Idling fees: the new frontier in graft

Corporates, in collusion with the contractors deliberately create a hurdle to occasion delays, before going to court for huge payouts

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By TNLM Writer

After almost four years, when nothing has gone on at the site of the Hazina Towers within Nairobi’s central business district, the contractor, China Jiangxi, slapped National Social Security Fund (NSSF) with a Sh6.9 billion bill as compensation claims over project delays.

The compensation demand was contentious but the contractor argued that the fee was commensurate with the time its equipment and personnel were not able to work as NSSF fought in court with Nakumatt Supermarkets, who had moved to court to stop the construction.

Eventually, an idling fee of Sh1.9 billion seems to have been agreed on between NSSF and the contractor and the taxpayer will have to bear that burden for a mistake not of their making.

But NSSF is not the only public institution having to pay billions in idling fees.

An internal audit report of Kenya Electricity Transmission Co. Ltd (KETRACO), for instance, reveals that the power transmission firm had to bear claims amounting to Sh3.8 billion “due to stoppages, idling and contractor overheads” which was being claimed by Kalpataru Power Transmission Ltd.

Much more could be coming the Kenyan taxpayers’ way following delays on land compensation payments for the Isinya–Suswa transmission line project.

Meanwhile, the Kenya Pipeline Company (KPC) agreed to pay Lebanese engineering firm Zakhem International Construction Sh4.4 billion for operational delays in the building of the Mombasa-Nairobi pipeline. The fee was to cover for four years delay that hit construction of the 450-kilometre pipeline.

Of interest in this case was that KPC was the one pushing for the settlement of the fee.

The case of idling fees also came up following the government’s decision to cancel the construction of Greenfield terminal at the Jomo Kenyatta International Airport. A part of the Sh4 billion the Chinese firm, China National Aero-Technology International Engineering Corporation, was demanding was for the delays in execution of the project which according to them was caused by the Kenya Airports Authority and the government.

Reports suggest that the Chinese company agreed with the government out of court, although details of the settlement have never been made public.

Investigations by the Nairobi Law Monthly has found that idling fees is the new way that corporates, in collusion with the contractors are using to steal from the public by deliberately creating a hurdle to occasion delays in the pace of a project.

The most preferred way, TNLM learnt, is to get some activist or another company to go to court to challenge the construction of the project. In some cases, in collusion with politicians, they mobilise residents where the project is to frustrate its implementation.

The contractor will then claim that since the delay was not of its making, they should be compensated for the time when he could not proceed with the project as agreed in the contract.

Nowhere are these flimsy reasons made explicit than in the Ketraco internal audit.

The Internal Audit Report on the Audit of Mombasa-Nairobi Transmission Line (Tl) and Associated Substations (Ss) Projects for the period From January 2015 – October 2017), report noted that the delays were caused by among others, Ketraco’s failure to acquire wayleave on time ahead of contractor’s works, thereby subjecting the company to “hefty preventable financial costs.”

“We noted significant delays in the completion of the Mombasa-Nairobi TL and associated substations. Lot 2 project was delayed by four years and six months. These delays have a huge cost impact to KETRACO as the contractors have claimed their overheads, idling equipment and manpower, stoppages, acceleration and mobilisation and demobilisation,” the audit noted.

Other reasons for the delays, the audit found, were “vast time variances between initial project sensitisation by socio-economists and the actual construction activities and wayleave compensations payments”, numerous disputes from Project Affected Persons (PAPs) because of non-uniformity in land and structure valuation, application of different compensation rates for the limited use of land, and prolonged negotiation and delays in releasing compensation packages to PAPs.

The other reason, interestingly, was that the contractor was also inciting the locals “to create unnecessary stoppages due to the massive gains as a result of claims for idle capacity and increase in overhead cost for the time extensions past contract dates.”

The incitements by contractors seem to have been precipitated by attractive compensation rates Ketraco had agreed to in the contract with Kalpataru Power Transmission Ltd.

“Inclusion of unrealistic claims rates in the contract encourage the contractors to have stoppages to cash in on the claims. The skewed rate does not provide value for money to the Employer (Ketraco),” the audit noted.

The report also found that the total claim per month for idling and overhead is much higher than what the contractor would be paid in a month (labour costs) working at full potential.

“The rate is therefore punitive to the employer and encourages the contractors to delay works as they would benefit more from the delays,” the report noted.

A Nairobi-based activist known for taking up such work for corporates confided on TNLM that majority of the cases against the large scale developments originate from management of the corporations.

According to the activist, rather than openly inflate prices which could expose them to investigations by the Ethics and Anti-Corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI), idling fees is often a good cover as it originates from the contractor.

Once the contractor files the bill, the corporates rush to the State Law Office, which is also said to be party to the stealing, for favourable legal opinions and unlocking the payments to the contractors.

An agreed part the money then, through a complex web of transfers, comes back to the managers of the corporations and their associates at the State Law Office.

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