptionandgoodgovernanceinKenyawithobjective, high-quality research and advocacy and to buildKenyans’ capacity to be permanentlyvigilant and monitor progress on governance issues in the public and private sectors in Kenya. We also work with others at regional and international levels to promote collective efforts towards anti-corruption,accountability,transparencyandopennessingovernance.Ourreports,policybriefsandoverall work add value to anti-corruption and governance reform processes in Kenya and the region by stimulating policy discussion and supporting evidence-based advocacy and the mobilisation work of our partners.

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1TransparencyInternational[TI].(2014).Public procurement in Kenya: Cash cow for the corrupt or enabler for public service delivery? Adili,issue1452WorldBankandIFC,20073IDS,20064PPOA,2007

Executive summary

TheKenyagovernmentlosesaboutonethirdof thenationalbudgettocorruption,with80percentof allcorruptioncasesbeforetheKenyaAnti-CorruptionCommissionbeingaboutprocurement1. According to the World Bank, in order to secure a government contract, a gift whose valuerepresents8to10percentof thecontractamountisexpected2,while,accordingtotheInstituteforDevelopmentStudiesmanufacturingfirmsinKenyaspendanaverageof 14percentof thevalueof government contracts on kick-backs3. It is also estimated that procurement entities are buying goods andservicesatanaverageof 60percentabovetheprevailingmarketprice4.Evidently,corruptionremains pervasive in procurement processes.

Giventhelevelof haemorrhagingof publicresourcesatthenationallevel,theAfricaCentreforOpenGovernance(AfriCOG)soughttohighlighttheconstitutional,statutoryandinstitutionalframeworksof procurement in Kenya while reviewing the general procurement performance of three selected counties,Wajir,MombasaandMachakos,inthe2013/2014financialyear.Themainobjectiveof thestudy is to generally highlight transparency and accountability concerns in the procurement processes inthethreecounties,whichwouldinturnhighlightthecausesandconsequencesof procurementchallenges experienced. The work also aims to make recommendations for county governments to consider,whichwillpreventthelossof publicfunds,evenastheyenhancepublicservicedelivery.The three counties were selected mainly on the basis of absorption rates of development funds and their location in the country for purposes of diversity.

With regard to legislative and institutional frameworks for procurement, Kenya has undergonesignificantdevelopmentinthepastthreedecades.Itcamefrombeingasystemwithweakregulationsinthe1960stooneregulatedbyTreasuryCircularsbetweenthe1970sand1990s.In2005,thePublicProcurement and Disposals Act (PPDA) was enacted, becoming operational on1January 2007.However,thePPDAfailstoprovidestrongenforcementmechanisms.Despitetheenactmentandcommencementof procurementregulations,Kenyanpublicprocurementcontinuestobemarredby corruption scandals.

OtherstudiesconfirmthatthePPDA’sobjectivesof weedingoutinefficienciesintheprocurementprocess, removing patterns of abuse, andmeeting the desire of the public purchaser to obtainadequate value for the expenditure of public funds, have never been fully achieved in practice.Althoughproceduressupportingthesystematicplanningof procurementarewellestablished,theyare not always complied with.


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5At theOECDSymposiumandGlobalForumonIntegrity inPublicProcurement inNovember2006,participantscalledfor thecreationof aninternational instrument that would help policy makers reform public procurement systems and reinforce integrity and public trust in how public fundsweremanaged.Theinstrumenthelpsenhancegoodgovernancebycheckingwaste,fraudandcorruptioninpublicprocurementandisanchoredonprinciplesof transparency,accountability,preventionof misconduct(upholdingethicalstandards)andgoodmanagement(keyamongthembe-ingvalueformoneyandcompetition).Theoverallaimistoenhanceintegrityeffortssothatgovernmentsarefullypartof anefficientandeffectivemanagement of public resources.6WorldBankGroup,2014

Overall,thelowabsorptionof developmentfunds,compoundedbyslowprocurementprocesses,wascitedamongtheissuesthataffectedthe2013/2014budgetimplementationnationally.Althoughtherewasamarked improvement in theoverallperformancecompared to thepreviousyear, theabsorption rates for development expenditures still remained relatively low at 52 percent. Speeding uptheprocurementprocesswasseenasonewayof increasingtheseabsorptionrates.Ontheotherhand,countieshadinadequatestaffingandlowstaff capacity,especiallyinpublicprocurementandfinancialmanagement,whichaffectedbudgetimplementation,contributingtothelowabsorptionof funds.

Procurementchallengesexperiencedbythethreecountygovernmentsinquestionduring2013/2014contravene the key principles underpinning public procurement5,which include value formoney,ethical standards, competition, transparency and accountability. Thus, these counties extensivelyviolate the general procurement rules provided in legislation. The causes of public procurement challenges experiencedby the three counties revolved around inadequateprocurementplanning,lackof pre-qualificationof suppliers,failuretofollowdueprocess, lackof adequatenumbersof qualifiedprocurementprofessionalsandpoorinventorymanagement.Consequently,theeffectsof theprocurementchallengesexperiencedincludeoffencesof financialmisconduct,lowabsorptionof resources,delaysinprojectimplementation,wastefulspendingandunauthorisedspending.

Owingtothefact thatnationalpolicyobjectivesondevolutionreformsarenotbeingfullymet6,county governments need to take into account various procurement considerations. These include: development of procurement plans; pre-qualification of suppliers; adherence to due process;developmentof staff capacity;andinventorymanagement.

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Introduction 1

7TI,20148WorldBankandIFC,20079IDS,200610KPMGInternational,2011(November)11TI,201412InstituteOf EconomicAffairs[IEA],200513 The difference between development spending and absorption rate of development funds is the fact that the former describes the proportion of money that was used on development projects compared to the total amounts allocated in a county while the latter indicates the variation in utilization of these funds across counties

Corruptionremainsaseriousobstacletoeffectivegovernance.TheWorldBankestimatesthat25percent of Africa’s GDP is lost to corruption every year. According to a report by Transparency

International, the Kenya government loses about one-third of the national budget annually tocorruption7.Thereportalsoassertsthat80percentof allcorruptioncasesbeforetheEthicsandAnti-CorruptionCommissionhaveaprocurementelement.Takingapercentageof anawardedtender,orinflatingprojectcosts,isthecommonestmeansof dippingintogovernmentcoffers.AWorldBankandIFCenterprisesurvey8of 2007indicatedthatinordertosecureagovernmentcontract,agiftwhosevaluerepresents8to10percentof thecontractamountwasexpected.Similarly,accordingtotheInstituteforDevelopmentStudies(IDS)9,manufacturingfirmsinKenyaspendanaverageof 14percentof thevalueof governmentcontractsonkickbacks.ThePublicProcurementOversightAuthority(PPOA)in2007estimatedthatprocuringentitieswerebuyinggoodsandservicesatanaverageof 60percentabovetheprevailingmarketprice.

Corruption remains pervasive inKenyan procurement processes. It increases the cost of doingbusiness,whichinturnaddstothecostof publictendersandleadstopoorstandardsof projectwork as contractors seek to recover their bribes by cutting costs. These illegal pay offs have been foundtolowerthequalityof businessandbusinessdealsby30to50percent10. Evidence shows that an effective procurement system could save the Kenya government approximately 25 percent of its expenditure11.

Inthe2013/2014financialyear,thenationalgovernmentallocated13percentof revenuetocountygovernments12.TheAfricaCentreforOpenGovernance(AfriCOG)hasbeenconcernedwiththelevelof haemorrhagingof publicresourcesinthepast,duetocorruptprocurementprocessesatnationallevel.Consequently,itundertookthisstudytohighlighttheKenyanconstitutional,statutoryandinstitutionalframeworksforprocurement,whilealsoreviewingadherencetotheirprovisionsinthethreeselectedcountiesduringthefirstyearof devolution(2013/2014financialyear).

Thethreecountieswereselectedonthebasisof absorptionratesof developmentfundsand,fordiversity,theirlocationinthecountry.Inparticular,WajirCountywasselectedbecauseithadthehighestpercentageof developmentspending(57.8percent)andsecondhighestabsorptionrateof itsdevelopmentfund(78.2percent)13.Itisalsoacountyinthearidandsemi-aridlandsof Kenya,which has beenmarginalised formany years.MombasaCountywas selected because it had thelowest percentage of development spending and the lowest absorption rate of its development fund.

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ItisalsoafullyurbancountyinKenya’scoastalregion.MachakosCountyrepresentsaninterestingmix of both urban and rural settings. According to the Controller of Budget’s County Report2013/2014,thiscountyhadthehighestdevelopmentexpenditureof Ksh2.7billion(44.1percent).Thistranslatedtoahighabsorptionrateof 64.5percentof theannualdevelopmentbudget.Basedonmediareports,thegovernorisalsoperceivedtobeefficientinhiswork.

