Legal Notice No. 69, Kenya Gazette Supplement No. 53 dated 22 April, 2020

It has been five years since the Public Procurement and Asset Disposal Act, 2015 (hereinafter PPADA or the Act) was passed. Since then, practitioners and other stakeholders in this field have had to rely on the 2006 Regulations with adjustments to fit the 2015 Act, a situation which was far from ideal.

The Public Procurement and Asset Disposal Regulations, 2020 (hereinafter the PPADR, PPAD regulations or the Regulations) were debated before the National Assembly following the submission of the Report on Delegated Legislation on its consideration of the PPAD Regulations, 2020 (Legal Notice No. 69 of 2020) which was laid before the house on 25^th June 2020.

The House adopted the Regulations on 2^nd July 2020. The Regulations can be accessed on the Kenya Law site at http://kenyalaw.org/kl/fileadmin/pdfdownloads/LegalNotices/2020/LN69_2020.pdf.

The Senate also debated and passed the Regulations on 4^th July 2020.  By Gazette Notice No. 4957 dated 9^th July 2020 but published on 24^th July 2020, the Cabinet Secretary for the National Treasury and Planning, Ukur Yatani, notified the general public that the Public Procurement and Asset Disposal Regulations, 2020 came into operation on the 2^nd July following the approval by Parliament under Section 180 of the Act.

Now that the long-awaited PPAD Regulations, 2020 are here, a candid review is warranted to see if the long wait was worth it.

The first observation is that the Regulations are quite lengthy and detailed, with 224 regulations (if properly numbered without skipping certain regulations such as 193, 204, 205), compared to more succinct 2006 Regulations which had only 93 regulations. Is lengthy necessarily better?

This review will analyze some of the details that have added length to the Regulations and whether the extra details have any value addition to Public Procurement in Kenya.

Let us start the review with a look at the shortcomings of the Regulations, dealing with the bitter pill first so that the reader can be left with a sweet after taste as we wind up with the positive aspects of the Regulations.

A Review of the Cons

Regulation 203 (1) and 218 (should be Regulation 204 and 222 respectively if properly numbered), are probably the only provisions in the PPAD Regulations, 2020 that can be classified as retrogressive and probably even unconstitutional and thus require a detailed exposition.

Regulation 203 (1) which is made pursuant to Section 167 (2) of the Act, requires that the filing of a Request for Review (RfR) shall be accompanied by refundable deposit valued at 15% of the applicant’s tender sum which shall be put into a deposit account.

Section 167 (2) of the Act requires a refundable deposit of not less than ten percent (10%) of the cost of the contract. The deposit requirement in the regulations was set at 5% above the minimum deposit provided by the Act.

Regulation 203 (3) provides that where it is established that the bidder provided false information on his or her tender sum, the request for review shall be dismissed and the deposit forfeited.

Regulation 222 provides for a security fee of a refundable 3% of the applicant’s tender sum subject to a maximum of ten million shillings before filing a judicial review case to the High Court.

It should be noted that under the 2006 Regulations, none of these prohibitive deposits were required as a prerequisite to accessing the bid protest mechanism.

It is submitted that these two regulations (and also Section 167 (2) of the Act which they are made pursuant to) are unconstitutional. It is unlikely that these legal provisions will pass the test of Constitutionality if subjected to judicial scrutiny and reviewed through the lenses of constitutional provisions that seek to promote access to justice for all.

Article 48 of the Constitution provides that, “The state shall ensure access to justice for all persons and, if any fee is required, it shall be reasonable and shall not impede access to justice”.

Whereas the argument might be that the deposit is refundable, the requirement for such a hefty deposit places a heavy financial burden on would be applicants and has the effect of discouraging them from filing requests for review to challenge bid decisions made by Procuring Entities (PE).

Such a hefty deposit directly limits access to justice for aggrieved bidders as it is a cumbersome hurdle which you must first overcome before you file a case. The effect of such a provision is that only the financially well-endowed bidders can challenge the procurement process.

Section 167 (2) of the Act together with regulation 203 and 222 send mixed signals on the stand of the country of matters of accountability. On the one hand, we acknowledge that the country has major challenges on matters of procurement including corruption, but on the other hand the laws and regulations are drafted in a manner that clearly discourages judicial scrutiny.

If a bidder is prevented from accessing the Public Procurement and Administrative Review Board (PPARB), which is more easily accessible even owing to the reasonable dispute resolution timelines (21 days from filing date as per Section 171 of the Act), then it is unlikely the bidder will opt for the normal courts where the wheels of justice turn at snail pace.

A model of justice that limits access to lower courts or specialized tribunals by imposing heavy filing fees (by whatever name described) at that level is fundamentally flawed.

