Billions at stake as Health ministry standoff with the contractor persists

Seven Seas Technologies CEO Michael King’ori Macharia.

From his elementary workstation off Riverside Drive, the lanky but now haggard founder and group CEO of Seven Seas Technologies Group is counting down to a financial disaster unless a miracle saves him.

The Sh4.9 billion Health Care Information Technology (HCIT) deal he inked with the Ministry of Health to deploy an information system and supporting ICT infrastructure across 98 county hospitals is ebbing away in controversy, and with it Sh1 billion investment.

It is a corner office stripped of all pomp characteristic of blue-chip companies; no comfy leather seats for visitors, no gold paintings invoking vain fantasies and no over-decorated gypsum ceiling for heavenly relations.

Simply orchestrated, just like the motto of the company he has run since he was 25, the office is both the stuff of simplicity and a contradiction of terms; few floors, few staff but lofty dreams and vast connections.

The half horseshoe desk he sits on brooding over the good, the bad and the ugly of the Medical Equipment Scheme (MES) is pushed to the wall, and with a right angle elevation to the right, directly to the door.

Essentially, he is always facing the wall, except that he has mounted a huge projector screen on that wall on which he projects his Mac computer. From this screen, he watches the twists and turns of MES through the lens of a parliamentary inquiry, and now, the coronavirus updates.

Behind him, on his left is a cabinet whose top is bedecked with mementos and trophies collected over many years of toil and successful executions. A picture of a boy, probably his son, hangs overhead.

To his left is a half cabinet lined up with books.

Sitting on his desk are probably his latest reads; Salim Amin’s Kenya Through My Fathers Eyes, Wonders of the Holy Land and Kenyatta Cabinets, the latter a compilation of the Kenya Year Book Editorial.

An Optica eye care package rests besides them, probably delivered in his absence. In these blurry times, he needs a better eyesight. He had just arrived from Naivasha, probably from a business pitch. His phone never kept silent. Throughout our chat, it kept nudging him.

Michael King’ori Macharia or simply Mike, talks quite fast and loves to scribble his points down. You could mistake him for an exhibitionist, except that he is not. For 22 years now, he has run Seven Seas, conquering one market after the other, and since 2013, bagging major government tenders.

Before his company ran into current headwinds, he had successfully pitched and implemented the delivery of integrated service delivery system, Huduma Centres, to the Ministry of Devolution.

And most immediately, in the period preceding the HCIT tender, Seven Seas had successfully partnered with General Electric (GE) in its delivery of the main MES tender of supplying 98 hospitals across the counties with medical equipment.

So when he appeared before the Senate Ad Hoc Committee on Managed Equipment Services (MES), he was in his perfect-pitch element. He was on a mission to conquer Parliament, regain his foothold project and reassure global investors who had injected capital into the project.

Innocent victim

Armed with a 72-page multicolored presentation, 80 per cent of it in graphs, signage, silhouetted illustrations, maps, pictures, tables and icons, Macharia convinced Senators and journalists that Seven Seas is an innocent victim of an inept government system slow to act but quick to punish.

The elephant in the room? The cancellation of the multi-billion shilling contract over what Health PS Susan Mochache described as a litany of failures on their part; including alleged failure to secure funding without a crucial government letter and, the bigger sin as alleged by former Health CS Sicily Kariuki, manipulating tender specifications.

“The MOH wishes to inform you that the contract for the provision of HCIT has and is hereby terminated forthwith on account of its illegality, which you as a contractor knew or ought to have known since as a contractor, you were obliged to confirm that the law was complied with,” Mochache’s four-page letter dated November 18, 2019 says.

Coming two years late, without notice and with massive capital deployed, Macharia fought back with an eight-pager of a response, terming the “misapprehension” of the contract “tragic, regrettable, unlawful, discriminatory and devastating.”

“It is indeed devastating to see how local companies are treated with malice and disrespect overlooking their hard earned investments and positive contributions to the economy. It is a sad day for the ICT sector in Kenya,” Seven Seas wrote, while pleading with the ministry to review the decision or else they invoke their rights under the contract.

Looking at the trove of correspondence on the whole matter, it is easy to understand Seven Seas fury and why Senators have bought their story. Repeated letters to MOH prior to this went unanswered, entreaties were acknowledged but ignored while officials back-peddled on their positions without batting an eyelid.

By May of last year, the ministry appeared to have long resolved – under the water – to dump Seven Seas even as they continued to engage it on the surface. In a letter by PS Mochache to her ICT counterpart Jerome Ochieng’ which has since surfaced, it was clear that MOH had moved on.

“The purpose of this letter is therefore to request your department to support the ministry to develop a suitable HCIT solution. Please find attached the previous HCIT specifications for your perusal, information and guidance,” she wrote.

When she severally appeared before the Senate committee, CS Kariuki left the Senators high and dry on a number of issues, including whether the requirement of letter of support was in the original tender documents as disputed by the ministry or whether it was subsequently inserted by an illegal tender committee working in cahoots with Seven Seas.

On one hand, she was categorical that the executed contract did not provide any requirement for a letter of support. On the other hand, she cited Clause 38.19 of the contract that directly mentions government’s support letter while defining event of default.

