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Business

Taxpayers left with Sh10bn fines for road tender breaches

Economy

Thursday January 26 2023

Nairobi Expressway.

Vehicles on the Nairobi Expressway during its launch by Transport CS James Macharia on May 14, 2022. PHOTO | FRANCIS NDERITU | NMG

Roads agencies have left taxpayers with bills of nearly Sh10 billion following breaches of contracts with international firms, raising questions about the thoroughness of procurement officials in the sector that gulps the lion’s share of Kenya’s development budget.

The State Department of Infrastructure has disclosed that Kenya National Highways Authority (KeNHA) and Kenya Rural Roads Authority (KeRRA) have been slapped with Sh9.69 billion by the courts largely for contravening the terms of road contracts.

The unlawful decisions by KeNHA and KeRRA officers as well as those at the Treasury who delay releasing cash for payment of contractors in time have become a major liability to the exchequer.

Read: Expressway contractor gets Sh9bn tender to revamp old road

The analysis of the Infrastructure department’s latest budgetary report depicts an upward trajectory in the expenses that the two agencies are shouldering after losing legal battles with road contractors in the last two financial years through June 2022.

The court awards in the roads sub-sector surged nearly three-fold for the period compared with Sh2.54 billion in the year ended June 2021.

The awards for the last fiscal year are for cases determined between May 2018 and December 2021, according to the department.

Israeli-owned SBI International Holdings Kenya is the largest beneficiary of compensation for the contract breaches, winning 71.89 percent of the court awards for termination of the contracts.

SBI has been awarded Sh6.96 billion by international arbitrators for the termination of 10 road contracts in Kisumu and Kericho under KeNHA, some of which were due to “delays in releasing project funds”.

The awards to the Israeli contractor include Sh2.58 billion for the cancellation of three contracts related to the dualling of the Kisumu Boys Roundabout-Mamboleo Project, Sh1.59 billion for Kericho–Nyamasaria Project, Sh1.39 billion for Mau Summit–Kericho Project and Sh522 million for Ahero Interchange Project.

The firm was further awarded Sh611.48 million for terminated contract for the roads running from Kisumu Airport through Kisian, Obote, Otieno Oyoo and the port.

KeNHA unsuccessfully pleaded with the High Court in 2021 to stop payments awarded to SBI by Dispute Adjudication Board in the UK for cancelled contracts.

“In FIDIC [International Federation of Consulting Engineers] contracts, the process of dispute resolution by adjudication is contractual in nature. The terms are contained in the agreement between the parties in the form of a dispute resolution clause,” appellate judge John Mativo (then at High Court) ruled.

“By submitting to the contract, the parties willingly agree to be bound by the terms of the agreement including the dispute resolution process. Courts cannot rewrite a contract validly entered between parties.”

The ministry data shows KeNHA had by June 2022 paid SBI Sh400 million, about 5.74 percent of the total amount outstanding.

The agency in charge of highways accounted for 71 percent of court awards to contractors for cancelled road projects.

Road infrastructure was a priority sector under former President Uhuru Kenyatta’s administration, although it came with the burden of debt load on taxpayers largely through loans contracted from China.

When he left power, Mr Kenyatta said his administration had built more than 11,000 kilometres of tarmac roads since taking over in April 2013, claiming the additional network is nearly six times that built by his three predecessors since independence.

“The naysayers said that we should not invest so heavily in infrastructure because people don’t eat roads and floating bridges,” the president said on June 1, 2022.

Read: State to reveal names, homes of tender tycoons in graft fight

“I refused their pessimism because I know what a new road means to the farmer who has for decades been unable to get their produce quickly to the market.”

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Jay Ndungu

Jay is a computer scientist and journalist with a passion for the intersection of technology and society. He has a background in computer science, developing a deep understanding of the technical aspects of the industry, including programming languages and software development methodologies. Currently, He writes for Nairobi Times, covering a wide range of topics including technology, politics, sports, and entertainment. With his unique combination of technical knowledge and journalistic experience, Jay brings a unique perspective to the stories he covers, able to explain complex technical concepts in an easy-to-understand manner. His work is dedicated to bridge the gap between technology and society, and to make people more aware of the potential of technology to make the world a better place.

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