NSSF assets up for sale in Sh663m contract dispute

Public pensions provider, the National Social Security Fund (NSSF), risks losing a significant portion of its movable assets next week over a Sh663 million debt it owes a developer for breach of contract.

NSSF was left holding the multi-million shilling debt after it lost a legal tussle pitting it against a company it had contracted to build an estate in Nairobi’s upmarket Kitisuru area.

Pan Africa Builders and Contractors moved to court in 2003 claiming that NSSF had breached a 1999 contract to develop the estate through a downgrading process that saw its value drop from Sh1.9 billion to Sh888.4 million.

The matter stayed before court until July 2008 when the parties agreed to withdraw it in favour of arbitration.

The arbitrators found NSSF to have breached its obligations to Pan Africa Builders and awarded the developer more than Sh500 million in damages and interest accrued.

The settlement, which was made on July 22, has however been disputed by NSSF employees who have filed a complaint with the Kenya Anti-Corruption Commission (Kacc) terming it fraudulent.

NSSF said on Tuesday it was studying the award in line with the stipulated legal provision of 90 days within which to respond, raising the possibility of contesting the award.

“Once the process is finalised, NSSF being a law abiding corporate citizen will abide by the orders given by a competent court of law. Any action taken with regard to settlement of any claims will take into consideration the interest of workers,” said Board of Trustees Chairman Adan Mohamed.

NSSF Managing Trustee Alex Kazongo had earlier dismissed claims that the Sh500 million award was fraudulent, saying the board was keen to have all pending suits resolved either through the courts or arbitration.

On Tuesday, Garam Investments, an auctioneer, said it had served NSSF with a seven-day notice to pay up or have its property seized to settle the debt.

Managing director Joseph Gikonyo said he had a court order on behalf of Pan Africa Builders to act against the NSSF as required by law.

On the list of targeted properties are 27 vehicles, desk top computers, furniture and three stand-by generators that auctioneers say belong to NSSF.

The law requires an auctioneer to obtain a court order and to issue a seven-day notice to the debtor before shipping away goods for auction.

Mr Gikonyo issued NSSF managers with the notice on Tuesday, while Mr Donald Kipkorir, the lawyer representing the contractor, held a closed-door meeting with the fund’s top managers.

Documents seen by the Business Daily indicate that NSSF owes the contractor Sh663 million – including interest and auctioneer fees.

Joint arbiters John Ohaga and Robert Mwanga awarded Pan Africa Builders Sh53.5 million for loss and expenses for extension of time, Sh159.5 million for loss from restructuring of the project and interest on the total amount at the rate of 14 per cent per year beginning January 2003 until full payment.

NSSF also incurred an additional charge of Sh8.1 million for failure to honour payment and handling charges for materials.

The legal battle between the fund and the contractor has its roots in the latter’s claim that it had rendered its final accounts for the project, which the NSSF refused to settle, forcing the firm to move to court with a claim of Sh528 million.

But the NSSF contested the claim on grounds that there was no contractual relationship between it and Pan Africa Builders.

NSSF claimed that the contractor did not complete the project but abandoned it after he was paid a substantial amount of money – forcing the fund to hire another developer to complete the project.

“Despite the fact that there was no executed agreement between the parties, the numerous correspondence exchanged between them indicate that they considered themselves bound by the contract,” said the arbiters. “To allow the NSSF to assume that there was no contract governing the parties when it relied on it would be manifestly unjust to the claimant.”

NSSF’s two Kitisuru housing estates are valued at Sh1.1 billion, according the fund’s 2009 annual report.

Mr Kazongo says NSSF is facing legal claims worth over Sh18 billion and has made counter claims worth slightly above the figure.

The litigations, some of which have been in court for more than 20 years, have left the fund highly exposed, causing concern that the payouts of such large amounts of money could weaken its financial position and pull it back to the distress it faced in the 1980s and 90s.

Top on the list of the huge claims against the fund is one filed by James Mugoya, the Ugandan billionaire contractor, who has been fighting legal tussles with the NSSF over the Embakasi Housing Project, which his firm started developing in the early 1990s.

NSSF says in its latest financial report that Mugoya is claiming Sh7.058 billion against the fund’s counter claim of Sh9.8 billion.

Sololo Outlets, another construction company associated with Lugari MP Cyrus Jirongo, has also filed a contingent liability claim of Sh4.95 billion against NSSF for alleged breach of contract in the development of Hazina Estate in South B. NSSF has filed a counter claim of Sh3.1 billion against the firm.

NSSF also stands to lose about Sh2 billion invested in the stock market through Discount Securities, which was placed under statutory management.

Top managers of the fallen stockbroker and senior pensions fund officials have since been charged in court with fraud

The fund is estimated to have lost Sh3 billion due to bad investment decisions and doubtful transactions, according to a November 2008 audit conducted by KACC and the Inspectorate of State Corporations.

NSSF has more recently embarked on a reform plan to restore public confidence eroded by years of fraud, plunder and poor returns to contributors.

It is in the process of recruiting professionals to serve in its reworked executive suites - with the creation of at least five new departments - under a staff restructuring programme executed in the past one year.