The 1st Respondent an electoral commission floated an open tender for printing and supply of election materials for Kenya’s General Elections slated for 8th August, 2017 which tender was awarded to the 2nd Respondent . This award was initially challenged at the Public Procurement Board which was pleased to dismiss the challenge a dismissal that was reversed by the High Court in exercise of its Judicial Review function. IEBC then then undertook the process through a restricted tendering system pursuant to the provisions of the Public Procurement and Disposal of Assets Act but the process was terminated by the Review Board on account of an application made by one of the 13 invited bidders. Rather than appeal against the decision of the Review Board or restart the procurement process either by open or restricted tendering. The appellant proceeded to directly award the contract to the same party it had awarded to earlier citing urgent need for the materials under the auspices of Sections 103 and 104 of the Public Procurement and Disposal Act, 2015. The decision to make this award was premised on an opinion of a ‘procurement professional’ who opined that the route of direct procurement of the materials was open to the IEBC on account of urgent need of the materials.
A challenge of this direct procurement was allowed by the High Court which again in exercise of its Judicial Review jurisdiction was pleased to quash the IEBC’s decision to award the tender and further restrained the IEBC from awarding the tender to the 2nd Respondent and then ordered a restart of the process.
The IEBC appealed against that order to the Court of Appeal in the decision we are analyzing allowed the appeal and upheld the contract basically on the grounds that Direct Procurement of goods and services by the Government is permitted under Section 103.
This essay deals not with the issues raised on the matter of public participation in matters relating to procurement of public goods and services or Article 10 of the Constitution of Kenya but the economic effect this judgment could have in matters of procurement.
The Need for Economic Analysis
What does economics have to do with Public Procurement and what is its relevance? Adams Marshall defined economics as the Study of Man while Robbins opined it as the behavior of utilization of scarce resources in achievement of unlimited ends. He notes that means of satisfying human needs are limited contributing to economic problems. It is important to appreciate the nature of man and study human behavior on account of the fact that one of the greatest challenges to procurement is human behavior which could lead to market failure.
According to Bentham economics evaluates on the factors affecting the size, distribution and stability of a country’s income . Economic analysis of law is basically the application of the basic tools in microeconomic theories in legal rules and institutions. Many scholars including Richard Posner have contributed in bringing on board economic thinking in matters of law. In recent studies there has been an incorporation of these two fields of study to understand how economics can be employed in solving legal matters
It is believed that economic analysis of law offers a comprehensive theory of law which has several components; first the theory of law is identified by the nature of law. This component distinguishes law from normative systems like morality, beliefs and social convections. The other component identifies the grounds of law. As identified by Dworkin, grounds of law as the truths conditions for a proposition of law that is, what role does morality play in determining the truth conditions. The third part of the components of law identifies the nature of the reasons that can be accounted for the actions made. The fourth part identifies the worth of legality while the other components gives the limits in which cases are decided in the court of law.
One of the characteristics of money is scarcity. And one of the dangers of money according to Dewett is its capacity to weaken the moral fiber of man and is a soul- killing weapon. He further opines that ‘the wealthy monopolize all the social evils like corruption, the wine and the woman’. Vin Mises, views money ‘ as the cause of theft and murder, of deception and betrayal and whereas all on earth agree that money is not in itself bad, we also all agree with Trotsky that we must control this awesome blessing to man lest we fall into peril and confusion and makes us awkward.
Kenya Procurement Act 2015, was initiated to establish procedures for resourceful public procurement and disposing the surplus assets. The goal of the Act is to ensure there is maximization of state economy as well as fairness in competition. Section 2 of the Act also states that the law promotes integrity and accountability in conducting procurement procedures. Through integrity and transparency corruption and all forms of favoritism are eliminated. Accountability is emphasized to ensure that all the leaders can defend their actions and decisions; it is also inclusive of punishments to procurement officials for violating the rules.
Kenya as a nation too has had its full share of vice laden procurement woes and procurement as a whole is at best a scandal. It is in the background of tendencies that procurement law was promulgated first to provide for procedure and parameters complete with checks and balances which can also lead to incentives and sanctions. It is important that the weak will of man is checked and that there is a system of incentives and sanctions to protect public money from the mischievous itchy fingers of government Agency Organizations and Suppliers and bring transparency into the picture and the law has seen to that.
