Unsettled financial obligations by governments and their agencies, sometimes tunning into decades, leave a trail of broken investors, families and businesses, and suppliers buried in debt – sometimes literally
When Simon Gichuki joined the Association of Public Suppliers, he had no idea of the horror stories he would hear of the devastating effects that bills owed to suppliers and contractors by national and county governments had on some of his members.
Mr Gichuki, the secretary-general of the Association of Public Sector General Suppliers, says that unpaid bills owed to suppliers by various government agencies and entities have driven many of their members to ruin.
The association is the umbrella body of suppliers with various institutions, government agencies, parastatals, and counties.
It also brings together those who have previously done business with various national and county government institutions, who argue that pending bills in the public sector have become one of the biggest challenges to their businesses.
In an interview with the Nairobi Law Monthly, Mr Gichuki says that pending bills have become one of the greatest agonies the association has dealt with. Many members of the association, he says, have, in some cases, been forced to resort to unconventional means to either evade creditors or even recover their money.
Simon Gichuki, the secretary-general of the Association of Public Sector General Suppliers.
Others, he argues, have also had to close down their businesses due to non-payment of dues owed to them by national and county governments, with the financial burden occasioned by the debts incurred by some suppliers, sometimes leading to family break-ups.
In other instances, the association has sometimes been forced to intervene and negotiate payment plans between creditors and some of its members to avoid the auctioning of properties. All these, he argues, have had devastating effects not only on businesses but also families.
“We do not have any members who do not have a pending bill with the national or even county government. And we have had many devastating stories. Some of these debts date back to as early as 2012 when some of our members did jobs with the now defunct Transition Authority and even municipalities,” Mr Gichuki says.
Mr Gichuki says that many association members have either been auctioned or sometimes forced to sell off properties or even continuously borrow to offset their debts.
“We have members who have been auctioned, which is a big concern. We have people who did roads, and now it is a case of you having to juggle here and juggle there to borrow money to pay debts.
“I have four guys who have never been paid over Sh40 million. They supplied ministries, counties, and up to do day, nothing has happened. I remember the association opened up a debt collection firm at some point, and we closed because you will also go into depression,” he said.
According to figures released last month by the National Treasury, the government owes various suppliers and contractors at least Sh641 billion in pending bills, illustrating the burden that the unpaid debts have on the government and contractors.
According to Treasury Principal Secretary Chris Kiptoo, this figure comprises about Sh407 billion owed by State corporations, Sh160 billion owed by county governments, and another Sh18.3 billion owed to various suppliers and contractors by ministries, departments, and agencies.
The non-payment of these bills has, however, had agonising effects on many businesses and enterprises across the country, with some experts warning that the ripple effects may be a slowdown in the general growth of the economy.
For instance, a report released by the World Bank last month indicates that pending bills are pushing many businesses into defaults.
In its most recent Kenya Economic Update report, the World Bank argues that due to these non-payments, cash flow in the private sector has been curtailed, leaving many companies without the cash to meet their obligations.
This is even as data from the Central Bank of Kenya also indicates that non-performing loans (NPLs) – borrowed mainly by small businesses to finance projects or take up other projects, rose to 14.6 percent in about three months, the highest since June last year.
CBK has argued that the spike in the NPLs was due to the delay in payment of pending bills by state corporations.
The surge in these non-payments has been chiefly tied to bureaucracy, government red tape, and corruption in other cases.
“We have even had members who have been admitted to the hospital but do not have money to pay their bills and all that kind of a thing,” Mr Gichuki said.
And to help offset some of these debts, President William Ruto announced the formation of a special committee which he said would help audit all pending bills dating back to the President Mwai Kibaki-era to facilitate payment.
President Ruto, in a memorandum released after a cabinet meeting approving the setting up of the team, said that the Pending Bills Verification Committee is expected to audit liabilities between 2005 and 2022.
The Committee will consist of the Attorney-General, the State Department of Roads, the State Department of Public Works, the State Department of Housing and Urban Development, and the Public Procurement Regulatory Authority.
Representatives of the Ethics and Anti-Corruption Commission, the Law Society of Kenya, the Institute of Engineers of Kenya, and the Institute of Certified Public Accountants of Kenya will also be part of the team.
Coincidentally, the National Treasury had also announced plans to have the cabinet approve forming a special multi-agency team to review the bills and have them cleared by September this year.
The announcement by the Treasury followed another decision by the government to compel state agencies to prioritize the payment of pending bills ahead of the closure of the just concluded financial year.
Treasury cabinet secretary Prof Njuguna Ndung’u, in a circular to all chief executive officers of state corporations, asked accounting officers to ensure honour all their ongoing commitments and pay debts and dues owed to their creditors.
The circular was also directed to vice-chancellors of public universities and principals of Technical Vocational Education Training (TVETS) and Teachers Training Colleges (TTCs).
The CS said that the payment of the bills is expected to stimulate economic activity, especially among small businesses whose financial positions have been negatively impacted by the delayed payments.
“Accounting Officers are, therefore, required to service the continuing contractual obligations as per the contract agreement to avoid the accumulation of expenditure arrears (pending bills),” Prof Ndung’u said in the memo.
But even with the current efforts by the government to resolve the matter, Mr Gichuki argues that the problem with the bills has been a lack of goodwill from the national and county governments.
“The mere fact that accounting officers are not held personally liable for pending bills leaving it to the political heads of the institution (CS for Ministries, Governor for Counties, Chairperson for Parastatals) is a mode that requires to be reset to let the person who seats on the chair to feel the heat as does the supplier who doesn’t get paid on time and has to feel the heat of everything from liabilities, statutory and worst case scenario losing everything they’ve built in life,” Mr Gichuki added.
The law, he argues, also does not give provisions and avenues of holding into account government officers and officials who fail to honour their payments.
“It is okay and fine to audit the bills if there is honest goodwill to pay the debts and the goodwill to streamline the processes and work out how we got to where we are in the first place.
“We also need to have people held to account. As we speak, we do not have a provision in the law that holds those who refuse to pay to account,” he told the Nairobi Law Monthly.
The association now says that to help resolve some of these issues, they are drafting amendments to the Public Procurement and Assets Disposal Act of 2015 to hold government officials accountable.
The association also plans to file a class action suit over arrears owed by parastatals, ministries, counties, and other State agencies.