5 March 2018

Uganda: Inside the SGS Contract Saga

Photo: Jimmy Siya/The Independent
The SGS inspection point at Namboole.

Kampala — The Uganda government is in a fix. Suspend and cancel the contract awarded to the Switzerland based firm, SGS, to carry out a motor vehicle inspection and possibly pay the price for violating the agreement or stay the contract amidst any illegality, if at all it exists, and avoid the compensation.

This appears to have been the circumstance that played out during the parliamentary session on Feb 15.

The Speaker of Parliament, Rebecca Kadaga tasked the Attorney General, William Byaruhanga, to come up with a communication showing the risks or gains that would emerge in case the inspection exercise is suspended or contract cancelled.

This followed two recently released reports- the Majority and the Minority Reports that were compiled by legislators on the Physical Infrastructure Committee - in Parliament recommending suspension and cancellation of the contract respectively. The fate of the exercise is expected to be known this month.

The legislators say the events and procedure that led to the signing and awarding of the contract to SGS on March 17, 2015 were improper.

But there is a heavy cost for taxpayers to meet in case government buys the recommendations of the committee especially one in the minority report - that recommends cancellation of the contract.

According to the report, this particular contract termination or cancellation for any cause, except as provided in the contract, the government would pay SGS 75% of the value of total investments made or 100% of the expected income of the company. So far, SGS is said to have invested Shs51.2bn, according to the reports, though the committee claims that it doubts the figure.

This implies that the government could pay up to Shs38bn in case the contract is terminated or higher in case it has to pay all the expected income by SGS for the five-year contract.

"The committee notes with concern that while it may be considered prudent business to insulate private owners of capital from possible loss in doing business with government, using such contractual clauses, there has emerged an unscrupulous habit among public officials of saddling the country with the risk of exorbitant costs even when some of the clauses of such contracts are potentially bogus," the report reads in part.

Key issues in the reports

Among the key issues in the contract was that SGS was to have seven sites. However, the reports indicate that only three sites are operational and that SGS would still not be ready for the commencement of inspection two years after signing the contract. This, MPs said, points to significant capacity gaps on the part of SGS.

The other issue is the possible connivance between the ministry of works officials and SGS staff for material gain. To make the situation even worse, the Solicitor General was not involved in drawing the contract which is unlawful.

The MPs also noted inadequate intra-governmental coordination in the implementation of the contract; the absence of a master centre that would provide an avenue for arbitration and adjudication in case of disputed test or allegations of fraudulent cases.

In addition, the legislators were not comfortable with the clause in the contract that suggests automatic renewal of the contract for five years. Instead, they recommended that the clause be revisited with a view of cancellation of the automatic renewal clause so as to guard against any potential losses to the country in the event of failure by SGS to meet the agreed upon performance targets.

On creating jobs to Ugandans, the legislators say, the eight envisaged inspection sites would only create around 150 jobs, meaning that the multiplier effect of job opportunities accruing to such machinery intensive exercise is grossly limited and yet the monopoly of the service provider takes home their entire profit from the 90% gross revenue since only 10% is transferred to government.

The committee also recommends that the 10% fee that is remitted to government through the ministry of works should, instead, be remitted directly to the consolidated fund.

They also recommend that inspection fees - which range between Shs 944 to Shs 147, 500 depending on the type of the vehicle - be reduced to ensure affordability and equity for all vehicles, in addition to liberalising the system of motor vehicle inspection.

The other recommendations are that the AG should be cleared to audit the investments by SGS to verify the figures submitted to Parliament so as to attain value for money, physical and financial performance and that other government agencies - Uganda National Bureau of Standards, Uganda Police Force and National Environment Management Authority be involved in supervising the works.

"... we recommend that the implementation of the contract is immediately suspended for a period of not less than three months to enable review and renegotiation of the contract by the ministry of works," the majority report concludes.

Similarly, the minority report summarily among other things says the main reasons behind the exercise were not well thought about. It notes that the defective motor vehicles, which SGS is inspecting, account for only 2.1% of the road accidents, according to Uganda Police Force data, which is far below the 10% which the ministry of works used in justifying continuity of the inspection exercise.

"Far from suspension, the contract with SGS requires immediate termination to pave way for a total overhaul of the defective vehicle inspection environment characterized by the absence of a master test centre, inept monitoring and supervision, exorbitant pricing and the absence of functional synergies with other key actors," the minority report says.

Purpose of the inspection

The whole idea of Motor Vehicle Inspection exercise is to improve road safety and reduce road accidents caused by vehicles in dangerous mechanical condition.

It is also about keeping the environment safe by addressing key aspects like emissions testing in accordance with the current recommended emissions standards.

The other big objective of the exercise is to ensure that vehicles comply with the traffic and road safety (Motor Vehicle inspection) regulations of 2016 and the standards set by the ministry of works and transport in the "Manual of Vehicle Inspection" as well as other recognised international road-safety standards.

Vehicle owners were given up to June 2017 to have successfully gone through the inspection exercise and obtained certificates of inspection to avoid being inconvenienced by traffic police on the road.

But the deadline was extended until further notice as Parliament went about investigations into circumstances that surrounded the awarding of the contract to SGS Uganda Ltd.

SGS boss speaks out

Christophe Dubois, the country manager for SGS told The Independent on Feb.23 that they are waiting for an important communication.

"We are yet to receive official communication from the Government of Uganda regarding the result of the parliamentary review that has taken place since June 2017. In the meantime, SGS remains committed to contribute to the national road safety program by offering a state of the art service with a view to improving road safety in Uganda," he said.

Without specifics Dubois, however, said Parliament's proceedings on the matter had affected the exercise with the inspection numbers significantly dropping to a handful of cars per day.

He said that by February 2018, they had inspected approx. 35, 000 vehicles - out of those, 78% had passed the test and 28% failed. It is estimated that Uganda has over 1 million motor vehicles on the road.

But as the SGS waits for government's official communication on the matter, opponents of the exercise have welcomed the two reports from Parliament.

Andrew Karamagi, a lawyer who in the past attempted to block the exercise in courts of law told The Independent that he 'disagrees with the majority report's proposition to halt the exercise for three months because nothing can be done to salvage that contract.'

"It was and still is so badly steeped in outright illegality, collusion and fraud that the only remedy is to terminate the same," he said, adding that the government need to stop the trend of the so-called investors coming into the country and threatening with compensation claims in case the government pulls out of contracts.

"It can't be business as usual... terminating that contract will sound a warning shot which will be loud and clear," he added.

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