These two regulations and the parent provision in the Act go against the general direction which the country is taking in terms of access to government services, including access to the courts, which is to reduce applicable fees. Such a deposit has the same effect as an unreasonable fee.

It is noteworthy that this provision is also not excluded for the disadvantaged groups such as women, youth, and the disadvantaged for whom government policy has been to apply inclusive policies and affirmative action in order to encourage their involvement in procurement.

The other concern with this regulation is that it might lock out local contractors with limited financial capability from the bid protest mechanism completely.

This has the effect of making bid protest in Kenya a preserve of the big foreign contractors with financial muscle and who are well supported by their governments and well-funded development banks who can advance such deposits at negligible interest rates.

I need not spell out which foreign contractors I am talking about. This is unlike our Kenyan contractors who might have to approach the Kenyan banks to fund the deposit at rates which start at 13% and above, if at all the local banks will agree to advance them these monies.

So, while the PPADA and the Regulations have gone a long way to promote local contractors and the disadvantaged groups through use of preferences and reservations and other provisions, the inclusion of provisions which limits their access to the PPARB has clawed back on those benefits.

Recommendation

It is recommended that regulations 203 (1) and 218 and Section 167 (2) of the Act should be amended to either remove this provision for the refundable deposit all together; or

If it must be there, reduce the deposit to a very minimal amount of not more than 1% of the contract sum for both the Act and the regulations. Keep in mind though that even 1% of a multi-billion shillings tender is still a colossal amount of money for the average contractors.

In the meantime, Treasury or the Public Procurement Regulatory Authority (PPRA) should give guidance to ensure these draconian provisions do not come into effect pending the amendment of both the PPADA and the Regulations.

It is unfortunate that these retrogressive provisions that frown on scrutiny of public procurement through filing of request for review made it into law in the first place.

Which provisions can be classified as “In Between”?

Timelines under the Regulations

There are a few places throughout the Regulations where the timelines given to do something are unreasonably short. Whereas the intentions behind these may be good i.e. to ensure efficiency in procurement, unreasonable timelines can militate against the intended benefits.

The Regulations with questionable timelines include:

Regulation 79 – the Accounting Officer (AO) is given one (1) day to make a decision relating to the award of tenders either by approving the award, seeking clarifications or rejecting, after reviewing the relevant documentation like the professional opinion given by the head of the procurement function.

Noting how our public entities operate and the demands, some unreasonable, placed on the AO on a daily basis, disregard of this provision might become a norm. It is not unlikely that the AO might be away from office or tasked with another urgent task on the day that the report is forwarded to him for approval.

The timelines should allow the AO to do more than just hurriedly append his/her signature or reject the report just to meet this deadline. The law should allow the AO more time to do a thorough review of the accompanying reports and seek clarifications before making a decision.

A more realistic timeframe would have been giving the AO at least three (3) days to make the decision. Sufficient time will ensure adherence to the law and will give an opportunity to offer a well-reasoned decision, noting that the buck stops with the AO.

The minimum period of seven (7) days for preparation of tenders – this is contained in several places such as in Regulations 89 (7), 114 and 119 to name a few is quite short. Tender Documents are bulky in nature with many mandatory, technical and financial requirements to meet.

A shorter period for preparation of tenders may reduce competitiveness since while the experienced bidders may be able to put together a bid within a relatively short period of time, new bidders will struggle to beat the deadlines. Use of this short time frame will mean that Procurement will remain the preserve of a few experienced bidders.

It may also result in a higher number of non-responsive bids. A more inclusive approach would be to give bidders sufficient time to respond to tender advertisements.

Aspects that require further detail

While the Regulations are already quite detailed, there are certain aspects that could have benefited from further details. These include:

Post Qualification (Due Diligence) – Regulation 80

The Regulations missed an opportunity to give guidance on what an effective due diligence exercise entails. Post evaluation should not be a perfunctory exercise that merely involves ticking boxes in a checklist but is aimed at strengthening the paper tender review process.

There is a perception (tongue in cheek) that some procuring entities are usually very keen to conduct physical site visits and physical verification of plants and equipment while conducting due diligence on foreign contractors, perhaps because it entails foreign travel. However, due diligence on local contractors is at times restricted to document review and calling references.

At the very least, due diligence on both local and foreign contractors (especially for big tenders beyond a certain threshold) should include visiting contractor’s offices, inspection of plant, equipment and completed works, checking references in addition to confirming validity of documents presented.

It should also be possible to conduct more than one due diligence exercise as long as this is done before the tender is awarded, should it come to the attention of the PE that they may have missed something during the initial due diligence. The due diligence (whether one or more) must of course be accompanied by due diligence report as described in Section 83 (3) of the PPADA.

