Supreme Court holds final card on legality of the SGR contract

Chief Justice Martha Koome makes a ruling at the Supreme Court, September 1, 2022. [Samson Wire, Standard]

The Supreme Court will now have a final say on a stubborn matter that has dogged three regimes, the validity of the Standard Gauge Railway contract.

On Monday, the Supreme Court allowed an appeal by Kenya Railways challenging Court of Appeal's finding that the contract signed in late President Mwai Kibaki's regime was unconstitutional to proceed to a full hearing.

Busia Senator Okiya Omtatah had asked Justices Mwilu, Mohammed Ibrahim, Smokin Wanjala, Njoki Ndung'u and William Ouko to strike out the case as it had not been sanctioned by an authorized signatory of the board.

But in a win-win situation, Omtata won against Kenya Railway's bid to expunge his cross-appeal on the same matter. The two appeals will now proceed to their logical conclusion.

"It is our view that the first respondent's (Omtatah) application to strike out the first petitioner's (Kenya Railways) petition dated July 21, 2020, and its submissions dated March 15, 2021 is not merited," Supreme Court ruled.

Omtatah, however, lost in another instance. His replying affidavit in the case was thrown out with judges saying he filed it out of time.

The ruling came at a time the SGR matter has surged back to public limelight after Transport Cabinet Secretary Kipchumba Murkomen threatened to disclose the SGR contracts.

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.
As the whole issue stands, the contract was condemned by the Court of Appeal, which found that KR head hunted CRBC instead of subjecting it to competitive bidding.

It also emerged that KR head hunted CRBC and sealed the contract 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.

Justice Martha Koome (current Chief Justice), Gatembu Kairu and Jamila Mohammed 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 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.

"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," Justices Koome, Kairu and Mohammed ruled.

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 in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.

The judges also found that Kenya Railways contravened section 29 of the Public Procurement and Disposal Act, 2005, which provided for open tendering.
The sections state 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. Phase two to Naivasha was to cost Sh150 billion. The final phase from Naivasha to Malaba was projected to cost Sh380 billion.

Kenya Railways' former director 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 Government of Kenya in February 2011, and following discussions between KR and CRBC, KR 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 for the job was as condition of Chinese loan agreement.
"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 "negotiated grant or loan" agreement for purposes of Section 6 of the Act.
"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," they ruled.

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 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 argued that Kenyans did not get value for money and that the project's cost was inflated.

According to Omtatah, the project's design and supervision of the construction services amounting to US$110 million (Sh11 billion) 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 carried out for free.

Okiya 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's case that the appeal should be dismissed. It argued that the case in court was already dead as SGR is already up and running.

"SGR was operational from 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 People's 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 on the basis of "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. Current Supreme judge Isaac Lenaola had found that the deal was not subject to the procurement law. At the time the petition was presented to court, construction of the railway was yet to commence. Okiya had hoped to stop it dead in its tracks. The Court of Appeal disagreed.