President William Ruto speaking at State House Nairobi on June 19, 2023. The new deductions include a 1.5 per cent housing tax that will be effective July 1 once President Ruto signs into law the Finance Bill 2023. The proposed law also introduces new Pay As You Earn (PAYE) brackets, including a 35 per cent tax on income above Sh500,000 per month.
The government’s directive on public entities to institute austerity measures and budget cuts on projects after the fall of the Finance Bill 2024 is sparking wars with contractors, as some protest arbitrary cancellation of contracts.
Some of the public entities have had to cancel plans to implement projects after President William Ruto announced a Sh200 billion cut on projects in June, but others are cancelling contracts that had already been tendered, inviting legal battles from contractors. The president said some projects will be cancelled while others will be delayed.
The Public Procurement Administrative Review Board (PPARB) last month had to intervene and order the National Government Constituency Development Fund (NG-CDF) management to proceed with a Sh855 million Enterprise Resource Planning (ERP) system procurement contract after it attempted to terminate it on grounds of lack of budget, citing orders to rationalize its budgets.
NG-CDF wanted to cancel the contract after the tender was awarded to a local firm, Agile Business Solutions, in June 2024 which triggered legal battles as the company sought the intervention of PPARB.
PPARB documents note that NG-CDF defended its action to terminate the contract after the tender was awarded to Agile Business Solutions as having been caused by lack of budget, following directives to place austerity measures.
“She (NG-CDF advocate) contented that the conclusion of the contract had also been frustrated by the recently implemented austerity measures and rationalization of budget. Counsel submitted that after the decision of the Board, the National Treasury directed NG-CDF to rationalize its budget by removing all capital expenditure including the subject tender as a consequence of the rejection of Finance Bill 2024,” PPARB documents note.
The directive to all public entities to rationalize budgets and institute austerity measures came following countrywide protests in June and July 2024 as Kenyans marched in the streets to oppose proposed taxation measures in the Finance Bill 2024. The Bill was eventually shelved after President William Ruto yielded to demands by protesters.
Terming the directive to rationalize its budget as being outside its control, NGCDF blamed the directive for frustrating the ERP system procurement contract.
“Additionally, counsel indicated that by a circular dated September 13, 2024 the Chief of Staff and Head of Public Service had directed all public bodies, including NG-CDF to obtain approval of any new projects including the ERP system under the subject tender. She indicated that the approval has not been sought due to the ongoing investigations by the Authority (Public Procurement Regulatory Authority), the austerity measures and budget rationalization,” PPARB documents show.
NG-CDF told the PPARB that out of its Sh3 billion proposed budget for the current fiscal year, only Sh1.2 billion was approved by the Treasury, in line with the austerity measures noting that some of its previously approved expenses had been removed from the budget.
Agile Business Solutions, the company which won the tender to supply the integrated ERP system to NG-CDF, however, rushed before the PPARB to protest NG-CDF management’s decision, faulting its action as an illegality.
Agile told the PPARB that the law only contemplates a situation where an entity can terminate a contract on account of inadequate budget before the tender is awarded, but an award confirms budget availability.
“Counsel further pointed out that though the procuring entity cited austerity measures and rationalization of the budget, no evidence was led in this regard and any assertion on this would be evidence from the Bar,” PPARB documents show.
The PPARB ordered NG-CDF to proceed with the contract noting that it had not produced any documents to show how budget rationalization affected the ERP system procurement.
“Absent evidence of the reduction or removal of the line item on the subject tender, the Board is not convinced that this constituted a good reason for the delay in execution of the subject contract,” the PPARB stated.
The Board directed that the tender period for procurement of the ERP system by NG-CDF be extended by 30 days from November 15, to give room for signing of the contract.
