Companies that supply goods or services to government agencies risk losing millions of shillings if they fail to comply with procurement laws, even when the work has been completed and the public entity has benefited.
Courts have repeatedly ruled that public interest cannot be used to justify transactions that bypass mandatory procurement procedures, warning that allowing firms to recover money from unlawful contracts would undermine the law and encourage irregular spending of public funds.
In a recent decision, the Court of Appeal upheld the dismissal of a Sh182 million claim by Royal Media Services (RMS) over a voter mobilisation campaign it conducted for the Independent Electoral and Boundaries Commission (IEBC) ahead of the 2013 General Election.
The judges ruled that although the services had been rendered, the media company had failed to establish a valid and enforceable contract. They also found that the alleged arrangement did not comply with the statutory framework governing procurement by public entities.
“We reiterate that as a commercial entity dealing with a public body, the appellant (RMS) knew, or at the very least ought to have known, that such engagement required strict compliance with the statutory framework governing public procurement,” judges Daniel Musinga, Jamila Mohammed and Mumbi Ngugi said.
Applying the doctrine of ex turpi causa non oritur actio , (no action can arise from a dishonourable cause), the court held that it could not sanction an illegal contract merely because one party had already performed its obligations. The dispute arose in December 2012, when voter registration was reportedly below target and the deadline for the exercise was fast approaching.
RMS chairman SK Macharia told the court that then IEBC chairman Ahmed Issack Hassan approached the firm, both in his personal capacity and as head of the electoral agency, seeking assistance to boost registration.
The media mogul recalled a subsequent meeting with Mr Hassan (now a Court of Appeal judge) and then Finance Minister Njeru Githae at his office.
The meeting concerned the low voter registration numbers and the urgent need to increase registration before the deadline lapsed. According to him, the IEBC requested the media house to use its platforms to mobilise voters across the country.
Later discussions involving Mr Hassan, RMS directors and then IEBC chief executive officer, James Oswago, resulted in an agreement for a nationwide media campaign using radio, television and roadshows.
The company said it conducted the campaign between December 13 and 18, 2012, using its vernacular radio stations and other platforms to encourage Kenyans to register as voters.
The company claimed the campaign significantly increased registration, with RMS Group Managing Director Wachira Waruru testifying that the number of registered voters rose by about five million. RMS said the campaign was priced at Sh3 million per station per day. After completing the exercise, RMS prepared invoices totalling Sh182 million and submitted booking sheets and supporting documents, some of which bore the IEBC's stamp.
Despite repeated demands, RMS said it was not paid. It further claimed that the National Treasury had confirmed the availability of funds for the exercise and authorised the commission to make payment.
The IEBC denied entering into a contract with the company, maintaining that the alleged services had not been procured in accordance with the Public Procurement and Disposal Act, 2005. When he testified, Justice Hassan told the court that he had suggested RMS undertake the campaign as part of its corporate social responsibility programme. He said reimbursement was limited to vehicle-related expenses, and denied having authority to bind the IEBC to an arrangement that fell outside procurement law.
Although the court acknowledged that the IEBC had benefited from the services without payment, it held that there was a greater public interest in refusing to enforce transactions that violate procurement law.
“The documentary material relied upon, including the advertising booking sheets, does not, in our view, rise to the level of a concluded agreement setting out the essential terms of the alleged contract,” the judges said.
The court said compliance with the relevant provisions of the Public Procurement and Disposal Act, 2005 is not a mere procedural formality but a substantive requirement that goes to the validity of the transaction itself.
The judges added that allowing a company to recover money merely because a public entity had benefitted would undermine the purpose of procurement laws. The judges also rejected attempts to hold Mr Hassan and Mr Oswago personally liable.
The ruling echoes an earlier High Court decision involving Indigo Telecom Limited, which sought Sh39.36 million from the IEBC for satellite communication equipment supplied ahead of the 2013 General Election.
Indigo said it had received a local purchase order for equipment valued at about Sh36.36 million and delivered the goods on March 1, 2013. It later invoiced the IEBC and sought payment. The firm maintained that the transaction qualified for direct procurement because it was the sole dealer of the equipment and there was urgency, with the election only weeks away. The IEBC disputed the claim, arguing that the purchase order had been issued in breach of procurement law.
Last year, the Supreme Court said that even special procurement procedures must comply with constitutional principles.
The company maintained that the transaction qualified for direct procurement because it was the sole dealer of the equipment and there was urgency, with the election only weeks away.
The IEBC disputed the claim, arguing that the purchase order had been issued in breach of procurement law and that public resources could not be used to settle an unlawful claim.
The High Court accepted that a contract existed but found that the key question was whether it had been lawfully entered into. While the law allowed direct procurement in limited circumstances, it required the procuring entity to follow specific approval and negotiation procedures.
“To this court’s mind, the PPD Rules required a public entity using direct procurement to refrain from any negotiations until the tender committee approves the successful proposal,” the court said.
Justice Alfred Mabeya.
Photo credit: File | Nation Media Group
Justice Alfred Mabeya said the rules required negotiations to be conducted through two members of the tender committee, who would prepare a report for consideration by the committee. The court found no evidence that the necessary approval had been granted or that the required negotiations had taken place.
“Accordingly, the contract was unenforceable. The plaintiff perpetrated and assisted an unnamed official of the 1st defendant (IEBC) to break the law. The plaintiff (Indigo) cannot be allowed to benefit from a wrong it initiated,” the court ruled in September 2022.
Last year, the Supreme Court also stressed that even special procurement procedures must comply with constitutional principles.
In the decision, the apex court quashed the approval granted to Portside Freight Terminals Limited to establish a second bulk grain-handling facility at the Port of Mombasa through the Specially Permitted Procurement Procedure (SPPP).
The government and the Kenya Ports Authority (KPA) had defended the arrangement as necessary to reduce reliance on Grain Bulk Handlers Limited, which had operated the port's only bulk grain-handling facility for more than three decades.
KPA argued that a disruption at the existing facility could threaten strategic food reserves and national food security. It also cited Portside's offer to construct a common-user berth at its own cost and its access to adjacent land.
Busia Senator Okiya Omtatah challenged the procurement process, arguing that other firms had been unfairly excluded and that the speed of the process suggested bias in favour of Portside and its associated companies.
The companies defended the use of the SPPP, arguing that it was permitted under Section 114A of the Public Procurement and Asset Disposal Act in matters involving public interest or national security.
Deputy Chief Justice Philomena Mwilu.
Photo credit: File | Nation Media Group
A five-judge bench led by Deputy Chief Justice Philomena Mwilu ruled that those considerations did not exempt KPA from demonstrating that the process met the constitutional standards of fairness, transparency, competition and cost-effectiveness.
“In other words, the protection of the supremacy of the Constitution is critical and there can be no greater public interest or interest of national security than to uphold the Constitution, its values and principles, as well as obeying the law,” the judges said.
The court added that the SPPP, although an alternative to open tendering, “must truly be seen, in terms of the Constitution, as a system that is fair, equitable, transparent, competitive and cost-effective”.
It found that KPA had failed to demonstrate that exceptional circumstances made a competitive procurement process impossible, impracticable or uneconomical.
The Supreme Court overturned the Court of Appeal decision that had cleared the way for the project, reiterating that a procuring entity must justify its choice of an exceptional procurement method and comply with the applicable legal requirements.
