Treasury Cabinet Secretary Henry Rotich. PHOTO | FILE
What you need to know:
Suppliers and contractors will be entitled to interest charged at market rates on late payment for goods or services delivered.
Taxpayers face a surcharge of more than Sh6 billion as the Treasury moves to change procurement rules to speed up settling of public bills.
Under the proposal by Treasury Cabinet Secretary Henry Rotich, suppliers and contractors will be entitled to interest charged at market rates on late payment for goods or services delivered.
With commercial banks currently charging 14.5 per cent per annum on their loans, the national government’s volume of pending bills - which nearly tripled to Sh43.2 billion in the fiscal year ended June 2015 - would attract Sh6.2 billion.
“A procuring entity shall pay interest on the overdue amounts. The interest shall be in accordance with the prevailing commercial bank rates,” reads the draft regulations published by Mr Rotich.
The rules are meant to enforce the newly-enacted Public Procurement and Asset Disposal Act (2015) which provides that entities which delay payments to suppliers shall incur additional charges for each day past the due date.
County governments also owe suppliers billions of shillings in pending bills, exposing them to huge penalties.
The Kenya Federation of Master Builders, a lobby of contractors, called for more punitive measures saying delayed payments had led to projects falling behind schedule, compromised quality, and had even forced some investors out of business.
“We are the worst hit, and it takes a long time to recover. The penalties need to be enhanced,” said Moses Muihia, chairman of the contractors’ advocacy group.
Mr Muihia said members of the lobby are currently owed about Sh20 billion in unpaid bills by various government agencies.
The Kenya Institute of Supplies Management, which regulates the practice of procurement, said the new law is meant to cushion mid-sized suppliers who bear the heaviest burden of delayed payments.
Late payment of invoices to small businesses has stifled Kenyan enterprises and poses risks such as cash flow challenges, reliance on costly bank loans, job losses, and bankruptcy.
The graft-tainted Devolution ministry tops the list of agencies with unpaid bills worth Sh10 billion, followed by the Ministry of Health (Sh4.7 billion), and the discredited Independent Electoral and Boundaries Commission (Sh1.3 billion), according to a recent Auditor-General report. As at June 2014, the central government owed companies Sh16.6 billion in pending bills, says the report.
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