The main objective of the study is to highlight transparency and accountability concerns in the procurement processes in the three counties,which should in turn highlight the causes andconsequences of their procurement challenges, and to make recommendations for countygovernments to consider that would prevent the loss of public funds through procurement.

Thefirstsectionof thereportcoverstheconstitutional,statutoryandinstitutionalframeworksforprocurementinKenya.Itbrieflydefinesprocurement,itsroleandimportance,beforedelvingintothe constitutional and statutory provisions. The second section reviews the literature on Kenya’s nationwideprocurementperformance,whilethethirdsectionreviewspublicprocurementissuesinWajir,MombasaandMachakoscountiesashighlightedbythe2013/2014AuditorGeneral’sreports.The challenges identified are reviewed in relation to the five principles of procurement, givingthecausesandconsequencesof publicprocurementandconcludingwithrecommendations thatcounties should consider in order to improve their procurement procedures.

Thestudyfindingsare limitedby the fact that afield studywasnotconducted.The reportwill,however,helpthepublictohaveageneralunderstandingof procurementinKenyaandthechallengesexperiencedbycountygovernments.Itwillalsobenefitcivilsocietyorganisationsthatwouldliketomonitorprocurementissuesincounties.Countygovernmentsarealsoatargetaudienceforthisreportas it gives various recommendations they could use to improve procurement in their counties.

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Kenya’s procurement frameworks

14AgabaandShipman(2007)15OnyinkwaJ.,201316Odhiambo,W.&Kamau,P.,200317SeeOnyikwa(2013

22.1 What is public procurement?Publicprocurementistheprocessthatpublicentities,suchasnationalandcountygovernmentsandtheirdepartments,gothroughtoacquireorpurchasegoodsandservices14.Eachyear,governmentdepartmentsbudgetforstaff,officeexpenses(suchasstationery),andpublicgoods(forexample,constructionof amenities). These amenities include public buildings (municipal buildings,schools,hospitals), transport infrastructure (roads, railroads, bridges, pipelines, canals, ports, airports),public spaces (publicsquares,parks,beaches),publicservices(water supply,sewage,electrical grid,dams),andother,usuallylong-term,physicalassets and facilities. Public entities therefore pre-select individualsandfirmsthathavetheabilitytoprovidethegoodsandservicesrequiredatareasonablepricewithinrequiredtimelines.

2.2 What is the role of public procurement?Public procurement enables the government to deliver services to the public by ensuring timely accesstoqualitygoodsandservicesatfairprices.Itshouldalsoensureefficiencyingovernmentoperationsbypromotingcompetitionamongbidders,whoshouldbetreatedfairly,therebyincreasingpublicconfidenceingovernmentoperations.Publicprocurementcanalsopromotelocalindustryand economic development.

2.3 Why should public procurement matter to citizens?Public procurement should matter to citizens because they pay taxes so that the government can deliveritsobligationstothem,suchasprovidingeducation,health,security,ruleof lawandprotectionof property.Consequently,thepublicisinterestedintheprocurementfunctionof achievingservicedelivery. Importantly, public procurement accounts for a high proportion of total governmentexpenditure,with aKenyanestimateof 60percent15. Although several steps have been taken to reformthepublicprocurementsystem,itsprocessesarestillshroudedinsecrecy,andareinefficientand corruption-prone16, such thathugeamountsof moneyarewasted.Given the largeamountsof money involved in government procurement, it is in citizens’ interests that the procurementprocesspromotesprudentuseof resources,integrityandfairness,ensuringvalueformoneyintheacquisitionof goodsandservices.

2.4 The constitutional and statutory frameworkAprocurementstudynotedthatthe“Kenyandomainhasundergonesignificantdevelopmentinthepastthreedecades(coming)frombeingasystemwithnoregulationsinthe1960stoasystemregulatedbyTreasuryCircularsinthe1970s,1980sand1990s”17. The Public Procurement and Disposals Act of 2005becameoperationalon1January2007.TherelatedPublicProcurementRegulationsof 2006waslegislatedtoassistintheimplementationof theAct,establishingproceduresforprocurementandthedisposalof unserviceable,obsoleteorsurplusstoresandequipment.

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18PPOA,201319TransparencyInternational,Kenya[TI-K].(2014).Public procurement in Kenya: Cash cow for the corrupt or enabler for public service delivery? Adili, issue 145 20http://www.bbc.com/news/world-africa-31733052Accessed9/6/15

21 http://www.businessdailyafrica.com/Civil-servants-NHIF-medical-cover-cash/-/539546/2533846/-/acrhkn/-/index.htmlAccessed9/6/1522http://cotu-kenya.org/nssf-tassia-ii-infrastructure-development-scandal/Accessed9/6/1523http://www.scribd.com/doc/224030710/World-Bank-Report-on-the-Standard-Gauge-Railway#scribdAccessed9/6/1524PPDA,2005

On5April2013underLegalNoticeNo.60,theMinisterforFinancegazettedthePublicProcurementandDisposal(CountyGovernments)Regulations,2013.ThisfocusedthePublicProcurementandDisposalAct,2005oncountygovernments,designedtopromotelocalindustriesandsupportsocio-economic development18.However, the principles and tenets of public procurement and disposal remain the same at the national and county levels.

According to Transparency International-Kenya19,thePublicProcurementandDisposalAct,2005fails to provide strong enforcement mechanisms and public procurement in Kenya continues to attract corruption scandals. For example:

• theAngloLeasing scandalwhich involved security contracts being awarded to phantom firms20

• the National Hospital Insurance Fund (NHIF) civil servants’ medical scheme where,accordingtotheAuditorgeneral’sreport,theNHIFfailedtoaccountforKsh3.5billion21

• the procurement of BiometricVoterRegistration kits by the IndependentElectoral andBoundaries Commission (IEBC),which forced a government intervention to effect agovernmenttogovernmentprocurementagreement,(despiteamajorinvestmentof funds,thevotingtechnologyspectacularlyfailedtodeliveronelectionday2013,forcingtheIEBCto revert to the previously discredited manual system and casting doubt on the election results)

• theTassiaEstatescandal-ahousingschemethatwasallegedlygrosslyovervalued22

• theStandardGaugeRailway,anewrailwaylineunderconstructionatwhatappearstobeahighlyinflatedcost,despiteaWorldBankreportshowingthatthenewrailwaywouldnotattract the freight volumes needed to pay for the investment23.

Article227of theConstitutionstatesthat:“WhenaStateorganoranyotherpublicentitycontractsforgoodsorservices,itshalldosoinaccordancewithasystemthatisfair,equitable,transparent,competitiveandcost-effective…andprovidespreferenceintheallocationof contracts.”Parliamentprovidesforcategoriesof preferentialallotmentof contracts,protectionof disadvantagedcategoriesof personsandsanctionsagainstnon-performingcontractors,andthoseguiltyof corruptpractices,taxviolationsand labour laws.Protection fordisadvantagedgroups is affirmedbyArticle27 (6)of theConstitution,whichcallsforaffirmativeactionforvulnerablepeople:inprocurement,suchindividualsmaynotmeetcompetitivestandards.Suchvulnerablepeopleincludetheyouth,womenandpeoplelivingwithdisabilities,forwhomapresidentialdirectivehasring-fenced30percentof government procurement.


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24PPDA,2005

2.5 The institutional framework and procurement procedures2.5.1 Public Procurement Oversight AuthorityThe Public Procurement Oversight Authority (PPOA) is the executive body that overseesimplementationof theAct.ThePPOAthereforeoverseesallpublicprocurementprocessesinthecountryandismandatedtoensureadherencetotheActbyallStateorgans,includingnationalandcounty governments24.Therolesof thePPOAasstipulatedintheActinclude:• Toensurecompliancewithprocurementprocedures• Tomonitorthepublicprocurementsystemandreportonitsoverallfunctioning• To assist in the implementation and operation of the public procurement system through:

preparation and distribution of procurement manuals and standard documents; advisingprocuremententities;supportingthetrainingandprofessionaldevelopmentof thoseinvolvedin procurement; issuing written directions to public entities with respect to procurementproceedings and information on procurement; and ensuring that procuring entities engageprocurement professionals in their procurement units

• To initiate public procurement policy and to propose amendments to legislation, includingregulations.

ThePPOA is headed by a director-general appointed by a PPOAAdvisoryBoard that consistsof nine members appointed by the Minister of Finance from persons nominated by statutorily prescribedorganisations,withtheapprovalof Parliament.TheAdvisoryBoardgivesgeneraladviceon the Authority’s exercise of its powers and the performance of its functions. It also approves theestimatesof revenueandexpendituresof theAuthority,andrecommendstheappointmentortermination of the director-general in accordance with legislation.

