Inside The Cartels World: A Blacklisted Contractor Was Awarded Sh10B Supply Tender In The MES Scandal

The leasing of medical equipment under the Managed Equipment Services (MES) project was not tailored to suit  specific county needs as would have been the case if a more consultative needs-assessment process had been followed, a new report has revealed.

A senate Ad hoc committee established to investigate the facts surrounding the leasing of the medical equipment, in the then 119 benefitting hospitals countrywide, has also noted that there were wide inter and intra-county disparities in the status of implementation of the project across the counties.

For example, during its visit to Isiolo county, the committee found that there was a large disparity in the standard of implementation of the MES project between Isiolo County Referral Hospital and Garbatulla Sub-County Hospital.

“Whereas all the equipment in Isiolo County Referral Hospital was operational and in good working order, none of the equipment supplied to Garbatulla SDH was functional save for a CSSD machine,” the report reads in part.

In Elgeyo Marakwet, the Committee chaired by Isiolo Senator Fatuma Dullo found that the theatre and radiology equipment supplied to Chebiemit and Kamwosor Sub-County Hospitals, only the mobile X-Ray machine at Chebiemit SCH and the CSSD machine at Kamwosor SCH were reported functional.

“The committee observes that in order to accommodate the equipment supplied under the MES project, County Governments were constrained to incur costly and unforeseen expenditure in infrastructural development and recruitment/training of specialised personnel,” it adds.

These costs, according to the nine-member panel had not been factored into county budgets or CIDPs.

Criminal enterprise

As such, the senators’ said counties were forced to reallocate funds from other votes to accommodate the project.

The committee also established that had the MES Project been implemented in a stepwise and progressive manner that factored in the need to address these challenges, more impact would have been realised from the MES Project.

For instance, despite having functional X-Ray and theatre equipment prior to devolution, Laikipia county was still supplied with new X-Ray and theatre equipment.

While describing the project as a criminal enterprise shrouded in secrecy, the committee said some counties did not receive uniform equipment under the project.

Cartels

The government in 2015 contracted six private firms to supply, install and train medics on different sets of medical equipment for seven years.

For long the health ministry has had faceless cartels where scandals blow up and the end is never seen. This damning report gives us a glimpse of the big boys in the kitchen of one of the biggest heists in the health ministry.

One name that features prominently in the list of the accused persons in the criminal enterprise is Dr. Shadrack Mwiti. In the Sh63B MES scandal, documents seen by Kenya Insights indicate that he was meant to walk away with close to Sh10B.

Its not the first time Dr. Mwiti finds himself in the headlines, in 2006 he was in a similar scandal with the health ministry and sources indicate he’s a regular figure in the supplies.

Dr. Mwiti initially traded as Dol International.

This was before three Court of Appeal judges reversed a Sh712 million award offered to him by the High Court for alleged breach of contract.

CANCELLATION OF CONTRACT

Judges, Alnashir Visram, GBM Kariuki and Jamila Mohammed reversed a decision by Justice Joseph Mutava directing the government to pay Dol International Ltd the lump sum as damages for cancellation of a contract.

Dol International was awarded a tender in 2006 to supply the government with X-ray machines, X-ray film envelopes and sutures at a cost of Sh180 million.

However, the government cancelled the contract and refused to pay for the equipment already supplied over alleged fraud and corruption. This saw the company move to court in 2009.

The suspension of the tender was triggered by the Ethics and Anti-Corruption Commission after complaints that the contract was invalid having been obtained fraudulently.

EACC said after investigations it concluded that Dol International director Shadrack Mwiti had manipulated the tendering process and connived with Health ministry officials to secure the contract.

Mr Mwiti and the ministry officials were charged with fraud and corruption relating to the contract but the case was thrown out by the anti-corruption court for lack of evidence.

In February, 2013, Justice Mutava awarded Dol International Sh712 million as damages for huge losses incurred by the company. He also ruled that there was no evidence to show the tender was secured through fraudulent means.

He further observed that the claims of fraud and illegality by EACC were competently determined by the Public Procurement Oversight Appeals Board (PPOA) and parliament and consequently cleared the company of any wrongdoing.

But EACC appealed the decision faulting Justice Mutava of refusing to consider evidence adduced by witnesses to the effect that the contract was tainted with fraud.

EACC also accused the trial judge of ignoring the unchallenged evidence to the effect that neither Mr Mwiti nor his company was registered to deal with pharmaceuticals.

The anti-graft commission’s position was that the tender, having been obtained by fraudulent means, was invalid and that Dol International was not entitled to any damages.

On May 19 2016 appellate judges allowed the EACC appeal and dismissed Justice Mutava’s ruling.

With full knowledge of being on the EACC blacklist, Dr. Mwiti laid a plan to circumnavigate the system using two companies Debra Ltd(Kenya) and Esteem Industries(India) in a well orchestrated scheme using his networks.

The MoH awarded Esteem Industries Inc., a company registered in India, the tender to supply theatre and CSSD equipment under Lot 2 of the MES Project (Tender No. MOH/001/2014/2015).

