Kenya Spends Ksh.104.8B on Health System It Neither Owns Nor Controls – Auditor General Report

The Kenyan government’s ambitious Ksh.104.8 billion Social Health Authority (SHA) project is under intense scrutiny following revelations by Auditor General Nancy Gathungu that, despite the substantial public investment, the state neither owns nor controls the system.

In her report, Gathungu highlighted that the government proceeded with the project without establishing ownership of the system’s infrastructure and intellectual property. She noted that “the ownership of the system, system components, and all intellectual property rights shall remain in the ownership of the consortium,” a situation that severely limits the government’s authority and oversight.

This arrangement implies that SHA contributions and claims from health facilities are funding a system not owned by the state, posing significant risks to public funds and healthcare delivery.

Violates the Constitution

Further controversy arises from the procurement process, which bypassed competitive bidding in favor of a Specially Permitted Procurement Procedure, contravening Article 227(1) of the Kenya Constitution 2010. Gathungu stated that “this process was contrary to Article 227(1) of the Constitution, which requires a fair, equitable, transparent, competitive, and cost-effective way of acquiring goods and services.”

Additionally, the project was excluded from the procurement plan and the medium-term budgetary expenditure framework, violating Section 53(7) of the Public Procurement and Asset Disposal Act of 2015.

The project’s financing model anticipates Ksh.111 billion in revenue over ten years, derived from SHA member contributions, health facility claims, and track and trace solution charges. However, this model lacks a supporting baseline survey, raising questions about its viability and the potential for increased healthcare costs for citizens. Gathungu observed that “the projected revenues include 5% to be deducted from claims made by health facilities, which has the effect of increasing healthcare costs indicative of a service charge of 5% to citizens every time they access healthcare services.”

Moreover, clause 12.4 of the contract’s general conditions mandates that these revenues be transferred to an escrow account on a daily or weekly basis, yet the contract does not disclose the signatories of this account, raising additional transparency and accountability concerns.

Government Barred From Developing Similar System

The contract also prohibits the government from developing a competing system, limiting Kenya’s ability to innovate or adapt to future technological needs. Gathungu warned that this provision puts the government at risk in the event of growing needs or technological changes.

Disputes arising under the contract are to be resolved by the London Court of International Arbitration, bypassing local legal mechanisms.

Beyond procurement issues, the Auditor General’s report highlights broader management failures, including noncompliance with employment laws and insufficient staffing for people with disabilities. Gathungu revealed that “three hundred and eighty-six employees earned a net salary of less than a third of their basic salary, contrary to Section 19(3) of the Employment Act, 2007.” She also criticized the government’s failure to meet disability staffing requirements, stating that “only 2.3% of the staff are people with disabilities, far below the 5% mandated by public service policies.”