Newsletter on 30/12/2008


The Kenya Law Reports Weekly Newsletter | LEGAL BRIEF | Issue 035 | Tuesday 30, December 2008



Reported by Michael M . Murungi

Republic v The Public Procurement Administrative Review Board & another [2008]eKLR(
High Court at Nairobi
Justice J.G . Nyamu
December 18, 2008

The High Court has nullified the award of a tender for the printing of self adhesive excise stamps for wines and spirits after it found that the Kenya Revenue Authority and the Public Procurement Administrative Review Board had misinterpreted and misapplied the Public Procurement and Disposal Act, 2006 in disqualifying a bid by De La Rue Company. The tender, which had been awarded to Madras Security Printers Ltd on their bid of Ksh.153,488,804.98 against De La Rue's bid price of Ksh.161,082,247.16, will have to be evaluated afresh.

The closing date for the tender was 26th March 2008 and the opening of the financial bids took place on 2nd May 2008. After the Kenya Revenue Authority was notified that it had lost the bid through a letter dated July 15, 2008, De La Rue had filed a complaint before the Review Board asking it to review KRA's decision on two main grounds: firstly, that KRA had misapplied the law by excluding De La Rue from the benefit of a clause in the Public Procurement Regulations that gave preference to bidders offering goods manufactured in Kenya. Secondly, De La Rue complained that the evaluation of the tender had taken a period of more than 30 days which was in contravention of section 66(6) of the Public Procurement and Disposal Act, 2006.

Under regulation 28(1) of the Public Procurement Regulations, the threshold below which exclusive preference shall be given to citizens of Kenya shall be Kshs. 50 Million for procurement in respect of goods or services. However, there was a second class of preference which had nothing to do with citizenship and which, as it turned out, the Review Board had ignored. Section 39(8)(b) of the Act provides that a prescribed margin of preference may be given in evaluation of bids to candidates offering goods manufactured, mined, extracted and grown in Kenya.

According to the Review Board, De La Rue was not entitled to a margin of preference because it operated within an Export Processing Zone (EPZ). In the Board's understanding, EPZ goods are regarded as being outside the customs territory in so far as import duty and taxes are concerned . Although the Review Board conceded that it had violated the provisions of section 66(6) of the Act in awarding the tender outside the stipulated period of 30 days, it argued that De La Rue had not suffered any prejudice on the account of the delay. After the Review Board dismissed De La Rue's application for review, De La Rue moved to the High Court seeking a judicial review of the Board's decision. The proceedings were presided over by Justice J. Nyamu.

The High Court did not agree with KRA's and the Review Board's interpretation of section 39(8)(b) of the Public Procurement and Disposal Act, 2006 and the EPZ Act. According to the Court, the fact that the goods have an EPZ origin is only relevant for the purpose of computing import duties and taxes and other benefits provided under the EPZ Act. For all other purposes, any such goods should be taken to have been manufactured in a designated part of Kenya and they cannot be regarded as foreign goods . The other difference is that internally, such goods are restricted and they attract different duties and taxes which any bidder would have to pay even if the tender was to be awarded locally. This, however, should not disadvantage such a tenderer in terms of margins of preference based on local manufacture. The Court did not think that the term 'import' as specially used in the EPZ Act should be applied to a general situation where goods manufactured in an EPZ Zone in Kenya are regarded as imports for the purposes of the Procurement and Disposal Act. As Justice Nyamu put it in his judgment, "[I]t would be irrational to regard Kenyan territory as foreign country except for the special meaning in the EPZ Act for purposes of duty and taxes" .

When the Court read regulation 28(2) together with section 39 (8)(b) (i) of the Act, it was clear to it that this category of margin of preference is applied to goods manufactured in Kenya whereas the Review Board's decision was on the mistaken basis that any preference can only be to a Kenyan citizen and only in cases below the minimum threshold of Kshs. 50 million. The Court did not think that this category of preference had anything to do with citizenship.

The Review Board had wrongly concluded that because the tender was above the prescribed threshold reserved for citizens, then the KRA was entitled to ignore the issue of the second margin of preference which related to the place where the goods were manufactured. In any case, Justice Nyamu further observed, the origin of the goods to be supplied by De La Rue was clearly set out in the technical documentation which formed part of its tender. De La Rue's financial bid clearly demonstrated it was a Kenyan company producing goods in Kenya and with a manufacturing capability at its Ruaraka factory . The Review Board had therefore failed to distinguish the two categories of statutory margins of preferences, namely the exclusive preference given to Kenyan citizens upon which the board proceeded to make its holdings and a margin of preference for goods manufactured in Kenya set out in section 39(8) (b) (i) and Regulation 28(2) (a) which the Board did not address at all. The Judge found that the second category of preference which the KRA and the Review Board had ignored was a relevant consideration and also part of the substantive law on procurement. They had both overlooked important factual matters because the establishment of the origin of the goods and their place of manufacture were important precedent facts to the application of the correct margin of preference .

The misinterpretation or misdirection of the law on the application of the margin of preference and the origin of goods, in the view of the court, led the KRA and the Review Board to fail to take relevant factors into consideration and on that basis, the judicial review court had a basis for interfering with the decision.

On De La Rue's complaint about the time that KRA had taken in evaluating the bids, Justice Nyamu recalled that section 66(6) of the Act provided in very clear terms that an evaluation "shall be carried out within such period as may be prescribed" . Because the regulations made under the Act provided for a period of 30 days, it followed that the Regulation and had a statutory underpinning. The time restriction on the evaluation of tenders was intended as a safeguard to prevent abuses in the procurement process. The provision was stated in mandatory terms and was also clearly aimed at achieving both efficiency and transparency in procurement procedures . The Court was therefore of the view that the Review Board was wrong in failing to direct its mind to the compelling question of why the evaluation of the bids had taken a period longer than the one provided by statute. Moreover, KRA's notification to De La Rue that it's bid had not been successful was given outside the period provided by law.

The Court therefore allowed De La Rue's motion for judicial review of the Review Board's decision and granted it five orders: the decision of the Review Board dismissing De La Rue's request for review and directing the KRA to proceed with the tender process was quashed; KRA's decision to award the tender to Madras Security Printer's Ltd was nullified; KRA was restrained from entering into any contract in furtherance of the tender award to Madras Security and finally, KRA was directed to evaluate the tender afresh and in accordance with the law.

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