How board members tried to fix tenders at Nairobi Hospital

Saturday March 16 2019

nairobi hospital

The Nairobi Hospital entrance. Audit shows attempts by board members to influence tender awards at the hospital. PHOTO | DENNIS ONSONGO | NMG 

By The EastAfrican
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An audit into a controversial tender for insurance at the Nairobi Hospital has unearthed attempts by some board members to award the contract to preferred brokers.

The Ksh35 million ($350,000) insurance tender is believed to be at the heart of the falling out between the board and management of one of East Africa’s foremost private hospitals which led to the facility’s CEO Gordon Odundo being sent on compulsory leave in December. The leave was to end last week but was extended to April 13.

An internal evaluation of the insurance tender details how one of the 12 bidders, who was backed by an insurer in which the board member has some interests, was pushed through the technical evaluation despite not meeting the tender conditions.

The company secretary also assessed the technical bid against the norm for phased evaluation, the audit shows.

The firm—Hawk Bay Brokers—was incorporated in July 2017, meaning that it could not have had audited accounts for three years as the tender documents required.

However, it was awarded top marks in this category after one of the technical evaluation committee members bought the company’s view that it had in business for longer and had just rebranded.

That lapse allowed it to present audited accounts for 2015 and 2016 of Hawk Bay Ltd, which though having been in insurance, it had no credentials in the brokerage segment as was required.

“Despite this, the company scored the full 15 marks in the section which they did not deserve,” the internal audit shows.

Ordinarily, the company’s bid should have been rejected at this stage for not meeting the three-year broking criteria, but the tender had been worded ambiguously that a bidder “May be rejected” for the omission.

At the financial evaluation stage, the company was also given a higher score despite having made an error in its bid for fidelity guarantee.

It quoted Ksh96,055 ($960) but after the evaluation said this should have been Ksh753,415 ($7,534), a revision of nearly eight times.

According to the audit, the company’s financial score should have dropped from 25.30 to 23.86 had this been taken into account.

The audit failed to establish whether the deficiencies in evaluation were deliberate but pointed out that they only arose in the case of Hawk Bay.

In the financial score, Hawk Bay came first ahead of Pacific Insurance Brokers and Liaison Group Insurance Brokers.

The impact of the wrong technical evaluation however became clear when the audit adjusted the score to reflect Hawk Bay’s inexperience in insurance broking.

Hawk Bay dropped to position four after Liaison Group, Clarkson Insurance and Pacific Insurance. In the end, Hawk Bay did not win the tender. The final awardees were Pacific and Liaison.

“The final awardees were Pacific and Liaison as recommended by procurement manager based on the lowest financial and technically compliant bid,” the audit said, validating the award.

Pacific had quoted only Ksh29,000 ($290) more than Hawk Bay, suggesting that the two brokers were underwritten by the same insurer.

Clarkson lost out because its bid, at Ksh40.2 million ($402, 911), was the most expensive.

However, the audit said the procurement manager should have informed the committee in writing why its recommendation was rejected.

Anxiety

The sending on compulsory leave of the CEO has caused anxiety at the hospital in the face of litigation by employees over what they view as unfair dismissal

In eight of such cases that The EastAfrican sampled, the claimants demand upwards of Ksh25 million ($249,000) from the hospital.

At stake in the fight between the board and the management is control of tenders for projects. Some members of the board accuse Mr Odundo of frustrating the award of tenders to preferred companies.

The hospital board issued a statement last week saying the suspension of the CEO was procedural as initial investigations by EY had revealed gaps in the hospital’s finances that needed further scrutiny.

In an opinion article in the Daily Nation on Friday written by board chairman John Simba, Nairobi Hospital—East Africa’s most advanced healthcare facility which has treated key figures from the region such as the Ugandan opposition leader Kizza Besigye, former Kenyan president Daniel Moi, Tanzanian opposition leader Tundu Lissu—handles at least 150,000 admissions annually.

Trouble started in December 2018 when Mr Odundo was sent on a three-month compulsory leave to pave the way for an audit over the alleged irregularities in the tendering processes for the award of insurance and construction tenders.

The fight is also for the control of the hospital’s huge annual cash flows that have seen it invest into a 12-storey building, Anderson Centre which has a 400-seat auditorium.

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