On 6. February, 2015 the MoH and Esteem Industries Inc. (India) executed a contract for the supply of Lot 2 theatre equipment at an initial contract cost of Kshs. 8,890,825,305.30. Under the contract, which was amended and restated on 20th July, 2016, a total of ninety-four (94) hospitals, two (2) hospitals from each of the 47 counties, were selected to benefit from theatre and CSSD equipment. After the amendment, the project cost shot up to Sh10.4B.

Committee in trying to figure out the relationship between Esteem and Debra which are basically Mwiti’s brainchild, found out that Debra Ltd a CR 12 dated 11th October, 2019, issued by Registrar of Companies listed the directors of Debra Limited as Shedrack Mwiti and Steven Muriuki however, according to Dr. Mwiti, Mr. Muriuki exited the company sometime in 2013 or 2014 as a director. Sources talking to Kenya Insights indicate that his wife Simaton has since taken over as a Co-Director.

Investigations found out that before sealing of the deal in 6th February 2015, Mwiti said that Esteem had issued him with an irrevocable power of attorney. Meaning it could not reverse the authority for Mwiti to act on their behalf in regards to the contract.

Committee found the authorizing letter unconvincing as it was signed by unnamed person Mbito J. At this point it had not been mentioned that Debra Ltd would be the subcontractor in the Lot 2. This was Mwiti going after two birds with one stone, ensuring he wins the contract using Esteem and later Debra. Having negotiated for Esteem, that disqualified Debra from getting in later, but that didn’t stop the game.

Mwiti also told the committee that he had received invitation from Esteem to sign the contract in Statehouse on 6th February 2015. But since he was the same person playing both roles, committee didn’t find any proof that he received invitation from Esteem as alleged.

The report also unearthed the games played, in respect to the payments for Lot 2 Equipment, the Committee found out that the MOH has been money into an account that is not the account declared in the contract since as per the testimony of the contractor, payments in relation to Lot 2 Contract are deposited into Equity Bank account number 0180164319999 in the name of Esteem Industries Inc. Mwiti has been receiving money into his account which was not cited in the contract neither tabled evidence to show change of accounts.

Dr. Mwiti and the directors of his Esteem Industries Inc. Mahendar Tandon and Vipul Tandon.

Committee found out that Mwiti has been getting paid all along as the contractor. Because he operates the account that MoH pays the Lot 2 equipment and with irrevocable power of attorney, it concluded that Mwiti is both the contractor and the subcontractor.

Given the shoddy nature of the deal, the report concluded that Esteem and Dr. Mwiti colluded to circumvent the public procurement process by assigning the rights and obligations under the contract to a party who would otherwise not have won the contract.

That Esteem and Dr. Mwiti engaged in a fraudulent practice in contravention of section 41 of the PPDA that resulted in the MOH being deprived of the benefits of free and open competition. That the PS contravened section 197 (1) (l) of the Public Finance Act, 2012 that requires the accounting officer to keep proper records by failing to keep records regarding the account details in to which money in respect to the contract for Lot 2 was to be paid.

In 2016, an interim audit report by the Auditor General investigating MOH explicitly mentions that irregular payments were made to 3/5 MES providers: Belco Sri Ltd., Mindray Med. Kenya & Esteem Industries Inc.

In respect to whether the equipment under Lot 2 was delivered, is functional and represents value for money, the committee observed that there instanced where the contractor was paid for equipment not delivered. February 3rd 2016 Mwiti received the first quarterly payment in full despite having not delivered to 26 hospitals as per the agreement.

MOH was found to be negligent when it accepted unconscionable contractual provisions that resulted in MOH paying for equipment despite the fact that the equipment delivered could not be used due to lack of the necessary infrastructure or health care professional s necessary to ensure utility of the equipment.

Report also indicates that the taxpayer was shortchanged as the cost of the project in relation to Lot 2 may have been inflated given the differences in the amount of equipment actually delivered to the health facilities.

It also observed that the contractual provisions in Lot 2 were skewed against the government and in the favor of Mwiti since the MoH, having drafted the specifications of the equipment, was aware that some of the equipment was to be delivered to areas of the country that lacked sufficient power or water to operate them but still had equipment supplied to those areas knowing full well that there was a high likelihood that the equipment would lay idle and as a result Kenya would lose money.

Investigations revealed that the lifecycle model of the equipment may have been doctored to increase the cost of the contract to the detriment of the Kenya public since if the equipment was still serviceable it is not justifiable to seek to replace the equipment during its functional lifespan.

During a visit to Isiolo CRH by the investigating committee, it was observed that some of the equipment supplied under Lot 2 was labelled ‘Esteem’ while others were simply labelled ‘Estem’. When the matter was brought to the attention of the contractor and subcontractor, the contractor submitted that the branding difference may have resulted from inadvertent inscription before shipment whereas the subcontractor Debra Limited disowned the equipment altogether and disputed its source. The Committee therefore found that the contradictions arising from the equipment delivered under Lot 2 were suggestive of the fact that counterfeit equipment was supplied under the contract.