The schedule to the Regulations should have included a format of a Due Diligence Report noting that the issue of a proper due diligence exercise and report has been addressed in a number of Procurement decisions (see PPARB N0. 58 of 2019 -Principle Styles Ltd v Kenya Water Towers Agency and in Misc. Civil Application No. 214 of 2019 on Appeal; PPARB 134 of 2019 – Trident Insurance Company Limited v Accounting Officer, Nyamira County Assembly).

The Bid Evaluation Process – Regulations 74 – 77

Regulation 74 which is on Preliminary Evaluation of Open Tenders indicates it is made pursuant to Section 80. Perhaps the more relevant section would have been Section 79 which deals with responsiveness of tenders.

Mandatory requirements are best left for preliminary evaluation, unless for very critical technical requirements which can be included as mandatory requirements at the technical evaluation stage.

The Regulations should have loudly echoed the provisions of Section 80 (2) of the Act which provides that the criteria used during technical evaluation process should be objective and quantifiable. The Regulations should have made it clear that PEs should adopt a scoring/marks system (with a minimum score) which can objectively quantify level of competence, quality etc.

It is submitted that the absence of a score system at the technical stage and use of a system of disqualification at the technical evaluation stage, may result to absurd results such as ending up with much less qualified contractors and less value for money.

However, the topic of how the current bid evaluation process under Kenyan law is unlikely to deliver value for money effectively is the subject of a separate, most likely controversial and lengthy article which the author promises to deliver in the fullness of time.

Details on certain key concepts

Minor Deviations: the Regulations could also give guidance on what amounts to a minor or material deviation under Section 79 (1) (a) of the Act as this issue has also been a subject of various cases (see Judicial Review Miscellaneous Application No. 118 of 2019, R v PPARB, KEMSA, Ex Parte Emcure Pharmaceuticals Ltd.)

There is a hint of what amounts to a material deviation in Regulation 74 (2) and guidance in Regulation 75 (2) that a deviation shall be applied uniformly and consistently to all tenders received by the Procuring Entity, but nothing more.

At minimum, the Regulations could have indicated that the PPRA shall provide further guidance on these aspects.

Clarifications: certain decisions of the Board have held that failure by the evaluation committee to seek clarifications in order to clear its doubts failed the test of promoting competition and resulted to treating the bidder unfairly (see PPARB No. 13 of 2014, Liberty Eagle Kenya Ltd v KAA).

However, it is not clear whether members of the ad hoc evaluation committees of the PEs are clear on what kinds of clarifications they can seek without being accused of committing offences such as improperly influencing the procurement process, favouritism or unfairness.

The Regulations could have eliminated these uncertainties for evaluation committees by giving clear examples or tasking the PPRA to give clear guidelines on this issue.

The Strengths of the Regulations

Despite the negative and lukewarm aspects that are highlighted above, the PPAD Regulations, 2020 have many positive aspects. As promised, the good aspects have been left for last to ensure the reader is not left with a gloomy feeling.

Compliance and Debarment Procedures (Regulations 21-22) – the provisions on powers to ensure compliance and the detailed debarment procedures in Part IV of the Regulations which give effect to Part IV of the Act on the same are quite progressive.

These provisions are not only useful in ensuring the integrity of the procurement process in Kenya but also in providing clarity of procedures and ensuring that aggrieved and accused persons have access to fair administrative processes in line with the Constitution.

Achievement of these objectives and principles will of course depend on how PPRA goes about the implementation of these procedures, with speed of investigations being key.

Standard tender documents and formats (Regulation 68) – the Regulations have clearly placed emphasis on the use of standard documents by providing more detail compared to the brief mention of this issue in regulation 29 of the 2006 Regulations. The schedules have also listed 42 standard tender documents, 3 more than those in the 2006 Regulations.

Use of standard documents creates uniformity across PEs and ensures clarity of tender documents. The PPADA and the 2020 Regulations should have gone a step further to make failure to use standard tender documents an offence.

Sector-specific procuring and consortium buying (Regulations 36 and 37) – there is no doubt these provisions are well-intentioned and purposeful. If well implemented, benefits such as economies of scale are likely to accrue.

On the converse, poor implementation of the two regulations may hamper the economy and might even result in increased costs from heavy administrative expenses of implementing the structures required to actualize these provisions.

For now, we will classify these provisions as positive and adopt a wait and see approach on their efficacy.

Embracing E-Procurement (Regulations 49 to 64)

In order to implement the provisions of section 7 (2) (c) of the PPADA which require Treasury to implement an efficient procurement management system and Section 64 which describes how ICT may be used in procurement, the Regulations have gone ham on the issue of e-Procurement.