2.5.2 Public Procurement Administrative Review BoardSection25of thePPDAprovidesfor thePublicProcurementAdministrativeandReviewBoard(PPARB),acontinuationof thePublicProcurementComplaints,ReviewandAppealsBoard,whichwasestablishedundertheExchequerandAudit(PublicProcurement)Regulations,2001.TheReviewBoard was created to promote and uphold fairness in the public procurement system throughjudicious and impartial adjudication of matters arising from disputed procurement proceedings. The Boardisautonomousandismadeupof sixmembersnominatedbyvariousbodiesasprescribedinRegulation 68 (1) (a), and three othermembers appointedby theMinister of Finance.Upon receivingacomplaintnotice,theReviewBoardshouldinformtheprocuringentitytosuspendtheparticularprocurementuntilthematterisresolved.Basedonitsassessment,theReviewBoardmaydismiss a matter presented before it if it considers it trivial. In cases where the board proceeds with thehearing,itmustmakeadecisionwithin30days.

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Upon completing a review, the Review Boardmay do the following: annul a procuring entity’sprocurementproceedings;givedirectionstotheprocuringentitywithrespecttoanythingtobedoneorredoneintheprocurementproceedings;substituteaprocuringentity’spriordecisionwithitsown;and/ororderthepaymentof costsbetweenpartiestothereview.

Table 1: Trends in PPARB cases since inception

Year No. of cases2001 122002 442003 332004 462005 522006 582007 8

Source: PPOA25

2.5.3 Internal organisation of procurement in public entitiesToensurethatdecisionsaremadeinasystematicandstructuredway,apublicentityisrequiredtoestablishadequateproceduresformakingitsprocurementdecisions.

All procurement must be within the entity’s approved budget and must be planned through an annual procurementplan.Inaddition,itmustbehandledbydifferentofficesinrespectof procurementinitiation,processingandreceiptof goods,worksandservicesforpurposesof transparencyandaccountability.

ThePPDArequiresthatpublicentitiesestablishtwostandingprocurementcommittees:theTenderCommitteeandtheDisposalsCommittee.TheTenderCommitteereviewstheshortlistedbiddersandawardsthetendertothemostqualifiedbidderbasedoncriteriaagreedpriortothesubmissionof bid documents. The procurement unit (also set up by the public entity) is responsible forprocurement below the threshold of the Tender Committee. TheDisposals Committee deviseswaysof sellingoff usedpublicassets.Thesecommitteesmusthaveatleastfivememberseach,withasecretarywhoisaprocurementprofessional.Inthecaseof allcounties, theaccountingofficerof aTransitionCountyTreasury –referred to in section 10of theCountyGovernmentsPublicFinanceManagementTransitionAct,2013asthe‘transitionprincipalofficer’–alsoestablishesthetwostandingcommittees,andanyotherbodiesasprescribedbytheAct.

25http://www.ppoa.go.ke/index.php?option=com_content&view=article&id=100&Itemid=180.


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1.Procurement

Planning

2.Pre-qualification

of suppliers

3.Preparation and

approval of terms of reference or specifications for goods and

services

4.Preparation of tenders

advertisement or issue of tender

documents

5.Receipt and

evaluation of bids

6.Contacting/

notification of the successful

bidder

7.Contract

management

8.Receiving & acceptance

store, manage, distribute

National government and county governments may also establish ad hoc committees based on need. Such committees include:

• atenderopeningcommittee,whichistaskedwithconductingapublicopeningof thetenderdocuments submitted for a bid

• atenderevaluationcommittee, which conducts a technical scrutiny of the bids and shortlists themostqualifiedbidders

• aninspectionandacceptancecommitteewhichcertifiesthattheprocuredgoodsmeetthespecificationof the tender.Thesead hoc committees enhance objectivity in procurement decisions,ensuringthattheintegrityof theprocessismaintained.

2.5.4 Procurement methodsVarious procurement methods are available. These include: open procurement method/opentendering; restricted tendering;directprocurement; request forproposals, request forquotations,lowvalueprocurement;andspeciallypermittedprocurement.

Figure 1 below illustrates the eight critical procurement stages of the national open procurement method.

Stages of Open ProcurementOpen procurement method/open tendering

i. Procurement planningIn this phase, the public entity uses an approved budget to develop a plan for undertakingprocurement.

ii. Pre-qualificationof suppliersTheprocuringentityisrequiredtoestablishalistof potentialsuppliersforaparticularfinancialyear,generated through prior advertising and then make a choice as to who is suitable to provide the goods and services it needs.

Figure 1: The stages of the national Open Procurement method

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iii. Preparationof termsof referenceorspecificationsforgoodsandservicesThepublic entities are required toprepare technical specificationsor termsof reference for thegoodsandservicesrequired.

iv. Preparation of tender advertisement or issue of tender documentsThe procurement department prepares tender documents based on a standardised set of documents provided by the PPOA. The tender documents must have enough information to allow faircompetitionamongprospectivesuppliers,settingoutthespecificrequirementsof goods,worksandservicesbeingprocured.Forexample,relevantdrawingsandBillsof Quantities(BQs)arerequired.The procuring entity is allowed to amend the tender documents at any time before the deadline of submitting tenders. The national tender must be advertised in at least two newspapers with wide national circulation.

v. Receipt and evaluation of bidsAtendermustbe inwriting,be signedandbe sealed inanenvelope.Theprocuringentitymustensure the place where tenders are submitted is open and accessible. In case a bidder would like to makeanychangestobiddocumentsbeforetheduedate,thebiddermaychangeorwithdrawthetenderinwriting.However,nochangescanbemadetothebiddocumentsafterthedeadline.Theprocuring entity may extend the deadline of submission of bids only if this change is made before the original tender deadline.

Aftertheduedate,anduponreceiptof thetenderdocuments,theprocuringentity’sprocurementunit invites the tenderopeningcommittee for thepublicopeningof the tenders, and the tenderevaluation committee for the technical assessment of the bids to shortlist successful bidders. A tender isnotresponsiveif itdoesnotconformtothemandatoryrequirementsinthetenderadvertisement.Theevaluationperiodforboththeinternationalandnationalopentendersis30days.Thecommitteemayrequestabidderforclarificationtoassistintheevaluationprocess,butthisdoesnotchangethecontent of the tender. The tender committee then reviews the shortlisted bids and a recommendation of award is made.

vi. Contacting/notificationof thesuccessfulbidderAllbidders,whethersuccessfulornot,aresupposedtobenotifiedabouttheresultsof theevaluationprocesswithin14days,forbothinternationalandnationalopentenders.

vii. Contract management The successful bidder is formally contracted by the public entity. The contract preparation period shouldbewithin14daysafterexpiryof thenotificationperiodforbothnationalandinternationalopentenders.Oncethisprocessisfinalised,thepublicentityisthenrequiredtomanagethedeliveryof thegoodsorservices,ensuringtheyaredeliveredattherighttimeandbasedonthespecificationsof the terms of reference.


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viii. Receiving and storageInthecaseof goods,theinspectioncommitteereviewsthemondeliverytothegovernmentstores.

TheactualprescribedtimelinesfortheInternationalOpenTendermethodis88workingdayswhilethatof theNationalOpenTenderis79days.Procurementthereforerequiresproperplanningsothatgoodsandservicesarereceivedwhenrequired.

• Restricted tenderingRestricted tendering is used when the goods and services to be provided are of a complex or a specialised nature. Themethod is also applied if the cost and time required to evaluate a largenumberof tenderswouldbedisproportionatetothevalueof thegoodsorservices,orif thereareonlyafewknownsuppliersof theparticulargoodorserviceunderconsideration.Inthiscase,theprocuringentityshallinvitetendersfromalltheknownsuppliersof thegoods,worksorservices.The same provisions for open tendering also apply to restricted tendering.

• DirectprocurementA procuring entity can use the direct procurement method when there is only one person or company thatcansupplyagoodorservice.Inthiscase,priorapprovalof thetendercommitteeshouldbesoughtbefore the procurement process begins. A procuring entity may use this method if there is an urgent needforgoodsorservicesthatmakesotherprocurementmethodsimpractical,orif thecircumstancesthat gave rise to the urgency were not foreseeable and were not as a result of the slow conduct of the procuringentity.Thedirectprocurementmethodcanforexample,beusedintheeventof adiseaseoutbreak for which goods or services have to be procured immediately to contain the outbreak. The procuringentitymust ensure that theoffermeets itsown requirements and that thecost is at theprevailingrealmarketprice,otherwisesimilarprovisionsforopentenderingalsoapply

• RequestforproposalsThis method of procurement is used to get services of an advisory or of an intellectual nature. In thiscase,theprocuringentityisexpectedtoprepareexpressionsof interestandadvertisewidelyintwo newspapers with nationwide circulation. The procuring entity will evaluate the expressions of interestandrequestthebidderswhoqualifytosubmitaproposal.Incircumstanceswherenationalcapacity to provide such services is limited, the procuring entitywill be required to advertise inpublicationsthatalsohaveaninternationalreach,otherwisesimilarprovisionsforopentenderingalso apply.