Investigations further reveal that that prices of equipment supplied under Lot 2 were grossly exaggerated. For example, according to MoH records, a stitching removal set which typically comprises of a suture tray, a pair of scissors and a pair of tongs was supplied to counties at the unconscionable cost of Kshs.398,849.00. That is more than 80 times the average cost of similar equipment in the market at Kshs. 5,000.00 per set.

According to the MoH the cost of an autoclave is valued at USD 79,244.70 or (Kshs. 8,003,714.7 using a conversion rate of 101). Dr. Mwiti informed the committee that the total cost of the equipment under Lot 2 would be 7 million under outright purchase terms, while under MES the cost of the equipment is only 6 million. The contractor further informed the committee that the equipment has not undergone software updates. The committee therefore observed that the MoH relied on an exaggerated price list for the MES equipment that may have resulted in the over pricing of the contract.

Fact that the equipment delivered under Lot 2 was inscribed ‘Estem’ instead of ‘Esteem’ the committee was convinced that it was is suggestive of the fact that counterfeit equipment was supplied under the contract. Because the contractor had knowledge of the equipment inscribed ‘Estem’ and that Dr. Mwiti  was trying to mislead the Committee. The Committee further found that either the contractor or the subcontractor wilfully furnished the Committee with information which is false or misleading in contravention of the law.

Committee was left disturbed with the status of the equipment delivered under Lot 2 in regard to safety as questionable since the equipment was not vetted or inspected as required under the law either by KEBS or Pharmacy and Poisons Board who failed their mandate.

Questions hang on MOH for negligently and in contravention of Article 201 of the Constitution that requires that public money be used in a prudent manner, proceeded to vary the Lot 2 contracts  to include additional facilities while being aware that facilities would be shortchanged in terms of the time for which they are to have utility of the equipment, how Dr. Mwiti convinced for restructuring of the contract.

Committe concluded that the cost levied per county in respect to the variation of the contract relating to Lot 2 was unjustifiable since according to the contract the variation only amounted to a 17.7% increase in the cost of the project.

Conclusions

The Committee established that the irrevocable power of attorney issued to Dr. Mwiti by Esteem is an indication of the fact that the contract under Lot 2 was actually novated to Dr. Mwiti and by extension Debra Limited in contravention of the contractual requirement for novation.

The Committee further established that this ‘novation’ has had implications on the implementation of the contract resulting in equipment that should have been disposed of, being left in the hospitals despite the fact that the contract required the equipment to be changed at end of its useful lifespan. Further, the Committee established that equipment supplied under Lot 2 still remains non-functional due to both lack of the infrastructure necessary and specialists or subspecialist needed to ensure the optimal use of the equipment. This clearly indicates that there is no value for money.

As a result, the committee concluded that EACC investigate the circumstances surrounding the implementation of the contract relating to Lot 2 and particularly the circumstances that led to Dr. Mwiti, CEO/ Director Debra Limited having an irrevocable power of attorney relating to Lot 2 and operating the account in to which the payment in relation to Lot 2 is made; and the cost of the equipment supplied under Lot 2.

EACC and DCI to investigate the circumstances under which KEBS and PPB failed to carry out their statutory obligations to ensure the standards and safety of medical products imported under MES and in particular establish how Esteem Industries Inc. received pre-verification of certificates on various dates.

EACC and DCI to investigate the circumstances under which the contract for Lot 2 equipment was varied without requests from the counties as required by Regulation 9 (d) of the Public Procurement and Disposal Regulations, 2006 (now regulation 34 (d) of the Public Procurement and Asset Disposal Regulations, 2020).

Anti-Counterfeit Authority to inspect equipment delivered under Lot 2 and in particular equipment delivered to Garbatulla, Isiolo and Meru labelled ‘Estem’ instead of ‘ Esteem’.

EACC investigate the circumstances under which the counties paid more than 100% for variation of the MES contracts despite the fact that the variation for Lot 2 was within the 25% threshold envisaged under the law.

EACC investigate the circumstances under which the cost of the equipment under Lot 2 was inflated including the circumstances that led to replacement of equipment under Lot 2 even when the equipment is still serviceable and take necessary action on the persons found culpable.

Competition Authority investigate the relationship between Esteem and Debra and in particular the circumstances under which Dr. Mwiti was became a co-contractor of Esteem in relation to Lot 2.

Investigations should even go deeper to determine if Esteem Industries even exists and if it’s the real one Dr. Mwiti is associating with, the website gives scanty information which is suspicious.

Dr. Mwiti gets down with his son-in-law Jared Otieno.

Dr. Mwiti unsuccessfully vied for Imenti South Parliamentary dear and likely to go again.

Sources speaking to Kenya Insights intimates that Dr. Mwiti who also happens to be a close ally to the DP Ruto has been rapidly expanding his estate since 2013. He’s currently putting up a petrol station and a hotel along Kiambu Road. He has also bought a lot of property in Meru. Hotels, buildings etc.

Dr. Mwiti is also the father-in-law to fake gold scammer Jared Otieno who’s married to his daughter Ann Kendi. The two lovebirds who caused a stir with show stopping dowry payment in Meru years ago and a multi million wedding ceremonies.