The 2010 Constitution sets the tone for public procurement in Article 227 by stating as follows: "When a State organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective." Arising from this, Parliament has put in place an intricate legal and regulatory framework to govern public procurement in Kenya. This includes the Public Procurement and Asset Disposal Act (2015) as one of the key legislation plus regulations, circulars and manuals which are issued from time to time.
The draft Public Procurement and Asset Disposal (Amendment) and Amendment (No.2) Bills, 2019, were published by parliament in July 2019. These Bills, if assented to, shall have a far reaching effect across many local industries due to new provisions which seek to forcibly prefer local providers when it comes to certain categories of public procurement.
The current statute has been lauded for protecting the rights and interests of suppliers from more vulnerable groups such as the youth, women and persons living with disabilities where they are engaged in business with state entities and national and county governments. However the Bills seek to cast a wider net to protect all local businesses, on the premise that they have so far had a disproportionately smaller share of public sector tenders due to competition against larger and better funded foreign companies.
These Bills are probably a response to the public outcry against the domination by foreign companies when it comes to large infrastructure projects. The Bills seek to compel procuring entities to reserve not less than forty percent of their annual procurement budgets to the procurement of goods manufactured, mined, extracted, produced or grown in Kenya. Additionally, they seek to carve out some tenders such that those below a certain value are purely preserved for local firms. If enacted, goods, services or works whose value is less than one billion shillings must be awarded to local firms. The proposed amendments go further to restrict the definition of a local firm to one which is wholly owned by Kenyans and registered in Kenya. This therefore means that firms which are locally registered but owned by foreigners will be locked out from participating in such procurements. The positive intention behind these proposals is praiseworthy but it is to be hoped that some research has been conducted to confirm the sufficient capacity of local firms to satisfy all the forty percent allocation as well as the demand represented by tenders which are below the one billion shilling limit.
All is not lost for foreign firms as they will still be eligible to participate in tenders whose value exceeds one billion shillings. But, there is a catch as a foreign firm is required to have entered into a joint venture with a local firm to perform thirty percent or more of the value of the procurement. This is yet another win for the local businesses that have been out in the proverbial wilderness as far as their participation in public procurement is concerned. Furthermore, the procuring entity is required to set out the specific goods, works and services that shall be undertaken by local companies in such joint venture procurements. These measures are designed to substantially increase the participation of local supplies in projects funded by the exchequer.
To whom much is given, much is required. As such, the preference for local providers places a clear imperative upon local businesses to ensure that their goods and services are of unobjectionably good quality while being cost-effective and deliverable in a timely manner.
Insightfully, the Bill has envisaged the unscrupulous practices of registering local companies to act as proxies for foreign investors who are unable to participate in tenders which are ring fenced for locals. The Bill addresses this by criminalizing the registration of a company by any person on behalf of a non-Kenyan with the mischievous intention of benefitting from procurement whose value is less than one billion shillings. As a demonstration of seriousness, if a person is convicted of such offences, they are liable to a fine of up to five million shillings or imprisonment for a term of up to three years. It is noteworthy that the Bill goes further to outlaw the registration of a company by a foreigner on behalf of a non-Kenyan and ups the ante by imposing a jail term of five years.
The procuring entities may still have a loophole to manipulate the value of their tenders by combining several smaller tenders to a point where the sum value exceeds one billion shillings, in order to open the door for foreign firms to participate in the tender. It is also possible to achieve the opposite effect where a procuring entity fragments one large tender into a series of smaller tenders which fall below the one billion shilling threshold, in order to confine that procurement for local firms only. We would expect such manipulative behavior to be nipped in the bud by the Public Procurement Regulatory Authority, when such abuses are brought to their attention.
With all the changes intended by this Bill, Kenyans can expect significantly more business opportunities for indigenous businesses. But before we can enthusiastically chant “For us! By us!”, local businesses need to invest in enhancing their capacity from a qualitative and quantitative perspective. Only then can this Bill make for robust and thriving local industries, without the risk of compromising the success of public projects. If passed, the implementation of the Bill will also need to be done in a fair, balanced and transparent manner if it is to produce the desired positive impact.
The article was featured in the Business Daily on 4th November 2019 and can be accessed here.