Why officers who fail to settle contracts could be penalised

A judge has censured the government for the rising number of unpaid contracts that end up costing taxpayers millions of shillings in penalties.

Commercial Court Judge Grace Nzioka was commenting on a case in which a contractor was demanding to be paid for work done in 1990.

Ramji Ratma and Company Ltd, a construction firm, built two military messes in Laikipia and Kahawa barracks at a cost of nearly Sh500 million.

After completion of the projects, a cat and mouse game ensued over payment of nearly Sh26 million. 

In 1998, the company went to court and asked to be paid Sh206 million, which included the principal sum and accrued interest.

“Before I pen off, I wish to make a general observation that it is becoming increasingly common that government ministries and/or departments are continuously failing to honour their contractual obligations, thus subjecting taxpayers to payments of millions of shillings in interest and or penalties,” said Justice Nzioka.

She continued: “There may be a genuine concern that the government is not able to meet its obligations as envisaged in the contracts due to either liquidity issues and/or other concerns.”

The judge said any accruing costs arising from contracts not honoured by the government should be shouldered by the individual public officers who decline to make payments.

Mitigate losses

“Where the authorised officers blatantly deny liability as herein and refuse to negotiate to mitigate the loss, these officers risk incurring personal liability.”

During hearing, it emerged that the chief government architect had written several times to the PS in the Defence ministry in 1995 requesting that Ramji should be paid, but the instructions were ignored.

The architect noted that the contractor was co-operative, worked diligently and completed the projects ahead of schedule at the request of the client, DoD. He recommended the claim to be assessed and interest paid on ex-gratia basis.

But the Attorney General said all payments had been settled. He argued that the contract did not provide for interest, adding that the claim was an afterthought and meant to vary the contract.

The State called Lt Colonel Gabriel Muchoki Kibuchi as a witness. In his statement dated July 10, 2017, he said the contract between the parties was a free value contract and there was no provision for payment of interest, or payment on time.

Completion of works

Kibuchi said the payments were made upon completion of works, and the delay, if any, was due to defects, and in relation to only two certificates in each project. 

He claimed final payment was made after the defects were rectified in 1994.

But while he conceded that the certificates were payable in 14 days from the date of issuance of certification, he stated that it would not be practicable for the government to pay up in time.