Ministry of Health(MoH) has pending bills that amount to Sh41 billion from breached contracts.
According to Auditor General Nancy Gathungu, has questioned failure by Ministry of Health(MoH) to appeal huge court awards to suppliers for breached contracts nor settle some of the debts quickly out of court.
The audit have revealed that two unnamed suppliers are demanding Sh33 billion from the ministry over contracts breached in the 1990s.
“It is not clear why the ministry did not appeal the ruling considering the effect the award was to have on their budget and the precedent created which is likely to result in similar action by other suppliers,” Gathungu says in the audit report for 2019-2020 financial year.
If paid this financial year, the two suppliers will walk away with close to a third of the ministry’s annual budget from Treasury.
Solicitor General Kennedy Ogeto in his letter to former Health PS Prof Peter Tum on October 30, 2019 questioned why Ministry of Health(MoH) did not appeal or have a stay order, negotiate ex-parte and seek orders stopping the interest from accruing further in one of the cases.
In the just-ended 2020-21 financial year’s budget, the ministry was allocated Sh114 billion and Sh121.1 billion this financial year.
The Sh33 billion pending bills have still not been cleared.
“Failure to settle bills during the year in which they relate to distorts the financial statements and adversely affects the budgetary provisions for the subsequent year as they form a first charge,” Gathungu said.
In total, by June 30, 2020, the ministry had pending bills amounting to Sh41.65 billion, with Sh33 billion owed to two suppliers.
The first businessperson supplied insecticides, malaria control equipment, drugs and protective clothing at a contract price of Sh1.16 billion. The contract was to be implemented from July 14, 1996 to June 30, 1997.
However, the ministry failed to pay the supplier, who then sued for breach of contract.
The court awarded the supplier Sh1.86 billion plus compounded interest at 18 per cent per annum from March 1, 1999 to January 31, 2020 amounting to Sh80.52 billion.
“However, upon negotiations out of court, the award was revised to Sh15.25 billion resulting to an escalation of Sh13.38 billion from the initial award of Sh1.86 billion,” Gathungu says.
In the second case, the ministry entered into various contracts for supply of haemoglobin scale books and throat swabs, insulin, surgical dressing and sutures, Darrow’s solution and disposable needles at a cost of Sh196.88 million in the financial year 1992-93.
The agreement provided that payment was to be made strictly within 30 days from the date of the invoice or delivery of the goods and any delay in payment would attract interest at 1.5 per cent or two per cent per month on outstanding amount.
As at June 30, 2020, the claim by the supplier stood at Sh17.83 billion.
In April 2019, Health PS Susan Mochache told MPs they had written to Treasury to allocate money separate from the ministry’s budget, to settle some of these debts.
“In some cases, we will enter into negotiations to lower the amount to levels that we can shoulder. We need to engage an anti-fraud consultant because when people demand debts they can add all manner of interests and non-existent penalties,” Mochache told the National Assembly Committee on Health.