Ideas & Debate

New procurement laws to spur economic growth

On June 18, National Treasury Cabinet Secretary Henry Rotich published proposed amendments to the procurement law.

The objective of the Public Procurement (Preference & Reservations) (Amendment) Regulations 2013 is to accord the youth and other disadvantaged groups preference in the supply of goods and services to the government.

This is in line with one of the key promises of the Jubilee government to give the youth, persons with disability and women at least 30 per cent of all supply contracts to the government.

The significance of these regulations is that the National Treasury and all the treasuries in the 47 county governments shall be required to register and maintain a database for all small or micro-enterprises (SME) or disadvantaged groups that wish to participate in public procurement.

The regulations also seek to favour local businesses by granting exclusive preference to contractors who supply vehicles, electronics, furniture and other items which are fully assembled or manufactured in Kenya.

Road works and electrical installations of less than Sh1 billion, other public works of below Sh500 million and supply of goods and services of lower than Sh100 million and Sh50 million respectively are now exclusively reserved for Kenyans.

When these regulations come into effect the government and all its agencies will inevitably become the largest promoters of the motto, “buy Kenyan, build Kenya”.

The proposed rules also make it possible for procuring entities to divide supplies in lots of goods, works and services into practicable quantities which the youths, SMEs and other disadvantaged groups can afford.

A new Regulation 31 enjoins the national, county governments and other agencies of government to allocate at least 30 per cent of their procurement to the youths, SMEs and other disadvantaged groups.

To enhance compliance with this regulation these procuring entities will now be required to make budgets, issue tender notices and award contracts with at least 30 per cent participation by the youths, SMEs and other disadvantaged groups.

They will also be required to submit quarterly reports to the Public Procurement Oversight Authority for compliance audits.

To participate in the new preferred and reserved public procurement scheme, the special and other disadvantaged groups are required to register their enterprises with the relevant government agencies such as registrar of companies, business names, CBOs, and NGOs, among others.

The membership of such registered bodies may have 30 per cent members at most who are not youths, women or persons with disability but their leadership must comprise 100 per cent youth, women or persons with disabilities.

Procuring entities will be required to pay for supplies made under this scheme within 30 days. A delay beyond 30 days requires the entity to make 50 per cent part-payment and explain the delay in writing.

Regulation 33, which deals with financing is of great importance. While young people often have the benefit of fresh ideas, energy and vigour they are seriously deprived while in competition with older people who have the advantage of time, experience and money.

Procuring entities will be required to authenticate Tender Awards and Local Purchase Order (LPO) or Local Service Order (LSO) and enter into agreements with relevant financing institutions with an undertaking that the contracted enterprise will be paid through the account opened with the financier.

Banks, deposit-taking microfinance institutions and other lenders licensed by the Central Bank of Kenya must also come up with very innovative ways to help the groups achieve the objectives of the new regulations.

The youth, women and persons with disabilities need these contracts but on the other hand government agencies require assurance that the contracted enterprises will perform their part of the bargain and with the requisite skill and expertise.

One method to ensure satisfaction of reserved and preferred public procurement contracts may be through the doctrine of cession which is widely used in South Africa.

The law has created a new spectrum of proprietary rights for these groups by dint of their status in society. These rights are exclusive, reserved and can be quantified in economic and monetary value once a procuring entity has authenticated a tender award and issued an LPO or LSO.

Once the enterprises get a contract, they acquire a right of claim for payment in anticipation by virtue of regulation 33. Consequently, in terms of the doctrine of cession, the future right to claim payment may be ceded.

This way the enterprises (cedent) would retain ownership of the contractual rights but only surrender to a limited degree the ability to enforce those rights.

An agreement to cede would be in writing and a formal document known as the Instrument of Cession will have to be executed.

A cession as opposed to delegation or sub-contracting would be the best method to facilitate access to finance and specialist expertise by the youth, women and persons with disabilities who want to benefit from the new regulations.

Mr Wanderi is the chairman at the Kenya Institute of Forensic Auditors.