Tough balancing act doing business with government amid mounting pending bills

This has triggered agony, debt defaults and auctions for many suppliers who had tapped bank loans for the contracts.

The Business Daily spoke to Simon Gichuki, the secretary-general of Association of Public Sector General Suppliers, on how bad the situation is for his members, the kind of conversations they are having with government and why they continue supplying despite the mounting pending bills.

The association brings together over 4,000 suppliers to national and county governments.

Government has been auditing all pending bills accrued between 2005 and 2022 and even verified about Sh110 billion in the first phase of the process. Have your members felt the impact of this?

No. Nothing. We have no problem with the pending bills verification committee but the big problem is do we have a budget to settle these bills? For as long as we don’t see that allocation in the budget, the answer is obvious. What really is the end goal of auditing?

The main problem with the so-called pending bills are two things. Firstly, it stems from poor budgeting. Secondly, non-liability on the part of the individual persons in charge of procurement processes.

My question has always been, wasn’t that tender that resulted in a pending bill a budgetary item? Where did the money go? So after the audit, where are they going to get the money to pay?

Let’s say they have audited a ministry and found out that Sh60 billion should be paid, do they have a kitty for that? Or what is the end goal of auditing the debts?

There was a promise to include that money in the last supplementary budget but this never happened. The Controller of Budget will only allow them to pay what is formally budgeted for.

I have no problem with the pending bills committee. I only have a problem with the fact that we keep forming committees for things that can be sorted by parent ministries budgeting for pending bills settlement. Common sense says you first pay what you owe before you start new purchases. But we have a government that pushes for new purchases every now and then.

Given the elaborate procurement process that starts with the tendering entity confirming that there is money to enter into a given contract, at what point does the process break down?

That is why I suspect there is deliberate over-budgeting. In a developed world, once you have an LSO [local service order] and you deliver to the entity you supplied goods or services to, the next important thing should be payments.

When it comes to pending bills, I always say there is nothing like the government of Kenya (GoK). There is a procurement person in various departments. We need to stop hiding behind GoK when dealing with pending bills and now deal directly with the various persons who have a legal liability to ensure suppliers get paid.

There are similar verification committees across county governments. Are you suggesting nothing much has come out of it?

The big problem we have is over budgeting and lack of liability on whoever is in charge of procurement.

So for as long as that money is not put in the budget, where will they pay us from? It is as if we will constantly have pending bills verification committees.

There is no legal liability of the chief officer or the head of procurements in various institutions. That means they can trash their own documents such as the signed LSOs.

All government LSOs come with an accounting officer’s signed assurance that funds are available and that commitment has been noted in the vote book. Once such an officer has said there is money, what else do you require to supply?

There has never been a national audit of our pending bills, because it has always been assumed that we should be paid when we supply. It is the norm worldwide that once you supply and are issued with a certificate of completion, money should follow.

Unless the government is in the business of killing private businesses, immediately you supply and you invoice, you should be paid. It should not even last a day extra since the accounting officer confirmed the existence of the money before the contract was signed and executed.

Banks say part of the reason the market has high interest rates is because of high default rates, partly driven by pending bills. What do you make of this?

I totally understand them. Defaults are high because LSO should be a respected document. Many businesses rely on loans so once we are not able to pay on time because our LSOs have not been respected, defaults rise.

Banks are losing on two fronts because they not only give us loans but also give us bid bonds. An LSO is no longer a respected document.

So banks have a case of contractors who not only owe them money, but even when they were promising to deliver goods and services to the government, the same banks gave them bid bonds.

With all the pain that comes with supplying to the government, one would imagine that your members should stop supplying further. Why isn’t it that straightforward?

Government is the biggest buyer of every private sector institution in Kenya. So you cannot say you won't supply the government as a private institution. Who else will you supply consistently?

That said, we have to appreciate that we have a government that plans poorly. We also have to appreciate that we have very many corrupt accounting officers in government. These officers are the biggest problem and they should be personally liable.

There was a time in 2022 when we wanted to run a class action suit on the individual accounting officers but we were persuaded not to.

Are we looking at a situation where we are stuck in this pending bills circus forever? What should be done differently for better outcomes?

There's a favorite saying that when you find yourself in a hole, you have to stop digging. That is what the government should do for a start. They should not be auditing old bills and accumulating new ones.

Secondly, the government has to start holding people accountable. Procurement will not end in government. They are the biggest buyers. Even if today the government fired all its officials and brought in new ones, that does not do away with pending bills.

Finally, the day the government realises it has a pending bills problem, it will act on it.

I don't think so far it has realised it has a problem. Appointing a committee means the government is living in denial and wants an audit to find out if in deed owes suppliers.

The solution is not in the pending bills committees. The records are all there in the government's systems.

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