• RequestforquotationsAprocuringentitymayusetherequestforquotationwheregoodsarereadilyavailable,andhaveanestablishedmarketprice.Therequestforquotationmustbegiventoatleastthreepeople/institutions.Thequotationwiththelowestpriceisconsideredthemostsuccessful.

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• LowvalueprocurementThe procuring entity can use the low value procurement method if the anticipated cost is below Ksh 30,000(aboutUS$345).Thegoodsprocuredthroughthismethodareoff-the-shelf goodsforwhichanofficialreceiptshouldbeobtainedasevidenceof thepurchase.Procuringentitiescanagreeonaprocedure for low value procurement.

2.5.5 General procurement rulesProcurement entities are expected to use the open tender method of procurement whenever possible. However,theotherprocurementmethodsmaybeuseduponfulfillmentof asetof requirementsprovidedbytherules,asfollows:• Procurementshouldnotbesplitforthepurposesof avoidingtheuseof theopenprocurement

method.• Standardgoodsandservicesshouldbeprocuredattheprevailingmarketprices.• Aperson isqualified tobe awardeda contract if thepersonhas thenecessaryqualifications,capability,experience,resources,equipmentandfacilitiestoprovidewhatisbeingprocured;hasthelegalcapacitytoenterintoacontractfortheprocurement;isnotinsolvent,inreceivership,bankrupt or in the process of beingwound up; and is not the subject of legal proceedings.Procuremententitiesinbothnationalandcountygovernmentsarerequiredtogivepreferencetosmallandmicroenterprises.However,thecountyguidelinesaremoreelaborateandincludeotherdisadvantagedgroupssuchasenterprisesownedbywomen,youthandpersonswithdisabilitiesthatarelocatedandoperatewithinthecountiesasspecifiedinthePublicProcurement(PreferenceandReservations)Regulations,2011.Countyprocuringentitiesarerequiredtoreportapplicationof preferenceandreservationschemestotheAuthorityonaquarterlybasis.

• Personsdisqualifiedfromprocurementasspecifiedinsection31(1)of thePPAD,2005cannotbeawardedcontractsbytheprocuringentities.Similarly,theprocuringentitycannotenterintoacontractwithanemployeeof theprocuringentity,aminister,apublicservantoramemberof aboard or committee of the government or any of its departments.

• Aprocuremententityshallmaintainprocurementrecordsforaperiodof sixyears.• Peoplewhosubmittendersshouldnotsolicitinformationfromtheevaluationpanelorprocuring

entity.• Candidates will have the opportunity to participate in procurement processes withoutdiscrimination,unlessitisotherwiseprovidedintheAct.

• ThePPOAisrequiredtomaintainaregisterof contractorsforgoodsandservices.• No individual, agentor employeeof thepublicprocuring entity is tobe involved in corruptpractices.Ininstanceswherethishappens,theindividual,agentoremployeewillbedisqualifiedfrom entering into a contract.

• Ininstancesof conflictof interestduringprocurementproceedings,theaffectedpersonshouldnot take part in the procurement proceedings or decision-making.

• Procurementinformationshouldbekeptconfidentialatalltimes.Anypersonwhocontravenesthis provision commits an offence.

• Afteracontracthasbeenawardedortheprocurementproceedingshavebeenterminated,theprocuremententitycan,uponrequest,maketheprocurementrecordavailable toanyonewhosubmittedatender,proposalorquotation.


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• ThePPOAismandatedtopublishthecontractsawardedwiththeinformationprescribed.• Thetendercommitteemustapproveanyamendmentstoacontractinwriting.Contractvariationsarebasedontheprescribedpriceorquantityvariationsof goodsandservices.

• Theprocuring entity ismandated topay intereston anyoverdue amounts.The interest ratesshould be charged in accordance with the prevailing commercial interest rates.

• The Director General of the PPOA, or his/her representative, should inspect procurementrecordsandtheaccountsof aprocuringentity,orthecontractor,withinareasonabletimeline.TheAuditorGeneral,oranauditorauthorisedbytheAuditorGeneral,mayaudittheaccountsof theprocuringentityandof anycontractors,whoaremandatedtocooperateandassistduringtheinspection process.

• Theprocuremententityshoulduseappropriatestandardtenderdocumentsspecifictoaparticularprocurement and customise it accordingly. The standard tender documents are developed by the PPOAandareaccessibletoallprocuremententitiesfromthePPOAwebsite(www.ppoa.go.ke).An example of a standard tender document is sent to the potential consultants that have an invitationlettertobid,togetherwithinformationthattheconsultantrequirestoknowaboutthebid,thetermsof reference,therequiredformatforthetechnicalandfinancialproposalandthestandard contract form.

12

Review of Kenya’s nationwide procurement performance

26SeeOnyinkwa,201327Wanyama,201028KPMG,2008.29SeeOnyinkwa(2013:569)

StudiescarriedoutinKenyatoevaluatetheefficiencyof thepublicprocurementprocessbeforethe Public Procurement andDisposal Regulations of 2006was launched, found that public

procurementwasnotefficient,withthestatelosinglargeamountsof moneythroughshoddydeals26.It seems that theobjectivesof thePPDA, toweedout inefficiencies in thepublicprocurementprocess,removepatternsof abuseandensurethepublicpurchaserobtainsadequatevalueinreturnforpublicexpenditure,haveneverbeenfullyrealised27.

A study conducted by the PPOA in 2007noted that although procedures supporting systematicprocurementplanninghadbeenestablished,thesewerenotalwayscompliedwith.Itfound,forexample,thattherewasalowshareof procurementsdonethroughopentendering,anindicationthatmostof the procurements were made on an ad hocbasis,byquotationsanddirectprocurements.Thissuggestsalackof,orpoorprocurementplanninginmostof thesurveyedgovernmentdepartments.

Another study carried out after the introduction of the Regulations, found out that publicprocurement suffered from fraud and misconduct28.ThestudyalsonotedthatpublicofficialsdistorttheRegulationstorestricttheparticipationof interestedfirmsinprocurement,orsometimesdirectthe outcome of the procurement process.

TheRegulationswerealsomeanttoensurethatefficienttraininghadbeenofferedtoprofessionalstoserveinprocurement.Astudyof procurementforpublicschoolsinKisiiCounty29,foundthattheoveralllackof procurementknowledgewasamajorweakness,preventingefficiencyof procurementoperations.Short-termprocurementtrainingwasalsofoundtobeinshortsupply,althoughitwasnotedthatthePPOAiscurrentlyofferingaseriesof sensitisationsessionstargetingboththepublicandprivatesector.TheauthorquotedtheKACC(2007)studyfindings,whichstatedthatthelawsandproceduresdidnotsupporttimelyprocurement,contractexecutionandpayment.Forexample,therewereno legalprovisions,proceduresorguidelinesonthe time limits for theprocessingof invoices and payments.

3

13

Public procurement in three counties

30RoK,2014b31RoK,2014a

County governments in general have submitted their financial year (FY) 2014/2015 expenditurereportsforaudittotheKenyaNationalAuditOffice.TheauditreportswillbepubliclyavailableinJune2015,inwhichcaseafollowupanalysisshouldbedoneinordertokeeptrackof theprocurementchallengesthatcountiescontinuetoface.Assuch,thisreportfocusesontheprocurementchallengesintheFY2013/2014expenditures,obtainedmainlyfromtheAuditorGeneralreportsforthecasestudycounties,andthecountygovernmentbudgetimplementationreviewreport2013/2014publishedinAugust2014bytheControllerof Budget,amongotherpublicationsascited.

Overall,lowabsorptionof developmentfundscompoundedbyslowprocurementprocessesarecitedbytheControllerof Budgetamongtheissuesthatcontinuetoaffectbudgetimplementation30 nationally.Althoughtherewasamarkedimprovementintheoverallnationalbudgetimplementation,the absorption rates for development expenditures still remain low. The 52 percent absorption rate recordedinFY2013/14isanimprovementonthe44.4percentrecordedinthepreviousFY.Itisthereforenecessarytoenhancetheabsorptionrateof developmentfunds.IntheControllerof Budgets(COB’s)view,speedinguptheprocurementprocessisonewayof increasingabsorptionrates.

In the COB’s county reports31 counties were faced with inadequate staffing and low levels of staff capacity especially in public procurement and financialmanagement. This affected budgetimplementation,resultinginlowabsorptionof funds.

