MPs probe how firm minted millions from Kemsa in forex changes, cost variations

MPs are investigating how a company contracted by the Kenya Medical Supplies Authority (Kemsa) may have deliberately delayed the completion of construction works to siphon off public funds through cost variations, as well as exchange rate fluctuations.

The matter has since been flagged by the Office of the Auditor-General in a report to Parliament on Kemsa’s accounts for the 2017/18 financial year.

The National Assembly’s Public Investment Committee on Social Services, Administration and Agriculture (PIC-SSAA), which is considering the audit report, has already raised questions about how Meditec Systems limited was contracted by Kemsa.

Meditec Systems limited was contracted by Kemsa on November 28, 2012 for USD 3,368,374.20 for the construction of a bunker and civil works with a completion period of 47 weeks.

Part of the contract amount related to the procurement of cancer, surgical, dental and diagnostic equipment.

At the time the contract was awarded, the exchange rate between the US dollar and the Kenyan shilling was Sh86, meaning that the contract value was Sh289.7 million at the prevailing exchange rate.

However, the committee, chaired by Navakholo MP Emmanuel Wangwe, has already revealed that Meditec Systems, instead of complying with the contract period, extended it to 194 weeks.

This came as it emerged that by the time the work was completed, there had been an overpayment of Sh22 million, even though the contractor demanded an additional Sh2 million due to what it claimed was a change in the exchange rate.

In addition, the contractor changed the design of the works without proof of approval from Kemsa.

“This was a deliberate decision to delay so that you get payment at the then prevailing exchange rate. If you took longer than required then you should pay the government for the excess payment,” said Mr Wangwe as Saboti MP Caleb Amisi weighed in; “this was not a fair contract.”

What baffled the committee, and what could be an indication of collusion between some elements of Kemsa and Meditec Systems limited, is the fact that there is no clause in the contract indicating when it should have ended, meaning that 12 years later it’s still alive.

“This contract is still open and could lead to escalating costs. It needs to be closed,” the committee’s auditors recommended.

Mr Priten Patel, director of Meditec Systems Limited, had a tough time before the committee, even as he blamed the government for taking too long to pay for work and supplies.

“The government should use the interest because the delay was not on our side,” said Mr Patel, who is also claiming VAT refunds, adding, “We never negotiated the exchange rate with Kemsa.”

It is not yet clear whether Kemsa agreed to pay the contract sums in dollars or Kenyan shillings.

Mr Patel asked for two weeks to provide the certificates of completion and handover of the project to the government if required, leaving committee members in doubt.

This was even as Mr Wangwe accused him of “cleverly getting back the money you invested in Kenya” despite having been paid for it.

“You must be ready to refund the excess money to Kemsa because what you are trying to put us through is not how government works. For example, the issue of VAT, was that not part of the project cost? When you changed the designs, who supervised you?” asked Mr Wangwe.

Kaiti MP Joshua Kimilu said, “This was a deal where someone just wanted to get money from the government.

To begin its investigations, the committee has asked Mr Patel to provide it with the contractual agreement he signed with Kemsa for the procurement of cancer, surgical dental and diagnostic equipment.

This, the committee chairman said, must include the award and acceptance letters for the contract.

It must also include details of the total amount received by the company from Kemsa, including the amount received for the procurement of cancer, surgical, dental and diagnostic equipment and the money received for the construction of the bunker and civil works.

The certificate of completion of the construction of the bunker and civil works is also required, as well as an explanation of why the project was not completed on time as agreed in the contract.