State sinks Ksh.104.8B into SHA system it neither owns nor controls — Auditor General

The report raises serious concerns about the government's decision to proceed with the project without first establishing ownership of the system's infrastructure and intellectual property.

“The ownership of the system, system components, and all intellectual property rights shall remain in the ownership of the consortium,” Gathungu noted in the report, warning that this severely limits the government’s authority and oversight. 

This arrangement means that Kenya's Social Health Authority (SHA) contributions and claims from health facilities will be used to fund a system that the State does not own, which the Auditor General describes as posing a significant risk to public funds and healthcare delivery.

To add to the controversy, the procurement process did not include competitive bidding, instead sourcing the contractor directly through a Specially Permitted Procurement Procedure, which is a clear violation of Article 227(1) of the Kenya Constitution 2010. 

“This process was contrary to Article 227(1) of the Constitution, which requires a fair, equitable, tranFsparent, competitive and cost-effective way of acquiring goods and services,” Gathungu stated. 

According to the report, the project was also excluded from the procurement plan and the medium-term budgetary expenditure framework, which violated Section 53(7) of the Public Procurement and Asset Disposal Act of 2015.

The project's financing model anticipates Ksh.111 billion in revenue over ten years, derived from SHA member contributions, health facility claims, and track and trace solution charges. 

Despite the significant financial implications, the model lacks a supporting baseline survey, raising questions about its viability and the possibility of increased healthcare costs for citizens. 

“The projected revenues include 5% to be deducted from claims made by health facilities, which has the effect of increasing healthcare costs indicative of a service charge of 5% to citizens every time they access healthcare services,” Gathungu observed in the report. 

At the same time, clause 12.4 of the contract's general conditions states that these revenues must be transferred to an escrow account on a daily or weekly basis.

However, the contract agreement did not disclose information about the escrow account's signatories, raising additional transparency and accountability concerns.

Further troubling clauses in the contract prohibit the government from developing a competing system, limiting Kenya's ability to innovate or adapt to future technological needs. 

“The procuring entity shall ensure neither the procuring entity nor the Government health agencies shall access any part of the system to build a competing product or service,” the report states, a provision that Gathungu warned puts the government at risk in the event of growing needs or technological changes. 

Disputes arising under the contract will also be resolved by the London Court of International Arbitration, bypassing local legal mechanisms.

Beyond the procurement disaster, the Auditor General's report highlights broader management failures, such as noncompliance with employment laws and insufficient staffing for people with disabilities.

“Review of the payroll indicated that three hundred and eighty-six employees earned a net salary of less than a third of their basic salary, contrary to Section 19(3) of the Employment Act, 2007,” Gathungu revealed.

She also criticized the government's failure to meet disability staffing requirements, stating that "only 2.3% of the staff are people with disabilities, far below the 5% mandated by public service policies."