4.1 PublicprocurementchallengesidentifiedbytheControllerof Budgetinthreecounties

Table 2: Procurement Challenges in Wajir CountyExpenditure Procurement Challenge

Capitalprojects(works)costKsh12,090,000.00Thepaymentsrelatetofencingof dispensaries,constructionof classrooms,undergroundwatertanks,staff quartersandadministrationblock,amongothers. The payments also included supply of desksandofficefurniture

• Paymentwasdonewithoutthenecessarysupportingdocuments and therefore the details of the transaction couldnotbeverified.

• Noinventoryrecordsweremaintained.• Itwasnotclearhowthepaymentswereprocessedwithoutanyreferencetolocalserviceorders(LSOs),Billsof Quantitiesdocuments,projectfiles,contractor’sinvoices,completioncertificatesfromtechnicaldepartmentsandinspectionandacceptancecommitteereports.Also,procurementdocumentsliketendersorquotationswerenotmade available for audit review.

4

14


Fourfirmswerepaidatotalof Ksh3,880,000.00forprovidingconsultancyservices on customer and employee satisfaction,corruption,alcohol,gender,automationof processes,andreviewof strategic planning and training services charter.

• Nobiddocumentswereproducedsuggestingsinglesourcing.

• NoLSOorprocurement/tendercommitteeminutesthatdeliberated on the evaluation and award of the said services were attached to the payments vouchers.

• Nocopiesof theendproducts(reports)andCouncil’sadoptionminuteswereprovidedtoconfirmthattheservices were rendered and the results implemented as desired.

TheCountyGovernmentof WajirreceivedKsh61,592,200.00fromtheTransitionAuthority(TA)fortheconstructionof theCountyGovernmentofficeheadquarters.However,anexecutivedecisionwasmadeby the county executive committee to utilise themoneytodrill10boreholes.Anadvancepaymentof Ksh41,236,340.00wasgiventothe contracted company.

• Thelegalityof theexecutivedecisiontoreallocatefundsfor purposes other than that initially intended without prior approvalfromtheCOB,wasnotindicated.

• AlocalserviceordernumberwhichwasundatedwasissuedtotheNationalWaterConservationandPipelineCorporationtoundertaketheexercise.

Money was incurred on procurement of officestationery(Ksh2,449,750.00)andfoodstuffs (Ksh2,902,000.00).

• Nodocumentaryevidencewasprovidedtoconfirmthatquotationswerefloatedasrequiredbytheprocurementlaw.It is likely the goods were single sourced.

Apaymentof Ksh283,500.00wasmadetoEast Gate Hotel.

• Therewasnoinvoicetosupportthepayment.Itwasthereforenotpossibletoconfirmthenatureof servicesordered,therelatedcost,andif thesamewasprovidedbythe payee

Source: ROK, 2013 December2005


15

Table 3: Procurement challenges in Mombasa CountyExpenditure Procurement issue

Paymentsof Ksh1,145,165.00,Ksh1,172,885.00andKsh1,166,861.00weremadeinthemonthsof July,August,andSeptember2013toMatatuWelfareAssociationCoastBranch

• Therewerenodocumentsprovidedtosupportthese payments.

Ksh7,996,693.00waspaidbytheCountyGovernmentformotorvehiclerunningexpenses(fuel,tyresandrepairs).

• Therewerenodocumentsprovidedtosupportthesepayments.Insomecases,thesuppliersof theseserviceswerenotpre-qualified.

SixbulkfillingcabinetswerepurchasedforKsh950,000.00each.

• Onlytwobulkcabinetshadbeenbudgetedforin the procurement plan.

• Bythetimeof audit,thecabinetshadnotbeenput into use.

21 water dispensers were purchased at a price range of Ksh48,000.00toKsh51,000.00perdispenser.

• AmarketsurveyindicatedthatasimilardispenserwouldcostKsh15,000.00.

Purchaseof sodiumhighpressurefittings. • InconsistencyonPaymentVoucher(PV)1302-0221forsupplyof sodiumhighpressurefittingswherethechequewasdated27February2013while payment authorisation and approval was madeon28February2013.

• Additionally,theinvoicewasdated25January2013whiledeliverynotedatewas25February2013.

• GoodsReceivedNoteandtheStoresLedgerwere attached to the payment voucher.

Hireof ahelicopteratKsh738,715.00fortheGovernor’svisittoNandiCounty.

• Anunauthorisedexpenditure.

Source: ROK, 2014 February 17

16


Table 4: Procurement challenges in Machakos CountyExpenditure Procurement issue

A“confidentialexpenditure”amountingtoKsh7,500,000.00wasincurredbytheGovernorof MachakosCounty.

• Therewasnobudgetaryprovisioninrespectof the expenditure.

• Thepaymentvoucherswerenotsupportedbyany relevant documentation.

• Theamountswerepaidoutincashinsteadof usingchequesasrequiredinprudentmanagement of cash resources.

• Thewholeamountof Ksh7,500,000wasnotaccountedfortoconfirmwhetheritwaslawfulas a proper charge on public funds.

MachakosCountyExecutivepaidanofficercashof Ksh100,000.00forthepurchaseof TelepromptervideWarrant No 1674541.

• Noquotationswereattachedtoverifywhetherthe procurement of the asset was competitively done.

• Therewasnorequisitionfromtheuserdepartment to ascertain the need for the purchase.

FuneralexpensesforthelateMakueniCountySenatorHon.MutulaKilonzoamountedtoKsh2,880,160.00.The Machakos Governor’s contribution was Ksh1,000,000.00whileanotherKsh1,000,000.00waspaidouttoHomeBoyzEntertainmentLtd.forthe provision of a public address system. Another Ksh880,160.00wasusedtopurchasealaptop,aprojector,areceiver,microphones,microphonestands,speakersandamplifiersfromAcutexVentures.

• Noprocurementdocumentswereprovidedtosupporttheprocurementof HomeBoyzEntertainmentLtd.,towarrantthepayment

• ThepaymenttoAcutexVentureswasbasedonpro formainvoices,meaningdeliverywasyettobe made.

• Itisalsonotclearunderwhichexpenditureitemthetotalamountof Ksh2,880,160.00wascharged,sincetherewasnobudgetaryprovisionfor the same.

• Theburialof thelateSenatorwasinMakueniCountyratherthanMachakosCounty,puttinginquestionthevalidityof thisexpenditure.

• TheHeadof Stateattendedthefunction,meaning that a public address system would have been provided by the Presidential Press Unit,therebyquestioningtheintegrityof theKsh1,000,000.00paidtoHomeBoyzforapublic address system.

Goods and services were procured totaling Ksh14,062,627.00

• Theprocurementof thesegoodsandserviceslackedtherequisitedocumentation,suchasrequisitions,prequalificationregisters,quotationregisters,quotations,tenderdocuments,signedcontracts,inspectionandacceptancereports,and market surveys


17

Anamountof Ksh1,680,000.00paidtoMsTeaTotHotel was incurred in respect of a workshop package for 30peoplefrom24Aprilto4June2013.

• Therequisitedocumentationtoincurthiscostsuchasthelistof participants,invitations,LSO,quotation,requisition,oranyothercorrespondence to indicate the purpose and natureandneedforthesaidworkshop,wasnotproduced at the time of audit

MachakosCountyengagedMaanzoniLodgeduringaninvestor conference and incurred an expenditure of Ksh 10,537,935.00Inaddition,MachakosCountyExecutivefurtherengagedtheservicesof WanderJoyPartyWorldLimitedatacostof Ksh3,755,036.00forprovisionof tents.TheinitialbudgetwasKsh1,116,700.00TheCountythereforeincurredanadditionalcostof Ksh2,638,336.00.Afurtherpaymentof Ksh765,600.00,being50%of thetotalcost,wasadvancedtoHomeboyzLtd.fortheprovisionof asoundsystem,screens,powergeneratorlighting,stageandsetup.

• Theinitialbudgetwasfor500persons.Therewasnoplantohostanadditional1,400people.

• Thepaymentvoucherdidnothavealistof participants to ascertain their actual numbers.

• Tenderdocumentsforhospitalityserviceswerenot availed to verify whether the procurement of the service was competitive.

• NoquotationsandtendercommitteeminuteswereavailedforauditverificationtoestablishhowHomeboyzLtd.wasidentified.

DuringtheMarubaDamevent,theCountypaidKsh2,020,500.00toPeterMuleiandSonsforprovisionof acocktailpartyfor400personsatKsh1,600perpersonandprovisionof aPAsystem,tentsanddecorations.

There was no list of participants provided. Consequently,theauditcouldnotverifyhowtheserviceproviderwasidentified.

TheCountyofficeprocured16used/secondhandvehicles.ItpaidM/sExtremeAutosLtdforthesupplyof 15SubaruOutback2500ccatKsh1,757,000each(totalingKsh26,355,000),andoneToyotaLandCruiser4700ccVX(V8)atKsh.6,500,000.00.

