How Health Ministry officials hatched a plot to freeze taxpayers off Sh63 billion medical leased equipment scheme

Shocking details have emerged of how Ministry of Health officials hatched a plot to drain off public funds through the procurement of controversial Sh 63 billion Managed Equipment Services (MES) programme.

A special audit on the MES scheme has exposed how top officials in the ministry of Health conspired to siphon public funds through manipulated procurement laws, varied contracts and finally coerced county governments into accepting the equipment.

According to the Auditor General, the leasing of medical equipment to the 47 county governments initially brought on board as Public-Private Partnership (PPP), to scale-up investment in health infrastructure was changed to suit the regulations under the Public Procurement and asset disposal act (PPDA 2005).

The health policy provided for Public-Private Partnership (PPP) as a form of financing health projects, the auditors affirmed. Data presented to a Senate ad-hoc committee investigating the quarrelsome MES program on Tuesday revealed that ministry officials allegedly exploited a loophole in the act that allows an entity to procure the good and services through restricted tendering.

In addition, the auditors said, they identified cases of non-compliance with Public Procurement and disposal act 2005 and regulations of 2006 that expose the “programme to risks of failure to realize value for money” The MES concept paper indicated that that the programme was to be implemented through long-term lease arrangements for medical equipment in accordance with the PPP act, 2013 based on the “Build-lease and –transfer model”

“A report by PPP unit of October 2014, outlined that the project of equipping health facilities in Kenya had been approved by PPP Unit to be implemented as a PPP by the Ministry of Health,” the auditor report read in part.

“The MOH adopted the Managed Equipment Services (MES) model which required for outsourcing of all aspects of medical equipment to third party companies that specializes in providing the type of service required,” it adds.

The report now indicts the Cabinet Secretary Sicily Kariuki – led Ministry of abandoning the Public Private Partnership – the established form of financing the projects –, sidelining the counties in carrying out need assessment and employing restricted tendering in procuring consultants for the project.

According to the report, the some S29.1 billion – Sh4.5 million per year from 2015-16 to 2017-18, Sh9.8 billion in 2018-19 and 6.2 billion in the current financial year – has so far been deducted from the counties. A review of the County Allocation of Revenue Bill (CARA), 2015, indicated that amount of sh 4.5 billion was allocated as an additional conditional budgetary allocation to the 47 county governments for leasing of medical equipment translating to sh 95.7 million per county in compliance with article 202 of the co0nstitution that allows additional allocation of national government revenue to county governments.

Further, the report indicates that the ministry procured financial and legal consultants to provide technical support for MES project. Among those firms that were contracted were M/S PKF Kenya, in association with M/s infosuv Africa Limited was engaged for this financial consultancy service. M/S PKF Kenya developed a Public Sector Comparator (PSC) to compare the much government would spend if it directly purchased the equipment from the market.

These figures according to the auditors were compared to amounts quoted by prospective MES providers to ascertain the best prices that would provide value for money to the government. The engagement of M/S PKF Kenya, in association with M/s infosuv Africa Limited was through restricted tendering method at a contract price of sh 9.6 million.

Records availed to the auditors’ indicated that a total of 4.3 million had been paid to M/S PKF Kenya for provision of financial consultancy services. The Ministry also engaged M/s Iseme, Kamau and Maema advocates (IKM) as the legal transaction advisors through direct procurement at a contract sum sh 56 million citing urgency as justification for both direct procurement.

“The urgency cited as a basis of using direct procurement , could not be justified since procurement of legal services would have been foreseen at project initiation level and planned for adequately to allow for a competitive bidding process,” the audit shows.

“Further, while the use of restricted tendering method was approved buy MTC as required under section 29 (3) (a) of PPDA, 2005, the ministerial tender committee (MTC) record in writing the reason for using restricted tendering contrary to section 29 (3) (b) of the PPDA, 2005,” the report noted.

Deputy Director of audit Sammy Kimunguri, who also conducted the special audit, said the Ministry abandoned the public-private arrangement and adopted public procurement form contrary to the Health Sector Policy of 2014 that provides for PPP as a form of financing health project. The report also faulted the Ministry for failing to either consult or share the need assessment done in the counties to justify the leasing of the equipment.

“Though the Ministry of Health indicated that the report was subsequently shared with various leadership of the county governments including governors, county executive committee members for health, county directors of health, the managements of the county governments refuted claims that the report was shared with them,” it says.

Through MES, the project entailed leasing of assorted medical equipment – renal, laboratory, ICU, radiology and theatre equipment – to at least two hospitals in each of the 47 counties for a fixed seven-year period. It also includes installation and training of technical staff to use the equipment. The counties signed the deal with the Ministry of Health to lease the equipment from six international firms.

The five international companies including General Electric, Philips, Bellco SRL, Esteem, and Mindray Biomedical Company were to supply and equip hospitals countrywide with more than 95 high-tech machines to help manage diseases such as cancer and diabetes.

In the deal signed in 2015 at State House by ministry of Health officials and governors, the Ministry was supposed to deduct a fixed sum of Sh95.7 million annually at source from each of the 47 counties to service the equipment after they signed the contract.

However, the controversial contract that has been a thorn in the flesh of counties was varied along the way and deductions increased to over Sh200 million per country under unclear circumstances.

The programme has, however, been shrouded in mystery after governors protested that they were manipulated, blackmailed and coerced to sign the agreement under duress.

County chiefs claimed not all counties received all the equipment yet all the counties are paying amounts annually. Further, in some cases the equipment were lying idle because of lack of technical staff despite the Ministry deducting the money every year.