How Sh2bn vanished in a stalled Treasury data recovery centre

Taxpayers may have lost nearly Sh2 billion in a botched construction of a data disaster recovery centre in Naivasha.

A review by Auditor General Nancy Gathungu established that the project being implemented by the National Treasury remains unutilised despite the significant expenditure on it.

Treasury entered into a contract for the data centre to create a critical backup of financial data and other critical information in the event of a disaster.

The project was awarded to Misort Africa Ltd in 2009 and was to be executed within 96 weeks at Sh782 million.

However, the scope was later increased and the project divided into three phases of implementation.

Phase one of Sh899 million and phase two of Sh205 million were completed and paid for the project which is 68 per cent complete.

A row over payments in the third phase of the project stalled the venture and now taxpayers have been slapped with hefty fines.

The dispute arose after Treasury failed to honour a claim of Sh193 million, which was to compensate for idle resources and expenses after the project stalled.

The contractor filed an arbitration case following the delayed payments and was awarded Sh4 billion for “loss of profits and other associated costs”.

Gathungu says that as of June 30, 2024, the outstanding amount had risen to Sh5.5 billion due to accrued interest.

In the case, Treasury had argued that phase three was an entirely different tender and required the contractor to bid afresh.

Treasury argued that the contract was split into three and that Misort Africa Ltd was required to bid afresh to be awarded the contract for the final phase.

The auditor general has put the National Treasury on the spot, saying the arbitral award was avoidable had officials acted promptly.

“The expenditure would have been avoided had management managed the contract in accordance with the applicable laws and regulations,” Gathungu said.

She is also expressed concern that the “project remains unutilised despite the significant expenditure”, exposing the wastage in government projects.

“In the circumstances, the value for money from the payment of Sh1,987,278,191 could not be confirmed,” the auditor general said.

She added that the “full payment of the amount will adversely affect the budgetary allocation for the ministry and is not in public interest.”

It is emerging that Treasury ignored an advisory by the Attorney General to negotiate with the contractor.

The AG gave the advisory after analysing the case and concluding that the government had no fighting chance had it launched an appeal.

The arbitration decision was adopted by the High Court and the AG indicated there were slim chances for the state to succeed in the case.

“No evidence of the negotiations having taken place was provided for audit review,” Gathungu said.

Treasury paid Sh882 million during the year under review, as part of payment of the sums awarded by the High Court.

MPs have been on Treasury’s case to allocate funds to complete and make operational the data recovery centre.

A site visit by a House team established that equipment worth more than Sh100 million has been stolen and vandalised.

The centre was transferred to the Information ministry, and is expected to help with the government’s digitisation plan.