• Whilethe16vehicleswerereportedlyinspected,the inspection reports were not availed for audit verification.

• Nopre-purchasevaluationwasdonebytheMinistry of Public Works or a government registered valuer to establish the length of priorusagesincethesewereused/secondhandvehicles

• Therewasnoinformationastohowthevehiclesandthesupplierwereidentified.

• Further,thevehicleswereregisteredunderdifferentindividualnamesandtheywerefittedwith private registration numbers instead of the normal green plates used by the defunct Local Authorities.

• Atthetimeof theaudit,thesevehicleshadnotbeentransferredtotheCountyGovernment,andwerethuspronetomisuseandevenloss/theft.

18


32BauldandMcGuinness(2006)

TheCountyprocuredused/secondhandvehicles.TheypaidOsakaMotorsLimitedforsupplyof 1ToyotaHarrierStationWagon2360ccKsh.2,600,000andpaidMuhammed Aden for the supply of 1 Toyota Prado of 2690ccKsh7,000,000,allasperthesaleagreements.

• Nopre-purchasevaluationwasdonebytheMinistry of Public Works or a Government registered valuer to establish the length of prior usageof theused/secondhandvehicles.

• TheinvoicefortheToyotaPradoregistrationKBV393CwasissuedbyBhinderCorporationLtd. whereas the payment was made to one Muhammed Aden.

• Itwasnotclearhowthevehiclesandthesupplierswereidentified.

• Further,thesevehicleswerefittedwithprivateregistrations and at the time of signing this report these vehicles had not been transferred totheCountyGovernment.

Source: ROK, 2014

4.2 Public procurement challenges experienced in the three county governments

As demonstrated in the case studies, procurement challenges experienced by the three countygovernmentsin2013/2014revolvedaroundthekeyprinciplesunderpinningpublicprocurement32 which are: value formoney, ethical standards, competition, transparency and accountability, thusextensively contravening the provisions of procurement legislation as demonstrated below.

4.2.1 Value for moneyInprocurement,‘valueformoney’basicallyentailsgettingagooddealfrompublicexpenditure.Itmeans achieving the best available outcome for the money spent in procuring the agency’s goods or services.Inthecaseof WajirCounty(Table2),fourfirmswerepaidtoprovideconsultancyservicesoncustomerandemployeesatisfaction,corruption,alcohol,genderandautomationof processes,aswellasareviewof strategicplanningandtrainingonservicescharter.However,theAuditorGeneralconsidered these expenditures irrelevant since there was no demonstration of the link between the consultancyservicesprovidedandthecountyperformanceinthesaidareas.Additionally,21waterdispenserspurchasedbyMombasaCounty(Table3)wereinflatedbyuptothreetimestheactualprice,thuscontraveningthegeneralprocurementrulethatstandardgoodsandservicesshouldbeprocuredattheprevailingmarketprices.InMachakosCounty(Table4),theauditornotesthattheuser department has not demonstrated the need for the teleprompter that was purchased.

4.2.2 Ethical standardsChapter6of theConstitutionisaboutintegrityinleadershipandstatesthat“astateofficershallactin a manner that avoids• Anyconflictbetweenpersonalinterestandpublicorofficialduties• Compromisinganypublicorofficialinterestinfavourof apersonalinterest.”


19

Fromthe threecounties studied, theunjustifiedhireof ahelicopter (Table3)by theMombasaGovernor, thegovernor’s contributionof Ksh1,000,000.00 for the funeral expensesof the lateMakueniCountySenatorHon.MutulaKilonzo(Table4),aswellasthe“confidentialexpenditure”incurredbytheGovernorof MachakosCounty(Table4)canbecategorisedasunethicalsincetheyare cases of leaders making decisions that serve their personal interests and that may not be in the publicinterest.(Seealso4.4.5Unauthorisedspending.)

4.2.3 Competition in procurementCompetitioninprocurementisaboutfosteringanhonestcontesttoenablethegovernmententitytoobtainquality commodities and servicesat the lowestpossible cost.Seekingcompetitionalsoguardsagainstfavouritism,extravaganceandfraud,whileallowinginterestedvendorsafairandequalopportunitytocompete.Fromthecasesstudied,singlesourcingof goodsandserviceswasrampant.InWajirCounty(Table2),itwasforstationeryandfoodstuffs,whileinMachakosCounty(Table4)itwastheprocurementof eventvenues,entertainmentandtents.Allof theforegoingwouldseemto be easily available and therefore could have been procured through competitive bidding.

4.2.4 TransparencyTransparency in procurement concerns the timely access to easily understood information. Transparencyassistsinensuringthatanydeviationsfromfairandequaltreatmentaredetectedveryearly,reducingtheriskof suchdeviations.Itprotectstheintegrityof theprocessandtheinterestof theorganisation,stakeholdersandthepublic.Transparencythereforeinvolvesrelevantentitiestaking steps to enable appropriate scrutiny of their procurement activity.

TheWajirCountyexecutives(Table2)werenottransparentoverthereallocationof fundsfromtheTransitionalAuthoritymeantforconstructingthecountygovernmentheadquarters.TherewasnopriorapprovalfromtheOfficeof theControllerof Budgettousethemoneyforotherpurposes,suchasdrillingboreholes.InMombasaCounty(Table3),inconsistencieswerenotedinapaymentvoucher,highlightingthenon-transparentnatureof thattransaction.Inthiscase,thechequeusedtopayfortheprocurementof thegoodwasdated27February2013,whilethepaymentauthorisationand approval was made a day afterthatdate,contrarytostandardpractice.Additionally,theinvoiceusedtorequestpaymentwasdated25January2013whilethedeliverynotewasdated25February2013, meaning that the goods were delivered one month after the request for payment, againcontrarytostandardpractice.InMachakosCounty(Table4),thevehiclesboughtwereregisteredinindividuals’names,andfittedwithprivateregistrationnumbersinsteadof thenormalgreenplatesusedbythedefunctLocalAuthorities.Insomecases,thepaymentwasmadetosomeoneotherthanthe one who issued the invoice.

4.2.5 AccountabilityAccountabilityinprocurementconcernsofficialsbeingresponsiblefortheiractionsanddecisionsinrelation to procurement and resulting outcomes. It therefore entails ensuring that due process was followed,includingrelevantapprovalssupportingthedecisionsmade,andthatrecordsforalltheactivitiesaremaintainedasrequiredbythelaw.

20


33RoK,201434ROK,2014,

Inallthecountiessurveyed,therewerecasesof procurementslackingtherequisitedocumentation,andassuch,itwasunclearwhetherthetransactionsactuallytookplace.InWajirCounty(Table2),paymentsforcapitalprojectsundertakenwereprocessedwithoutanyreferencetoLSOs,Billsof Quantities,projectfiles,contractors’invoices,completioncertificatesfromtechnicaldepartments,aswellasinspectionandacceptancecommitteereports.Also,procurementdocumentsliketendersorquotationswerenotavailable;norwereinventoryrecordsmaintained.InMombasaCounty(Table3), therewere no documents provided to support payments to theMatatuWelfareAssociation,CoastBranch.InMachakos(Table4),goodsandservicesareconsideredtohavebeenirregularlyprocuredinthattherewerenorequisitions,noprequalificationregister,noquotations,notenderdocuments,nosignedcontracts,andnoinspectionoracceptancereports.Inoneinstance,agood(thetelepromptervideWarrantNo1674541)waspurchasedincash.

4.3 Causes of the public procurement challenges experienced4.3.1 InadequatequalifiedprocurementprofessionalsThe audit reports repeatedly point to the lack of adequate procurement professionals, hencethe procurement challenges in many counties. According to the Controller of Budget’s report2013/2014,lowlevelsof staff capacity,especiallyinpublicprocurementandfinancialmanagement,affectedbudgetimplementation,resultinginlowabsorptionof funds33.Lack of capacity in terms of knowledgeof ThePublicProcurementandDisposalAct2005,bysomeprocurementprofessionals,isalsocontributingsignificantlytotheinadequatefulfilmentof procurementrequirements.

4.3.2 Inadequate procurement planningItisarequirementunderthePublicProcurementandDisposalAct,2005toprepareaprocurementplanbythebeginningof thefinancialyearandmonitoritsimplementationtoensureadherencetoit.AccordingtotheAuditor-General’sreport,mostcountieshavehadadhoc,unplannedspending34,which is evident in the three examples studied. This unplanned spending may indicate the total lackof procurementplans,ortheineffectiveuseof existingprocurementplansinanticipatingalltheactivitiestobeundertaken.Therewerealsoover-estimationsof costsinsomeinstances,whichcompromises the value for money principle.

