Review laws on termination of State agency contracts

On a number of occasions we have seen State agencies terminating contracts when implementation has already begun.

In most cases, the termination is attributed to the contractor's failure to perform despite clear terms on the obligations. Sometimes, such terminations have exposed the agencies to high-octane litigation risks, with the contractors rushing to court for remedies.

In some instances, Parliament's Public Investment Committee (PIC) has stepped in to interrogate the management of these State entities regarding the propriety of such terminations.

It's important to mention that the Public Procurement and Asset Disposal Act 2005 (PPADA 2005) and the Public Procurement and Disposal Regulations 2006 (PPDR 2006) were patently silent on the role of the Attorney General in the termination of State agency contracts.

The AG's involvement was, as a matter of good practice and prudence, inferred from his constitutional role under Article 156(4)(a) of the Constitution as the Government's principal legal adviser and Section 5(a) and (c) of the Office of Attorney General Act, Cap 49 of 2012.

Under this law, the office is responsible for advising Government ministries, departments, constitutional commissions and State corporations on legislative and other legal matters.

There has been a paradigm shift in the newly enacted PPADA 2015. The Act has specific provisions on how the termination of State contracts should be effected.

Awaiting parliamentary approval pursuant to Section 180 of PPADA 2015, the Statutory Instruments Act, 2013 and final gazettement are the Draft Public Procurement and Asset Disposal Regulations 2016 (Draft PPADR 2016).

What does this new law and proposed regulations provide relating to the termination of State contracts?

Section 134(2) read with Section 134(5) provides that an accounting officer of a State entity shall ensure that all contracts of a value exceeding Sh5 billion are cleared by the Attorney General.

Section 153(1) and (2) respectively provide that upon the request of the procurement management unit, the accounting officer may approve the request for termination of the contract.

Also that a contract document shall specify the grounds on which the contract may be terminated and specify the procedures applicable on termination.

Surprisingly, the Act is silent on whether or not clearance by the Attorney General is a condition precedent for terminating contracts worth more than Sh5 billion.

There may be some justification for the AG's prior legal advice and approval of any execution and termination of contracts of over Sh5 billion, in this case to prevent and/or mitigate against unnecessary litigation that may be costly to the taxpayer.

There is need to review the justification and impact of such a statutory requirement for contracts priced below Sh5 billion.

Ambiguity lurks in the PPADA 2015 and by extension the Office of Attorney General Act, Cap 49 of 2012. This state of affairs yields room for multiple interpretations on the AG's involvement in the termination of State contracts.

The National Treasury, Public Procurement and Regulatory Authority and the Legislature should bring this clarity home. The opportune time is now, before the draft PPADR 2016 is approved by Parliament and gazetted.