Article 227 of the Constitution has set the ends for procurement to be (i) fair; (ii) equitable; (iii) transparent; (iv) Competitive; and (v) Cost-effective. The same section frowns upon unfair competition or discrimination and provides for sanctions for shoddy or delayed works and corruption or violation of other laws.
Cost effectiveness ensures that we get value for money which we can relate to economic efficiency and cost effectiveness. If the cost is not effective or the procurement is not economically efficient then there is a problem in the market, the supply chain and the laws of procurement will have failed to serve the nation any good. This is what is commonly referred to as market failure.
Trepte argues that procurement regulation is concerned with the pursuit of economic efficiency the aim being achievement of perfect competition which according to Dewett is achieved when the product is homogeneous and has a large number of buyers and sellers who can freely enter and exit the market and have a rich knowledge of pricing of the product. The economic benefit of this kind of competition is that the consumer gets a good deal or a fair deal and is not exploited in the procurement process. Granted ballot papers for presidential elections only have one possible buyer creating a monopsonistic situation but at the back of the mind it is important we keep in mind that what was being sought was a printing service and printing is a common commercial activity.
The Constitution of Kenya, Article 227 states that, when any government organ is conducting any form of financial transactions, it should do so in a system that is fair, transparent, competitive and cost- effective. Consequently failure to adhere the law the Act of Parliament is responsible in prescribing a structure within which policies and procedures of procurement and assets disposal shall be implemented. Among which there shall be a category of preference in allocating contracts and protecting people who have been disadvantaged by competition or any form of discrimination. Additionally, the constitution provides sanctions against contractors who have gone against the set procedures and agreements and also to persons who have been involved in corruption practices.
According to Rowhorn and Chang public enterprises fail due to politics instead of exercising pure economics. For effective procurement procedures the government needs to change the attitude towards competitive markets and insulate itself from personal influence of the leaders. If the government can exempt itself from those interferences then the procedure can be as good as a private enterprise.
What then is the long term economic effect of the judgment?
In a situation where there were many suppliers who were battling to win the contract and hence playing business in a perfectly stable market, the court misinterpreted the provisions of Sections 103 and 104, which provide for direct procurement effectively distorting the market. Section 103 (2) (a) provides that direct procurement is only permissible when there is a monopoly or in times of war or becomes an issue of necessity generated by urgency in the event of a catastrophe or as a top up of an ongoing supply certain to certain set conditions and in all such procurement price must be reasonable and fair.
In this essay, I argue that none of these situations arose and that the aspect of urgency on account of the oncoming elections; an argument that carried the day in court; was a non-starter as the condition precedent to an urgent procurement which is a catastrophe was missing. A national Election does not even by the greatest stretch of imagination qualify to be a catastrophe which by definition is an event involving or causing great damage or suffering or simply something extremely unfortunate or unsuccessful Catastrophes known to man include weather events, epidemics, earthquakes and such like situations which do not stray far from the realm of Acts of God. Direct procurement and catastrophe are inseparable twins so conjoined by Section 103 (2) (c) of the Act that no amount of surgery, however ingenious can separate them.
The circumstances surrounding the direct procurement of the printed materials could be looked at the lens of Section 103(1), which bars direct procurement the Court of Appeal void competition. It is worth noting that a challenge of the initial award before the Board was dismissed but later cancelled by the court. This was followed by a process of restricted tendering whereby thirteen suppliers were invited to bid and a winner was declared only for the contract and the entire process to be cancelled by the board and the direct procurement was actually a third bite at he cherry. The inescapable conclusion is that in the background of the procedural challenges offered by the not small number of bidders and in view of the successes of these challenges most of which were preferred by the competing, it is more than likely that the direct procurement was informed by two concentric aims. One to avoid competition and the other being an attempt to manifest the procurement outside the letter of the law and public scrutiny.
The Constitution of Kenya, is the supreme law of the country and requires that procurement shall be fair, equitable, transparent, competitive and cost-effective.
