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The Mumias Sugar Company Tendering Black Hole

blackholeStory originally published in the Standard on Tuesday, 10th February 2014.

Blatant procurement irregularities in Mumias Sugar Company, at one time a bastion of economic prosperity not only in Western Kenya but in the entire country, largely contributed to its near collapse. The miller’s management manipulated and intervened in numerous tendering process whose net result was to the benefit of a few individuals. These shocking details are laid bare in a forensic audit sanctioned by the company’s board and undertaken by audit firm KPMG.

The report reveals astonishing details of utter disregard for basic procurement procedures and the lack of adherence to strict in-house procurement laws. “During our investigation, we found that the pre-qualification of suppliers was not carried out every two years, contrary to the policies and procedures,” the report says. For instance in 2010, an open tender was advertised in the local dailies for the pre-qualification of suppliers or contractors of goods and services for the financial year 2011-2012.

In total, 26 categories were included in the list, but according to minutes from a board meeting, the pre-qualification was to cover a period of three years from 2011, contradicting the advertisement. In spite of this irregularity, another set of suppliers was contracted to do business by the management team without having gone through the crucial pre-qualification stage. “Also in some instances, there were recommendations made by management trainees that new suppliers who were not evaluated be included in the evaluation sheets.”
This flaunting of company laws ended up giving unscrupulous insiders an opportunity to invite companies out of the list of pre-qualified companies to apply for and in some instances were awarded tenders running into millions of shillings. Among the tenders awarded in this manner were the construction of an access pavement to a new office block, the refurbishment of the packaging area and the construction of a road to the company’s ethanol plant.

The report also points to the possibility of bid fixing among employees. For instance, a company that had not participated in the procurement process for the supply of fertiliser was eventually awarded a tender to supply 1,000 metric tonnes of urea.

“Shah Kanji and Sons (K) Ltd (Shah Kanji) did not participate in the procurement process for fertiliser on November 24, 2011. However, they were awarded a tender to supply fertiliser based on a quotation received via email on October 25, 2011. This was prior to commencement of the tendering process,” the KPMG audit reports.

In the said email, Shah Kanji offered to supply the fertiliser at Sh3,914 per bag. Other companies that had also sent their quotations to supply of fertiliser, like Eldoret Packers, had priced lower than what was quoted by Shah Kanji. On November 10, 2011, the company publicly advertised for bids in local dailies. The tender closing date was November 24 and opening on the same day.

Updated Tuesday, February 10th 2015 at 00:00 GMT +3 Share this story: “Shah Kanji and Sons (K) Ltd (Shah Kanji) did not participate in the procurement process for fertiliser on November 24, 2011. However, they were awarded a tender to supply fertiliser based on a quotation received via email on October 25, 2011.

This was prior to commencement of the tendering process,” the KPMG audit reports. In the said email, Shah Kanji offered to supply the fertiliser at Sh3,914 per bag. Other companies that had also sent their quotations to supply of fertiliser, like Eldoret Packers, had priced lower than what was quoted by Shah Kanji. On November 10, 2011, the company publicly advertised for bids in local dailies. The tender closing date was November 24 and opening on the same day.

Minutes from the tendering committee dated the same day – November 24 – indicate that Shah Kanji delivered their bid on the same day, after the opening of the tenders had been done and the committee decided to reject their bid. Even with this decision, the company still went ahead and delivered the fertiliser.

“A note was included in the fertiliser procurement for 2011 to indicate that 1,000 metric tonnes had already been procured from Shah Kanji to meet the immediate demand. The criterion used in selecting the company was not indicated,” the report says. Even then, a further misrepresentation of information regarding this particular tender is revealed in the report.

“Shah Kanji, who is a fertiliser dealer based in Eldoret, was not able to submit their bid in due time but we have requested them to give us a quote… This price is lowest compared to all other prices… We seek your approval to award Shah Kanji 1,000 metric tonnes of urea at a unit cost of Sh3,290 per bag delivered to Mumias at a total coast of Sh65.8 million,” a December 1 memo from the procurement manager Mohammed Farah to Managing Director Evans Kidero reads.

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