15 April 2018

Kenya: Bungled Tender Delays Plan to Roll Out New-Look Bank Notes

Last week's High Court ruling and subsequent appeal of a Sh10 billion money printing tender to a British firm once again pushed back the country's switch to a new-look currency.

Kenyans, therefore, have to wait much longer to have new notes in their wallets and purses.

British currency printer De La Rue International has turned Kenya's long-standing plan to roll out the constitution compliant new generation bank notes on its head.

CBK represented by lawyer Ochieng Oduol, and which has since appealed the latest High Court decision now faces a rocky path in fast-tracking the complex roll-out of the longstanding new look currency in line with the constitution.

The replacement of the old currency notes will cost Sh18 billion, according to CBK estimates.

De La Rue has had a stranglehold on Kenya's lucrative money printing business except for the period between 1966 and 1985 when another UK firm Bradbury Wilkinson did the job.

The new-look currency is expected to be in notes of 50, 100, 200, 500 and 1,000 shillings.

Their introduction will be accompanied by a massive public campaign to sensitise the public.

This will be followed by the subsequent withdrawal of the current currency in phases.

The tender has, however, been seen as an acid test for the banking regulator, which has never successfully floated a competitive international currency printing bid since it was established in 1966.

And now the Central Bank of Kenya risks legal action for the delay in rolling out the currency as required by law.

Article 231(4) of the constitution outlaws currency bearing portraits and images of individuals yet notes and coins with such features remain in circulation meaning they are in violation of this clause.

The Cabinet gave the CBK the go-ahead to develop and begin rolling out the new notes in February 2015. CBK Governor Patrick Njoroge had in March 2016 told the Senate that the bank missed the planned August 2015 deadline following cancellation of the tender on March 24.

This was after bidders quoted zero price. The CBK, in consultation with the Attorney-General, ruled the move illegal.

And on Monday, the High Court nullified the bidding process that awarded De La Rue International the mega contract late last year on the basis of a 15 per cent preferential treatment score. The High Court stated that the tender process was fraught with irregularities.

De La Rue had late last year beat three other European bank note printing firms, German firm Giesecke & Devrient, Swedish firm Crane Currency and Oberthur Fiduciaire of France to the hotly contested and lucrative contract.

De La Rue listed on the FTSE 250 in London and one of the world's most secretive institutions had quoted $112 million (about Sh11.6 billion) for printing and supplying the notes while the Swedish firm had quoted $105 million (about Sh10.9 billion).

In the ruling by Justice George Odunga, delivered by Justice Pauline Nyamweya, the High Court said the award by CBK was both "unlawful and unconstitutional and, therefore "invalid, null and void."

"The award on November 30, last by the CBK to De La Rue International Limited of the restricted tender for printing and supply of new design Kenya currency banknotes Tender reference No. CBK/37/2017-2017-2018 is hereby removed into this court and hereby quashed," declared Justice Odunga in the case that has offered Kenyans a rare glimpse into the secret world of bank note printers.

He further issued an order compelling, CBK to "transparently" re-evaluate the bids of all compliant tenderers and to award the tender strictly according to the law.

The case had been filed by activist Okiya Omtatah, arguing that De La Rue did not qualify for the 15 per cent margin of preference because it is not a preferred supplier under Kenyan law.

"Having considered the issues raised in this petition it is my view and I hold that the manner in which the CBK awarded the tender to De La Rue International did not meet the constitutional threshold in Article 227 of the constitution that binds it to contract for goods or services in accordance with a system that is fair, equitable, transparent, competitive and cost-effective," ruled Justice Odunga.

"By applying the Public Procurement and Disposal Act, rather than the repealed procurement law, the CBK ended up granting to De La Rue an undeserved margin of preference," he added.

He continued: "The first respondent's (CBK) decision was, therefore, not only unlawful but also unfair, inequitable, lacked transparency and could not be said to have been competitive and cost-effective. In other words the decisions flouted all the constitutional principles of public procurement."

The High Court ruling mirrored earlier arguments by the procurement watchdog, which had ruled that the award by CBK to De La Rue on account of the 15 per cent preferential ruling was illegal since the British firm was not located in Kenya and did not have local shareholding.

The Public Procurement Administrative Review Board (PPARB) on January 8 nullified the De La Rue contract after a week-long hearing in which Crane AB accused the CBK of breaching the law in awarding a 15 per cent margin preference to the British firm.

In arguing its case, Crane AB claimed that Kenyans stood to lose nearly Sh1 billion as the award was not given to the lowest bidder.

The tenders watchdog ruled that De La Rue did not qualify for the preference margin of 15 per cent applied, adding that the British printers was not the lowest evaluated bidder.

In 2012, CBK sought a new image for the local currency notes and coins, in adherence to the constitution.

The regulator had called for proposals on designs whose themes reflect a new chapter in Kenya's history in line with the law, and to depict the country's prosperity as outlined in Vision 2030.

The review board had faulted CBK for assuming that since the British firm had indicated it would sub-contract to its local affiliates the preference was applicable.

"De La Rue International Limited was registered in the United Kingdom. Based on the above uncontested fact the successful bidders was and could not therefore qualify to be granted preference on the basis that it was a citizen contractor," the Gicheru chaired PPARB had argued.

The decision by the High Court quashing the contract award to De La rue has also upped the stakes for De La Rue, which has been fighting to salvage its business.

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