NSSF loses Sh500m to Chinese firm in inflated house costs

Public pension provider, the National Social Security Fund (NSSF), lost more than Sh500 million through variation of bid prices in multi-billion-shilling contracts awarded to a Chinese firm in the past five years, Parliament was told on Thursday.

The National Assembly’s Public Investment Committee (PIC) found that each of the five real estate development contracts awarded to China Jiangxi International was varied by about Sh100 million from the original bid prices.

The NSSF argued that the contracts “were corrected” to take on board costs of plumbing and electrical works, pushing up costs from what was stated in bid documents.

NSSF managing trustee Richard Langat told the PIC that “arithmetic error correction” explained the cost variations.

Committee members, however, demanded that the NSSF management explain why firms owned by Africans were awarded contracts based on the figures quoted in the bid documents while the Chinese firms secured projects at inflated costs.

The MPs said the relationship between NSSF and China Jiangxi was suspect because documents before the committee showed that the Chinese firm rarely quoted the lowest prices in bid documents but had won 90 per cent of the contracts. 

“In each of the cases before us, they have quoted figures that leave room for arithmetic corrections to win the tenders. We need to be told what these errors are,” said Mohamed Noor, the Mandera South MP.

Mr Langat tabled documents showing that China Jiangxi was awarded Phases III, IV and VI of the Nyayo Estate-Embakasi estate in Nairobi involving development of a total of 1810 housing units. The cost of construction work for each phase rose by Sh100 million.

The NSSF awarded the Chinese firm the sixth phase of the project at a price of Sh2.15 billion or Sh150 million more than the Sh2 billion the company had quoted in the bid document.

The provident fund lost an additional Sh87.8 million in Phase IV of the project involving construction of 798 units.

The tender had been awarded to China Jiangxi at a price of Sh2.69 billion but this was later revised to Sh2.78 billion ostensibly to include plumbing and electrical works.

Similar cost inflation occurred in Phase III of the project where 688 housing units were constructed and sold. China Jiangxi won the contract at a price of Sh1.9 billion but was awarded the tender at a contract sum of Sh2 billion, including plumbing and electrical works — taking Sh100 million.

The NSSF earned a total of Sh3.7 billion from the sale of Phase III houses, making a profit of Sh1.7 billion.

More recently, China Jiangxi placed a Sh6.59 billion bid for construction of additional 36 floors at Hazina Trade Centre in Nairobi but was awarded the contract at Sh6.71 billion or Sh110 million more in changes that were attributed to “arithmetic error correction.”

READ: Chinese firm beats Kenyan developer to NSSF tower deal

It also emerged that China Jiangxi won the tenders despite not being the lowest bidder as required by law.

Documents tabled before the committee showed that the Chinese firm was awarded the Nyayo Estate-Embakasi Phase III contract despite finishing as the fourth lowest bidder. 

The firm had quoted Sh1.97 billion against Landmark Holdings which returned a bid sum of Sh1.86 billion.

The NSSF management was hard pressed to explain why bid prices quoted by locally owned companies were never varied but were awarded at quoted prices.

The list of contracts awarded to local firms includes refurbishment of the NSSF House in Mombasa at a price of Sh217.5 million, renovation of NSSF Block C-Nairobi awarded to Centurion Engineering and Building Contractors at a price Sh398.5 million and construction of Social Security House Annex by Fubeco Limited at Sh572.9 million.

Mr Langat defended the projects, saying the fund got value for money.

“The projected return on investment is Sh2.9 billion,” he said of Nyayo Estate-Embakasi Phase VI whose price was varied by about Sh150 million.

Mr Langat told the committee chaired by Eldas MP Adan Keynan that the renovation of NSSF Block C had created additional lettable area of about 200,000 square feet  that is expected to generate a monthly income of Sh20 million.

The committee postponed its hearing to enable MPs interrogate the project details before recalling the NSSF management for further questioning.
During the session, Mr Langat also took the committee through the controversial Sh5.053 billion Tassia II and III infrastructure upgrade project.

READ: Employers oppose NSSF’s Sh5bn Tassia upgrade plan

The committee held that the NSSF Board of Trustees had flouted Article 227 of the Constitution, the Public Finance Management Act and provisions of Public Procurement and Disposal Act in awarding the tender to China Jiangxi.

The project involves development of infrastructure services that is required for the Nairobi county government to approve sub-division and issuance of titles to 5,500 plot owners.

Mr Keynan accused Mr Langat, acting general manager finance and planning Gideon Kyengo and property development manager Mutemi Nzatu of disregarding the law by tendering the project without budgetary allocation.

The Public Procurement and Disposal Act, prohibits procurement of services without a budget. The law also requires that money must be allocated before any such procurement.

“The right procedure would have been to collect the contributions first before tendering. You were also required to get the landowners’ consent before tendering the project,” Mr Keynan said, adding that advertising the tender without following the laid-down procedure had exposed the fund to immense losses in the event that the tenants failed to pay the Sh920,000 meant for the development of the infrastructure.