NEWS INDEPTH: Court penalties pile up, mostly for breach of contracts

The Health ministry has soaked up Sh58 billion in court awards for breach of contracts, records show, an equivalent of 64 percent of its annual budget.

An analysis of the outstanding courts awards against the ministry reveals that it owes Sh56.3 billion for breaching 11 contracts from 1992 to 2018. There is one award worth Sh1.78 billion for compensation to Uasin Gishu Memorial Hospital for land taken over by the Government.

Settling these claims would be a tall order for the ministry which was allocated Sh90 billion in the 2018/19 financial year and has a recurrent budget of Sh49.1 billion.

Health Principal Secretary Susan Mochache said the awards would only be settled through budget increases by the Treasury.

“Some of the out-of-court settlements are over two decades ago and we will appreciate the factoring in of some of them in the 2019/2020 government financial budget,” she told the Health Parliamentary Committee of the National Assembly.

In one case from 1999, the ministry is expected to pay Sh15.2 billion after Equipment Agencies Limited sued for breach of a contract that was executed in 1995.

The company is said to have supplied malaria control equipment, drugs and protective clothing for a principal amount of Sh1.1 billion on which the interest of 18 percent per annum was Sh7million in 1999, bringing the total to Sh1.8billion.

Some of the cases are so old that the Solicitor-General has proposed that the ministry settles them out of court.

In one of the suits in which it has been slapped with Sh15.1 billion, the ministry is advised to settle since the judge handling the matter has long retired and there is the likelihood of the matter starting afresh.

The 1995 case was filed by United Medical Supplies which claimed they entered into various contracts with the Ministry of Health for medical supplies between 1992 and 1993.

The bulk of the United Medical Supplies’ claim was interest accrued on the delayed payments. But there was also a claim of $305,910 comprising invoices raised for the delivery of haemoglobin scale books and throat swabs to Medical Supplies Unit, the predecessor of Kenya Medical Supplies Authority (KEMSA).

While the cases go back two decades, some new ones have come up, with hearing to start this week for one of the most recent suits.

The case pitting Gyam Investments Company Ltd against the ministry is for breach of contract arising from the provision of go-down services for a period of two months at Sh19 million.

Gyam Investments entered a contract to provide insurance and handling of warehousing services for two months.

But the company says it continued to receive goods in the warehouse and provide services for eight more months after the lapse of the initial contract until they were shut down for rent arrears. They are demanding Sh392 million.

Given the long process of the court, a company by the name Eurotech International has sought to settle their matter out of court since the suit filed in 1999 for Sh76 million with an interest rate of 18 percent per annum and the cost of the suit has not been settled. The proposed claim and interest total Sh2.2 billion.

Ms Mochache said Eurotech was willing to accommodate the government and settle out of court if it can be factored in the next government financial budget.

In a most recent case against the Health docket, Faram East Africa Limited filed a suit alleging breach of contract while claiming Sh14 million being the amount outstanding in respect to supply of 50 low heat thermal infectious treatment units for sterilising and shredding medical waste.
The matter is still pending determination by courts. The only case that is not a breach of contract against the ministry is a civil appeal by Uasin Gishu Memorial Hospital versus the Moi Teaching and Referral Hospital Board and the Ministry of Health.

The compensation for the private land which was taken by the Government is pending determination but the hospital is demanding Sh1.7 billion.

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