The Auditor-General Nancy Gathungu has revealed that despite a massive KES104.8 billion public investment, the government of Kenya neither owns nor controls the Social Health Authority (SHA) system.

According to her audit report, the system, its components, and intellectual property rights remain with the private consortium behind its development—only the infrastructure is set to be transferred to the government.

This arrangement means that SHA contributions and healthcare claims will finance a system the state does not own, a situation the Auditor-General warns poses a major risk to public funds and healthcare delivery.

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.

Ms Gathungu also noted that the system's financing model projects KES111 billion in revenue over 10 years, generated through SHA member contributions, health facility claims, and charges from the track and trace solution.

“According to the financial proposal, the consortium proposed the adoption of a funding model which entails charging fees from member contributions to Social Health Authority (SHA), claims from health facilities and charges for the track and trace solution at a rate of 2.5 percent, 5 percent and 1.5 percent respectively for ten (10) years resulting to projected revenues of Kes 111,019,068,754,” Ms. Gathungu stated.

She pointed out that the revenue contributed by the government is transferred into an escrow account on a daily or weekly basis. “These funds according to Clause 12.4 of the general conditions of the contract are to be transferred to an Escrow account daily or at a frequency of not less than one week,” the report disclosed. 

Further, the Auditor General’s report shows that the government breached the law by procuring the SHA system through a Specially Permitted Procurement approach instead of competitive bidding. 

“The system was procured through Specially Permitted Procurement Procedure pursuant to Section 114(A) (2)(d) by directly sourcing a partner at a cost of KES104,808,136,478. However, this process was contrary to Article 227(1) of the Kenya Constitution 2010 which requires a fair, equitable, transparent, competitive and cost-effective ways of acquiring goods and services. In the circumstances, Management was in breach of the law,” she states.

At the same time, Gathungu disclosed that, “The contract prohibits the State Department from developing another system or a product with similar functionalities to compete with the system being procured, putting the Government at risk in the event of growing needs or for technological changes.

“Clause 16.2.5 (c) of the general conditions of the contract states that, 'The procuring entity shall ensure neither the procuring entity nor the Government health agencies nor the procuring entity authorized users shall access all or any part of the system in order to build a product or service which competes with the system or undertake similar functionalities to the system or attempt to do so',” the Auditor General added.

According to Ms Gathungu, any disputes arising under the contract will only be resolved outside Kenya. "Clause 39.1 of the contract agreement requires any dispute arising from the contract be settled by arbitration under the rules of London Court of International Arbitration." 

This report brings to question the government's decision to proceed with the project without first establishing ownership of the system's infrastructure and intellectual property.

[email protected]