The Regulations have made provision for the use of technology throughout the whole cycle of the procurement process, from planning, submission of e-tenders, the opening of e-tenders, e-administrative review and award of tenders.

There is no doubt that the use of technology can add efficiency to procurement processes if we go full throttle on it; half-hearted measures or prevaricating between manual and online systems will not work.

Some additional points to note that need not have been captured in the Regulations but which the implementers may apply include:

• Safeguards – the electronic system adopted for e-Procurement in Kenya must contain adequate safeguards including water-tight access controls, audit trails which capture ALL changes made by ALL users, including deletions, plus varying user levels that allow oversight.
• Training – the implementation process must be accompanied by practical trainings for all users, development of Standard Operating Procedures (SOPs) which reflect the actual processes in each PE and which are applied to the letter consistently.
• Mandatory use – for e-procurement to work, the use of the system should be mandatory for all relevant staff (including managers tasked with approvals) with repercussions such as poor performance appraisal scores for staff who ignore the system for manual options.
• Transition – the transition process may allow for use of both manual processes alongside electronic systems concurrently, but there should be clarity on when to apply each method and the final date of total changeover to the electronic system.

The discussion on e-procurement is particularly apt now with the advent of the COVID-19 pandemic and the disruptions it has brought about in all spheres of life.

The extra hygiene and social distancing measures have catapulted the use of technology to a whole new level. There is no reason why public procurement in Kenya should be left behind in embracing technology at this time.

Kenya could also take lessons from countries that have successfully implemented e-procurement systems such as the much-praised South Korea’s integrated Korea ON-line E-Procurement System (KONEPS), see https://www.pps.go.kr/eng/jsp/koneps/overview.eng, to avoid re-inventing the wheel.

Disposal of Assets (Part XIV of the Regulations) – the asset disposal aspect of procurement is always the ignored sibling, with public procurement always taking centre stage.

However, poorly implemented disposal proceedings can be as costly, if not more costly, than botched procurement processes.

Most Kenyans remember media reports of expensive government German vehicles wasting away in a warehouse or being disposed at throw away prices instead of being sold at market value and availing the much-needed resources from the disposal to the government.

The detailed disposal provisions that are outlined from regulations 176 to 202 are intended to ensure cost-effective disposal of public assets by making provision for disposal planning and other disposal procedures including disposal methods.

Sufficient details on procurement procedures (part VIII, IX and X) – the regulations have gone into great detail in making adequate provision for the procurement procedures relating to classified procurements, procurement of goods, works and services and procurement of consultancy services. These will offer useful guidance to PEs especially if regular training is conducted to familiarize the staff of all PEs with these procedures.

Classified Procurements – there have been concerns that the broad classification of certain procurements as “classified” is a loop hole which can be abused by mischievous public officials to evade procurement oversight.

Regulations 84 (1) – (14) require the Accounting Officer of a PE dealing with classified items to share a list of classified items with the Cabinet Secretary (CS) by the 30^th July of every year and submission of quarterly reports both to the CS and the PPRA on the classified procurements. Time will tell if this level of scrutiny is sufficient, but there is no doubt that it is a good start.

Training – the detailed provisions on procurement procedures have potential to be useful to PEs, but there is no doubt there is need for training.

Regulations 6 (1) and 7 (1) have provided training as one of the key responsibilities of the bodies involved in procurement, namely Treasury and the PPRA.

Schedules with necessary forms – the Regulations provide for a total of 16 Schedules compared to the 2006 Regulations which had only four (4) schedules.

The schedules provide for various forms ranging from the first schedule which provides a format for filing a request for debarment, to threshold matrixes, various declaration forms, list of standard tender documents, professional opinion and concluding with how to file a Request for Review before the PPARB.

The schedules will provide clear guidance on the procedures for various processes and are a necessary addition to the Regulations.

Conclusion

As lengthy as it is, this review of the PPAD Regulations, 2020 only provides a highlight of some key aspects of the regulations, without going into a review and analysis of each regulation.

All in all, the PPAD Regulations, 2020 are a big step forward from the 2006 Regulations with many progressive elements, but as highlighted above, there are a few serious flaws.

It is clear that the regulations could have benefitted from one last look and boost to ensure that we adopt comprehensive good quality Regulations that will serve us well for at least a decade to come, without the need to make multiple amendments along the way.

Having waited for five years for these PPAD Regulations, a couple of more months of waiting to get an even better-quality product would have been worth the wait.

Since that is now water under the bridge, the procurement stakeholders in Kenya need to put their heads together to see how the PPAD Regulations, 2020 can be best applied and improved along the way for the benefit of the country.