4.3.3 Lackof pre-qualificationof suppliersThecasestudiesevidentlypointtothelackof pre-qualificationof suppliers,hencethenumerouscasesof singlesourcing.AsindicatedintheControllerof Budget’sreport,singlesourcingcouldalsoberampantduetotheinterferenceof theExecutiveinprocurementmatters,throughinstructionsthat undermine the principle of competition. These executive interferences are likely to increase the riskof corruption,particularlyif governmentofficialsinvolvedintheprocurementprocessaretheonesreceivingthetendersundertheguiseof someoneelse;or if theyarecolludingwithserviceproviders to gain from the tenders in exchange for elimination of competition and to ensure a particularserviceprovidersubsequentlywinsthetender.


21

35RoK,201436ROK,201437RoK,2014

Anotheraspectof lackof pre-qualificationof suppliersinvolvesselectingasupplierbasedonlyontheinformationprovidedinwriting,withoutverificationof asupplier’sactualabilitytodeliver,orwithoutapropersitevisit.AcaseinpointwasinMachakosCounty(Table4)whereasupplierof motor vehicles did not have the capacity to supply all the cars and therefore acted as a middleman. According to the Auditor-General’s report35,thiscanleadtoreducedcompetitiveness,poordeliveryfromunqualifiedsuppliers,andrisks losingfinancial resourcesand incompleteprojects. It isalsoacontraventionof theprocurement law–thegeneralrulesof procurement,section31(1),whichprovide that a person is qualified tobe awarded a procurement contract only if thepersonhasthenecessaryresources,equipmentandfacilities.Interestingly,MachakosCountyhadthehighestexpenditure on the purchase of motor vehicles in the country at Ksh863 million. This expenditure exceededtheirbudgetallocationby20.9percent.

4.3.4 Not following due processSome county governments ignore the requirement that they should get formal procurementapprovalfromanappropriateoversightagencywithingovernment,andproceedtomakeunilateraldecisions,suggestingadifficultworkingrelationshipbetweenthenationalandcountygovernments,or ignoranceof therequirement.According to theAuditor-General’s report36,MachakosCountyrecruitedanadditional156employees inthemonthof April2013.Thefollowinganomalieswerenoted:

• Therewerenoadvertisementsforthejobvacancies.• TherewasnoCountyPublicServiceBoardinplaceinAprilwhentheseappointmentswere

made.• AppointmentsweredoneinSeptemberintotaldisregardof theexistenceof theCounty

PublicServiceBoard.• Noproper recordsweremaintained in respect of the appointments to indicatewhether

there were any applications made and received or interviews conducted.• Nobudgetaryprovisionsweremadefortherecruitment.• Theappointmentswerebasedonnon-existentsalarystructures,jobdesignations,placements

and terms of employment.• Anexaminationof thepayrolldataindicatedthattaxpinnumbersfor43staff wereinvalid,

thus casting doubt on how their tax deductions had been effected and remitted to the Kenya Revenue Authority.

These appointments have added an additional Ksh13 million per month to the county wage bill. Unfortunately, theappointmentsweredonewith thefullknowledgeof theTransitionAuthority,astheappointmentlettersweresignedbytheInterimCountySecretary,whoshouldinsteadhaveadvised the county government of the irregularity of the undertaking. An incident like this can result in the entire procurement process being invalidated. Harmonisation of procurement procedures with other government procedures can help speed up the procurement process37.

22


38WorldBankGroup.(2014)39ROK,2014:47

4.3.5 Poor inventory managementPoorinspectionof goodsandserviceshasresultedinnon-deliveryof certainitems,under-delivery,ordeliveryof sub-standardgoods.Inthecaseof MachakosandWajircounties,itisnotclearwhetherthe inspection and acceptance committees had been established to ensure that the procured goods and servicesweredeliveredas required,because the inspectionandacceptance reportswerenotavailed for audit.

4.4 Consequences of the public procurement challenges experienced4.4.1 Offencesof financialmisconductProcurement inefficiencies have led to financialmisconduct. Such offences include, but are notlimitedto:publicofficersactingwithoutauthority;incurringwastefulexpenditure;failuretoprovidefinancialinformationrequiredundertheAct;failuretokeepproperrecords;takingpossessionof public fundswithout authority;misappropriation of funds or assets; concealing information onpublicfinances toobtainfinancial benefit; and engaging in a corrupt act (including solicitingorreceivinganinducement).Theseissuesariseinthethreecountiesstudied.

4.4.2 Low absorption of resourcesAccordingtotheWorldBank38inefficiencyof publicexpenditure,includingprocurementchallenges,has contributed to the weak absorption of the development budget. This is confirmed in theController of Budget’s Reportwhich states that “although therewas amarked improvement intheoverallperformancein(national)budgetimplementation,theabsorptionratesfordevelopmentexpendituresstillremainlow.However,the52percentabsorptionraterecordedinFY2013/14isanimprovementonthe44.4percentrecordedinthepreviousyear”39.

Figure 2 shows absorption rates of the annual budget in all the counties. With the exception of Trans NzoiaandTurkanacounties,allothercountiesabsorbedmoreof theirrecurrentbudgetsthantheirdevelopmentbudgets.Onaverage,TanaRiver (34%),Mombasa (38%)andLamu (39%)countieshadthelowestabsorptionratesof boththerecurrentandthedevelopmentbudgets.OnlyTurkanaCountyabsorbedlessthanhalf of itsrecurrentbudget,comparedto30countiesthatabsorbedlessthan half of their development budgets.

Absorptionratesof above100meansthatthecountiesoverspentontheirrecurrentfunds,andthatthey ate into their development funds.


23

Figure 2: Absorption rates of the recurrent and the development annual budget (FY 2013/2014)

Source: RoK (2014)

40(WorldBank,2014),41RoK201442IEA,2005)43ROK,2014

4.4.3 Delays in project implementationPublicprocurementshouldenablepublicentitiestoefficientlydeliverservicestothepublic.However,publicprocurementinefficiencies,includingdelaysinpreparationandsubmissionof departmentalprocurementplans,haveledtodelaysinprojectimplementation.Thisincreasesthegestationperiodand cost overruns40 ultimately leading to the low absorption of funds.41

4.4.4 Wasteful spendingAvailable studies42estimatethattheleakageandwastageof publicfundscoststhecountryover20percentof theannualnationalbudget.InIEA’sview,thebulkof theproblemsinthenationalbudgetlie with the utilisation of the funds and the actual implementation of programmes.

AccordingtotheControllerof Budget’sreport,about5percentof totalexpenditureisondomesticandforeigntravel–significantlyonstudytours43. The main concerns about these travels are that they arefrequentandinvolvelargedelegations;thattheycoverthesamesubjectmatteracrossthecounties;thatparticipantstravelwithoutinformingtheparentministryortheKenyanmissionabroad;andthedelegates travel without making prior appointments. The report recommends that foreign travel be minimisedandcoordinatedbytheMinistryof ForeignAffairsandInternationalTrade,whichmostcounty governments ignore.

24


44WorldBank,2014

AsshowninTable5below,WajirCountyspentmoneyondomesticandforeigntripseventhoughithadnotbudgetedforeither.MombasaCountyspentwithinthebudget,whileMachakosCountyAssembly overspent on their foreign trips by 4 percent.

Table 5: Analysis of expenditure on domestic and foreign travelCounty County Executive County Assembly

Domestic travel Foreign travel Domestic travel Foreign travelBudget(Ksh. M)

Expenditure(Ksh. M)

% AbsorptionRate

Budget(Ksh M)

Expenditure(Ksh M)

% AbsorptionRate

Budget(Ksh. M)

Expenditure(Ksh M)

% AbsorptionRate

Budget(Ksh. M)

Expenditure(Ksh. M)

% AbsorptionRate

Wajir 0 97.6 0 0 0 40.3 0 5Mombasa 95.5 16.9 18% 57 18.2 32% 69.4 23.9 34% 11.5 7 61%Machakos 142.1 97.1 68% 92.3 67.5 73% 56 34.9 62% 100.5 104.7 104%

Source: RoK, 2014

Thereisalsoevidenceof administrativespendingbuildingupratherquickly,tothepointwhereanumber of county assemblies have exceeded their annual allocations on sitting allowances and will therefore be forced to reallocate funds from priority areas of spending to compensate for this44. As shown inTable 6 below,MachakosCounty spent 4.5 percentmore than they had budgetedonMembersof CountyAssembly(MCAs)sittingallowances.WajirCountyMCAsareamongthehighest paid in the country.