In the Study of economics cost-effectiveness trumps all and our grund norm dictates that it should be the norm. The IEBC’s constructive argument that a Legal Opinion by a procurement professional can override the provisions of Article 227 of the Constitution and all public procurement laws to pave way for a direct procurement flows against the grain of the spirit and latter of the law and the Judgment of the Court of Appeal, which is now binding across the board and all the way down to the procurement board is an economic disaster to procurement specifically and management of public funds generally.
Of note is that that decision is now a precedent binding all courts and the effects of this judgment will be felt across the nation in all public procurement exercises until the day the court reviews its decision. To procuring entities, the court’s interpretation of Section 103 (c) regarding urgent need of goods is bond to be catastrophic as it opens a way around the entire body of procurement law up to and including Article 227 of the Constitution all of which, according to the Court of Appeal can now be circumvented by a Legal Opinion done by a procurement professional. This decision is the proper incubator for market failures and price distortion. The question for the day then is this; will the decision lead to market failure or did the market fail a long time ago? And if it did, what is the effect of that decision to that failed market assuming it failed?
The preamble to the Public Procurement and Assets disposal Act states that it is an Act of Parliament to give effect to Article 227 of the Constitution; to provide procedures for efficient public procurement and for assets disposal by public entities and for connected purposes. Meaning that efficient public procurement is key.
A legal opinion by a procurement professional will invariably discuss procedure but never prices. In the event of direct procurement, there is no reference point on the prices and determination of the same in such a sanitized environment is bond to be whimsical, oppressive and in the absence of public participation and public scrutiny there are no checks or safeguards to protect the public against unreasonable pricing and that is the main way in which the decision of the court affect the economics of the nation. I agree with Richard Posner who states that economic analysis of law revolves around the application of economic principles to legal procedures and instruments. These principles are crucial in formulating and defining laws. Economic analysis of law tends to assess on the power of law in controlling the competition and business transactions involved.
One of the recommendations of the Krigler Commission related to the cost of elections in Kenya which the commission referred to as exorbitant . Krigler then also referred to the cost as staggering and if the prices of the 2007 elections at USD 29 per ballot paper per voter then it is manifest that at UDS 29 * 6 for the number of ballot papers we were given on 8th August, 2017 when we voted; each voter spent approximately KES 17,000/= on that day which is an economic disaster.
Competitive tendering leads to competitive pricing and effectively better economics for a nation. It is also desirable in the area of economic forecasting which is what the government used to determine future economic strategies and predict other variables of the economy. In the past Court of Appeal era of direct procurement based on a Legal Opinion, and knowing as demonstrated that our election costs are staggering and exorbitant economic planning will be a thing of the past and elections in future could cost anything and everything. If that judgment is anything to go by then public procurement is now discretionary and the nation is at the whims and mercies of the procuring agents. This then affects the nation’s economic development since the government is the country’s main purchaser.
Economic efficiency is the main goal advocated by the Kenyan procurement system. Their main objective is to ensure cost saving in all expenditures. The theoretical justification of the policy objectives is that national resources are scarce and finite. Hence need to minimize asset disposal at all cost. There should be maximum utilization of resources in the most prudential and effective manner. Most especially in a poor country where satisfaction of basic amenities is a challenge. Kenya being one of these states there is a crucial need to ensure prudential and effective spending. All the government agents therefore need to have this knowledge in executing all their transactions.
The judgment of the Court of Appeal has set back progress made in the discipline of procurement 17 years back and throws back the nation to the days of a whimsical Accounting Officer not accountable to anyone. It is imperative that it is reviewed for taking away carefully crafted safeguards placed by the progressively developed Laws of procurement. Nairobi Civil Appeal No. 224 of 2017 Independent Electoral and Boundaries Commission IEBC v. National Super Alliance (NASA) Kenya and 6 others  eKLR is a catastrophic disaster to the nation’s fight against corruption and impunity and for the Court of Appeal to act as an enabling factor to both through a judgment of this nature is unwelcome at this or any other stage in the future.
Anthony Muriith Kireria is an Advocate