Judiciary faces Sh216m loss from Chase Bank bonds


Auditor-General Edward Ouko. FILE PHOTO | NMG

The Judiciary could lose more than Sh216.5 million to contractors who secured performance bonds from the troubled Chase Bank and its subsidiary, Rafiki Micro Finance Bank.

In a report, Auditor-General Edward Ouko says a total of 13 performance bonds submitted by contractors had expired and were yet to be renewed as at June 30 2018, the audit date.

“In addition, 10 bonds valued at Sh216,491,929 that were availed for audit review were issued by Chase Bank (under receivership) and its subsidiary, Rafiki Micro Finance Bank, and their validity is therefore doubtful,” Mr Ouko says in an audit of financial statements of the Judiciary projects for the year ended June 30, 2018.

The report, however, comes months after the troubled Chase Bank was taken over by Mauritius State lender, SMB Holdings, in August 2018. SMB took up some assets and liabilities as well as several branches of Chase Bank, which was put under receivership in a transaction sanctioned by the Central bank of Kenya. Mr Ouko says the terms and conditions of the contracts for construction of 28 law courts required each contractor to submit a performance bond to secure the employer (Judiciary) in case of failure to implement the projects as provided in the signed contract agreements.

“However, a review of the project records revealed that a total of 13 performance bonds submitted by the contractors had expired and were yet to be renewed,” Mr Ouko says in a qualified audit opinion.

The Judiciary had entered into contracts for construction and renovation of the 28 law courts across the country at a total cost of Sh6.9 billion.

Mr Ouko said as at the time of audit, a total of Sh2.3 billion had been paid to contractors against performance bonds of Sh216,491,929.

Contractors took performance guarantees from Chase Bank to construct or refurbish courts in Chuka, Muhoroni, Oyugis, Nyamira, Makindu, Makueni and Mombasa.

Others took performance bonds from Rafiki Micro Finance Bank to put up court structures in Maralal, Kwale and Kangema.

Mr Ouko says the contractors did not comply with section 50.1 of the signed contract agreements and section 142(1) and (2) of the Public Procurement and Assets Disposal Act, 2015 on performance bonds.

“In the circumstances…the employer was also at fault for accepting invalid bonds and may not be able to recover Sh216,491,929 guaranteed in case of default,” says Mr Ouko.

The auditor also questions the delay in implementation of the projects, saying physical verification carried out in October 2018 and a review of the projects file showed that the delay was affecting all of them.

Construction of the first batch of nine law courts commenced in 2015 and were expected to be completed by September 2016 but at the time of the audit only two, the Kigumo and Makindu law courts, had been completed.

Mr Ouko said the second batch of six projects started in 2016 with completion deadline of September 2017, but none had been completed by the time of the audit.

“Similarly, construction of the rest of the projects except Kajiado law courts, which was awarded in 2018, commenced in 2017 and should all have been completed by October 2018, but by the time of the audit none had gone beyond 50 percent overall progress.

“In addition, physical verification of selected projects in October 2018 showed that most contractors were not on site,” Mr Ouko says.