Table 6: Analysis of MCA sitting allowances for the year FY 2013/2014County Budget allocation

Ksh (M)

Expenditure

Ksh (M)

% Absorption No. of MCAs Average sitting allowance per MCA (Ksh)

Wajir 76.1 76.1 100% 46 137,779

Mombasa 58.8 14.5 24.7% 46 26,296

Machakos 46.1 48.1 104.5% 60 66,864

Source: ROK, 2014 August


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45ROK,201446CircularRef MSPS/10/27A/VOL.II/(114)of 27thFebruary2013fromtheOfficeof thePrimeMinister,Ministryof StateforPublicService

4.4.5 Unauthorised spendingPublicprocurementshouldensuretheprudentuseof resourcesinacquisitionof goodsandservices.However,somecountiesincurredcoststhatwerenotauthorised.AccordingtotheAuditorGeneral’sreport,paymentof transportexpensesforofficersof thePublicServiceCommission iscoveredundertheCodeof Regulationsandtermsof servicetogetherwithParagraphF.13of theCountyHumanResourceManual201345.Anofficersecondedtoacountyasachief financeofficerwaspaida transport allowance from 4 March to 29 March for the distance from Kahawa West Nairobi to MachakosCounty,amountingtoKsh140,000.00.Thiswascontrarytotheprovisionsof aCircularfrom theOfficeof thePrimeMinister,Ministryof State forPublic Service46,which stated thatthe only payable allowances were consolidated top up allowances. The audit report recommended thatthepaymentshouldberecoveredfromtheofficerandpaymentsforservicestoundeservingofficersandnotprovidedfor,shouldnotbemade.Thesamecountyincurredanexpenditureof Ksh2.8million for theburialof the lateSenatorHon.MutulaKilonzo,whowas fromMakueniCounty(seeTable4).TheAuditorGeneral’sreporthighlightedthisasanirregulartransactionandrecommendedthattherelevantofficersbesurchargedfortheapparentlossof publicfundsinaninvalid expenditure.

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Recommendations

Public investment is prone to high inefficiencies, which emanate from cost overruns, benefitshortfalls,wasteandlowcompletionrates47.Assuch,countygovernmentsneedtotakeintoaccountvarious considerations.

5.1 Development of staff capacityTo improve budget execution, county governments should consider improving the capacity of procurementstaff inordertoimproveoperationalefficiencyandavoiddelaysintheimplementationof development activities. A similar recommendation was made by the Controller of Budget-that counties consider liaising with the Ministry of Devolution and Planning for possible staff secondment.Continuingeducationandcapacityenhancement,basedon lessons learntfrompastexperiences,shouldalsobeencouraged.Partof enhancingcitizencapacityinprocurementmattersisthedistributionof simplifiedprocurementmanualsinallcounties(basedontheprocurementrules)to ensure all procurement processes are clear and well understood by the public.

5.2 Development of procurement plansAll departments should develop work-plans to enable the procurement departments to prepare harmonised annual procurementplans and cashflowprojections to enhance implementationof development projects. Effective harmonisation of county procurement procedures with national governmentprocedureswouldhelpspeeduptheprocurementprocessandenhanceefficiency.

5.3 Pre-qualificationof suppliersForefficiency,acountycouldadvertiseforaprequalificationexercisefortheprovisionof regulargoods and services they need in a given period and conduct a comprehensive exercise that helps them identifyserviceprovidersforeachcategory,thattheycanuseinthatgivenperiod.Trainingof localsuppliers to enhance competitiveness in the procurement processes could also help in diversifying the service providers and enhancing competitiveness.

5.4 Following due processSincethePPOAismandatedtoprovideoversightof theprocurementprocessinKenya,itshoulddosoregularlyinordertohelpcountiescomplywithrequiredprocedures.Anyprocurementthatdoesnotfollowdueprocessshouldbenullifiedandthenecessarydisciplinaryactiontakentodetersuch cases in future.

5.5 Inventory managementCountygovernmentsshouldensurethetimelymanagementof procurementprocedurestoguaranteetimely delivery of services.Additionally, the simultaneous procurement of goods could save oncosts.Carefulselectionof procurementteamswithamajorfocusonintegrity,includingsigningof an‘integritypact’byeverymemberof theteaminvolvedinanyaspectof theprocurementprocess,should be adopted.

5

47Dabla-Norrisetal(2011)asquotedbyWorldBank(2014)

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References 6Agaba,E.&Shipman,N.(2007).Public Procurement Reform in Developing Countries: The Ugandan Experience. USA: Pr Academics Press.

Bauld,S&McGuinnessK.(2006).Valueformoney.Summit,9(1),20-21.

InstituteforDevelopmentStudies[IDS].(2006).Corruption,FirmGrowthandExportPropensityin Kenya.

InstituteOf EconomicAffairs[IEA],(2005).TheBudgetFocus:Stateof theNationandChallengesforBudget2005/06.Issue No. 11.

KPMGInternational.(2008).Governance Survey. Nairobi: KPMG.

KPMGINTERNATIONAL. (November,2011).Addressing thechallengeof global corruption.Issues Monitor, Volume 9

Odhiambo,W.&Kamau,P.(2003).Public Procurement: Lessons from Kenya, Tanzania and Uganda. OECD Working Paper No.208.OECDDevelopmentCentre.

OnyinkwaJ.(2013).FactorsInfluencingCompliancetoProcurementRegulationsinPublicSecondarySchoolsinKenya:AcaseOf NyamacheDistrict,KisiiCounty.Interdisciplinary Journal Of Contemporary Research In Business, Vol. 5:1

PeterKimuyu,Working Paper 541. University of Nairobi.

Public Procurement and Disposal Act, 2005.Nairobi:RepublicOf Kenya.Availableathttp://ppoa.go.ke/downloads/The%20Act/public_procurement_and_disposal_act_2005.pdf(Accessed: 20th April2015)

PublicProcurementOversightAuthority[PPOA].(2007).Assessment of the Procurement System in Kenya. Nairobi:PPOA.

PublicProcurementOversightAuthority[PPOA].(2013June27).PPOA Circular no.1/2013: Guidelines on the Public Procurement and Disposal (County Government) Regulations 2013. Available at http://www.ppoa.go.ke/downloads/Circular/PPOA%20Circular%201%20of%202013.pdf (Accessed: 8th May 2015)

The Constitution of Kenya. (2010). Available at https://www.kenyaembassy.com/pdfs/The%20Constitution%20of%20Kenya.pdf(Accessed:29thApril2015]

ThePublicProcurement andDisposalRegulations, 2006.Nairobi:RepublicOf Kenya.Availableathttp://www.ppoa.go.ke/downloads/Regulations/public_procurement_regulations_2006.pdf(Accessed:25thApril2015)

TheRepublicOf Kenya[RoK],(2013).Report of the Auditor–General on the Financial Operations of Wajir County for the Period 1 January to 30 June 2013.KenyaNationalAuditOffice

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TheRepublicOf Kenya[RoK],(2014).Report of the Auditor–General on the Financial Operations of the County Government of Machakos and it’s Defunct Local Authorities for the Period 1 January to 30 June 2013. KenyaNationalAuditOffice

TheRepublicOf Kenya[RoK],(2014).Report of the Auditor–General on the Financial Operations of the County Government of Mombasa and it’s Defunct Local Authorities for the Period 1 January to 30 June 2013. KenyaNationalAuditOffice

TheRepublicOf Kenya[ROK],(2014a).County Governments Annual Budget Implementation Review Report Fy 2013/14.Officeof theControllerof Budget

The Republic Of Kenya [ROK], (2014b).National Government Annual Budget Implementation Review Report Fy 2013/14.Officeof theControllerof Budget

TransparencyInternational[TI].(2014).PublicprocurementinKenya:Cashcowforthecorruptorenabler for public service delivery? Adili, issue 145

Wanyama,J(2010).Theeffectivenessof theProcurementRegulationsinKenya.Availableathttp:/www.oecd.org (Accessed: 5thMay2015)

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Website citations

http://www.ppoa.go.ke/index.php?option=com_content&view=article&id=100&Itemid=180

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P.O Box 18157-00100 Nairobi KenyaTel: 254 - 20 - 2727107/ 8Email: [email protected]

AcknowledgementAfriCOG thanks Katindi Sivi for her contribution in the development of this publication.

AfriCOG also thanks team members Noreen Wahome, Wilfred Muliro, Susan Karegi, James Gondi, Beryl Anyango, Jennifer Kamau, Maryconcepter Nzakuva, Eric Mwendwa and Raynor Polo for their commitment to our work.

The production of this publication has been made possible by the support of the Drivers of Accountability Programme, a programme of the Government of the United Kingdom’s Department for International Development (DFID), the Danish International Development Agency (DANIDA) and the Canadian International Development Agency (CIDA).

We are also grateful to the Open Society Initiative for East Africa (OSIEA) for their institutional support to our work.

The views expressed in this study are those of AfriCOG alone.

June 2015

Public Procurement in Kenya’s Counties · With regard to legislative and institutional frameworks...

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