“There is no further provisions within the contract and the schedules, thereto, that provide any justification for the issuance of the letter of support to Seven Seas Technologies Ltd,” she said while conceding there existed some form of basis for issuance of the letter albeit not clear.

Still, she went on to cite Clause 2.3 of the contract which required the government to provide to the contractor among other completion documents “an original copy of the government’s letter of support duly executed by treasury”.

Macharia had placed before the committee both original tender documents and the contract, both which required the government to avail letter of support, which in any case had been dished out to all other companies in the main MES project.

On top of the letter issue, Kariuki listed a litany of other issues not included in the termination letter, all blamed on Seven Seas. They included failure to undertake “comprehensive due diligence” on the company and failure to undertake a “prudent and independent verification” on company pricing.

Clause 2.3, it was the CS’s firm submission, was introduced into the contract during a negotiation meeting between MOH and Seven Seas in a meeting held in Burch Resort in Naivasha on September 9, 2017, more than two weeks after notification of award.

When challenged to demonstrate whether the letter of support was in the original tender documents or not, Kariuki simply stuck to her guns that it was not, without adducing the evidence. She flatly refused to rely on documents tendered by Seven Seas while also not producing her own.

Original documents

“Allow me not to refer to documents brought here by an interested party, a vendor. Allow me to stick by the fact that a negotiating team created itself together with the CEO of this company; sat and negotiated -- it is in original form.

“If that support letter was a requirement in the original tender documents, they would have no reason to sit in Naivasha na kufanya ukarabati kwa hii makaratasi wanayozungusha. Allow me not to look at it. Tafadhali,” she said.

Bizarrely, the CS in what sounded like a twisted fit of logic, claimed that the import of provisions on the letter is that it (the letter) was a condition precedent to the commencement of the commercial contract since it was to be delivered on or before the commencement date. The contract therefore never took off.

But the Senators led by Moses Wetangula (Bungoma) and Enock Wambua (Kitui) would have none of it, questioning how the ministry continuously engaged Seven Seas for two years only to drop it like a hot potato. They also demanded production of the original tender documents. In her response, the CS blamed a “reasonable back and forth consultation” between the AG, Treasury and MOH for delay, saying it was much better to do it late than to carry on with an illegal process.

“We arrested the problem early and noted that the process was not followed, due diligence is in question, the contractor himself wrote to say that he had abandoned the site so was there much to salvage?”

As for the other illegalities, the accounting officer ought to have handled the correspondence for the project of this magnitude, the AG ought to have been involved, the MES implementation committee was a superfluous entity unknown in law and that negotiation was out of place.

When the chair of the committee Senator Fatuma Dullo read a November 6, 2017 letter signed by Julius Korir, the then Principal Secretary, appointing the HCIT implementation team, the CS was caught flatfooted with some Senators claiming she did not have “much understanding” of the project.

The other contentious issue was the scope of the work thus far done by the contractor. The CS conceded being hosted by the contractor at KNH at the data centre room, but appeared to downplay the scope of the works and procedure undertaken on completion.  

In her letter, PS Mochache had given Seven Seas 40 business days to remove all property not acquired or transferred to the government failure to which they will be carted out without bearing responsibility for their loss, damage or cost.

“How do you tell me to go undo all that we have done at KNH’s data centre, radiology hub, reporting room, radiology training room not to mention the procured equipment which lay idle at the port for months?” a vexed Mike complained to the Saturday Standard, before adding:

“It’s all hogwash, I am telling y ou. I have, with me, the minutes of the National Steering Committee for the project and the Contracts Negotiation Committee constituted by the ministry where the issuance of the Support Letter and the outstanding payments were discussed on several occasions in meetings co-chaired by the Cabinet Secretaries Health and ICT respectively and there was representation from the Attorney General’s office.”

Pending payments

In one of the meetings held on June 26, 2018 and attended by CSs Kariuki and Joe Mucheru and Seven Seas senior officials, the matter of letter of support and pending payments to Seven Seas was discussed and recorded in the minutes in our possession.

“It was agreed that the release of the letter of support from Treasury need to be expedited through escalations by both ministries of Health and ICT. A timeline of two days was agreed. SST needs this letter to unlock funding by bank and investors,” says the minutes signed and confirmed by Dr Rashid Aman, the Chief Administrative Officer in the ministry on July 31.

For all the troubles, Seven Seas is hanging onto hope that it can complete the job. This despite its last three letters proposing resolution to the dispute receiving zero attention at Afya House.

They say the negative impacts of the cancellation to both sides is unfathomable in the long run.

For one, he says, it will expose Kenya to huge compensation costs when he moves to assert his rights under the contract, increased costs if government re-tenders, loss of revenues and jobs, continuance of suffering and death of the sick and eroding of investor confidence in Kenya.

“The fact of the matter is that we do not want to give up on this grand dream of projecting the country as among the few that managed to transform health through technology. We do not want to be on the wrong side of history,” he says.

Besides, he believes the shenanigans around the matter may as well have been a ploy to shake off Seven Seas in preference of other contractors:

“It’s like a case of someone claiming that a well is poisoned. You scare everyone off then drink all the water by yourself. We will hang on there.”