SGR procurement was legal, Supreme Court rules

The government legally acquired Standard Gauge Railway (SGR), the Supreme Court has ruled.

In its final verdict on Friday on the contentious issue of whether Kenya and China's deal was above board, a five-judge bench unanimously agreed that the government and the public were involved through parliament.

At the same time, Deputy Chief Justice Philomena Mwilu, Mohammed Ibrahim, Smokin Wanjala, Njoki Ndung'u, and William Ouko on Friday, June 16, 2023, found that the procurement process was undertaken as a government-to-government contract and did not require weighing against Public Procurement Disposal Act, 2005.

"Whether a citizen agrees with or was satisfied with what was undertaken is a matter of conjecture provided that the laid-out procedure was followed. Like in every democracy, the concept of representing the people or public interest remains a hydra-headed mongrel, which cannot be defined with certainty, as it is never possible to get a homogenous viewpoint from the populace," state the bench, headed by DCJ Mwilu.

The judges added: "In the premises, we respectfully disagree with the appellate court and hold that the procurement process for the SGR project met the requirements of Article 227 of the Constitution as read together with the provisions of the PPDA, 2005."

In effect, the court set aside the Court of Appeal's verdict handed down by Justice Martha Koome (current Chief Justice), Gatembu Kairu, and Jamila Mohammed, who had condemned the project over lack of public participation.

On the other hand, they agreed with Supreme Court judge Isaac Lenaola, who first heard the case before the High Court, and expunged the contract submitted by Busia Senator Okiya Omtatah as evidence in the case.

The five judges noted that SGR was not the first project in which the government has intervened and undertaken direct government-to-government procurement.

In 2013, they said, with the impending General Election and due to constitutional timelines, the Independent Electoral and Boundaries Commission was embroiled in legal battles over the procurement of voting materials. This led to government intervention as was eventually argued in the resulting presidential election petition.

Kenya Railways moved to the apex court to challenge the Court of Appeal's finding that it did not float the project to competitive bidding.

Court of Appeal had found that KR headhunted China Road and Bridge Corporation (CRBC) instead of subjecting it to competitive bidding.

After headhunting CRBC, it also emerged that the contract was sealed before China's Exim Bank agreed to finance the multi-billion project.

Questions were also raised on CRBC being barred by Word Bank from carrying out projects.

The CJ, Kairu, and Jamila, on June 19, 2020, unanimously agreed that KR flouted procurement law and the Constitution as the Memorandum of Understanding between Kenya and China was that should the feasibility study be approved, then CRBC could be contracted to execute it.

"Consequently, irrespective of how the project was going to be funded, the implementing entity would be CRBC. In other words, whereas there was no clarity at that time on how the project would be financed, it was crystal clear that once funding was secured, (however that would be achieved), the project would be executed by CRBC," justices Koome, Kairu and Mohammed ruled.

They added: "The procurement of CRBC was therefore a foregone conclusion from the outset. The question of the procurement procedure being dictated by subsequent financing arrangement would therefore not arise."

They found that Kenya Railways failed to comply with Article 227 (1) of the Constitution. The Article dictates that when a State organ or any other public entity contracts for goods or services, it should do so by a system that is fair, equitable, transparent, competitive and cost-effective.

The judges had also found that KR contravened Section 29 of the Public Procurement and Disposal Act, 2005, which provided for open tendering. The section states that in the event the procuring entity decides to go for any other method of procuring goods and services, be it restricted tendering or direct procurement, it ought to obtain written approval from its tendering committee.

Phase One of SGR, from Mombasa to Nairobi, was to cost Sh327 billion while Phase Two, to Naivasha, would cost Sh150 billion. The final phase, from Naivasha to Malaba, was projected to cost Sh380 billion.

Kenya Railways' former MD Atanas Maina told the court that the corporation hired CBRC as a condition set in the financing agreement between Kenya and China.

The MD said after the feasibility study and preliminary design report were submitted to the Kenyan government in February 2011, and following discussions between KR and CRBC, the corporation approved the same on June 26, 2012.

According to Maina, following the approval of the feasibility study, negotiations followed. The contracts, he said, were signed on July 11, 2012, and October 5, 2012, with the approval of the Ministry of Transport and the Attorney General's office.

The Court of Appeal disagreed with Maina that hiring CRBC was a condition of the Chinese loan agreement, saying: "Based on the foregoing, it is not accurate, as was claimed by Mr Maina, that the engagement of CRBC as the contractor was as a result of dictation by the financing agreement. We conclude, therefore, that the engagement of CRBC was not an obligation arising from a "negotiated grant or loan" agreement for purposes of Section 6 of the Act."

The judges ruled further: "This is because as indicated above, the contract with CRBC as the contractor was procured long before the financing agreement was entered into. The holding by the learned judge to the contrary is with respect, not supported by the facts as set out above."

The Attorney General had argued that arising from the government-to-government loan agreement, the SGR project was exempted from the requirements dictated in the procurement law. The Court of Appeal found that there was no option of competitively looking for a firm to construct the railway.

"The procurement of CRBC was therefore a foregone conclusion from the outset. The question of the procurement procedure being dictated by subsequent financing arrangement would therefore not arise," they ruled.

The Appeal judges, however, dismissed claims that the government bypassed parliament and that it failed to factor in the environmental impact of the project.

Okiya's case was supported by the Law Society of Kenya (LSK), the two arguing that Kenyans did not get value for money and that the project's cost was inflated.

Omtatah said the project's design and supervision of the construction services amounting to Sh11 billion (US$110 million) were duplicated, hence a loss to the public. He complained that no due diligence had been done adding that no independent feasibility study and design of the project was undertaken before seeking contractors to implement it.

At the same time, he said, there was a conflict of interest in the government contracting CRBC to implement the project whose feasibility study and design it had intriguingly been carried out for free.

Omtatah was of the view that in any event, CRBC was ineligible for the award of the contract as it had been blacklisted by the World Bank for engaging in corruption in a road project in the Philippines.

The LSK, in its case, argued that the government contravened procurement regulations as it never floated an open tender or direct sourcing of the project. China Road supported the government case that the appeal should be dismissed, arguing that the court case was already dead as SGR is already up and running.

"SGR was operational since 2017. What you are being told is to reverse the clock," CRBC argued.

The Deputy General Manager of CRBC, Xiong Shiling, deponed in his opposition to the petitions told the court that CRBC is a state-owned company of the Republic of China with extensive experience in international railways, airports and like projects.

According to Shiling, the Memorandum of Understanding between CRBC and the Ministry of Transport provided that should the feasibility study be approved, the project was to proceed based on "an EPC contract" (engineering, procurement and construction contract) or turnkey mode contract which is an internationally recognised mode of contracting, including by the International Federation of Consulting Engineers (FIDIC).

The battle started at the High Court when Justice Lenaola found the deal was not subject to procurement law.

When the petition was presented to the court, construction of the railway was yet to start.

Omtatah had hoped to stop the deal in its tracks. The Court of Appeal agreed with him but the Supreme Court has declined to side with him.