PRIVATE COMPANIES MAY BE REQUIRED TO COMPLY WITH PUBLIC PROCUREMENT PRINCIPLES

By Anthony Njogu Monday, November 19, 2018
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Article 227 of the Constitution of Kenya states that, when a state organ or other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. Article 227 further provides for a framework within which policies relating to public procurement may be implemented to give effect to the Article. The Public Procurement and Asset Disposal Act of 2015 (the Act) was thereafter enacted in order to give effect to Article 227. The Act also provides procedures for efficient public procurement and asset disposal by public entities.

While Article 227 and the Act were intended to affect only public and/ or state entities, recent decisions by Kenyan courts suggest that private companies carrying out their own procurement processes may be held liable to bidders if the procurement does not comply with the principles set out in law governing public procurement.

A strict reading and interpretation of the Act supports the position that if a body does not fall under any of the categories defined as public bodies under the Constitution, then they are not subject to the provisions of the Act. Recent decisions of the High Court, however, show that courts may be of a contrary opinion.

In Hydropower International (PVI) Limited v Kenya Tea Development Agency (Holdings) Ltd & 5 others [2017] eKLR one of the issues being determined was whether the court had jurisdiction to review, supervise or otherwise intervene with procurement processes by private entities as the Act does not apply to private entities.

Hydropower, the plaintiff, asked the court to grant an order of injunction restraining the defendants from entering into a tender for the engineering, procurement and construction of the proposed Chemosit, Kipsionii 1 and Rupingazi hydropower projects in Kenya. The plaintiff claimed the defendants had an orchestrated scheme designed to ensure that the contracts were awarded to a specific bidder, and that in executing that scheme, some of the defendants committed fraud to the plaintiff’s detriment.

In their defence, the defendants argued that the court had no jurisdiction to review, supervise or intervene with the procurement process since the Act does not apply to private entities. The court held that it had jurisdiction over the matter and the judge, Sergon J, stated that private procurement processes are bound by the rules applicable to public procurement as set out in the Act.  The court was guided by the court’s statement in Mary Njogu v Ndima Tea Factory Co. Ltd & 2 others (2015) eKLR:

“[t]he process in question is procurement by a private company. It called for sealed bids, and was to be confidential. Whereas the plaintiff argued that the Public Procurement and Disposal Act did not apply to private tenders, the principles therein apply mutatis mutandis to tenders issued by private persons. The parties to such process and contracts arising there from are bound to respect and play by the known or agreed rules in the process.”

Until the Supreme Court and /or the Court of Appeal rules differently, the current stance by Kenyan courts is that private companies must demonstrate that their private procurement processes comply with the principles set out in the Act: i) national values and principles, ii) equality and freedom from discrimination, iii) affirmative action programmes, iv) principles of integrity under the Leadership and Integrity Act and v) principles of public finance (amongst others)).

In our view, the Hydropower decision was incorrectly decided given the express provisions of Article 227 that the Act applies only to public entities. Nonetheless, until an alternative ruling is given, we suggest that private companies align their procurement process to those set out in the Act.  It will save them a substantial amount of time as well as the cost of defending their procurement processes in a court of law (if they were ever required to do the same). In most cases, carrying out an objective, non-biased procurement in accordance with a defined procurement policy should be sufficient to make the process of private procurement “litigation-proof”.