Pages

Archives

Meta


« | Main | »

Supply Contracts Scrutinized

By Daniel Akech | February 12, 2014

 Since 2006, various wings of the government in South Sudan have been offering government contracts to local companies and foreign companies.

The basic prerequisites to win a supply contract include possessing a legal registration license under South Sudan company acts and the bank account of the supplier must have a minimum balance of 50, 000 SSP. These prerequisites are nominal as the decision for awarding a contract depends on other less known factors. The winner of an army’s contract has four groups to deal with:

  1. The target department (a sector of the army operation for instance), which needs to be supplied with food, fuel, or uniform sets
  2. The procurement, which advertises the needs of the target department and forms a committee including a member from the target department to decide on the awarding of the contract
  3. The army’s finance, which processes the payment and hands it over to the ministry of finance
  4. The ministry of finance, which pays out the money once the contract has been executed

The positive asset of offering a government contract to a local citizen is to empower her by creating a job for her and others she may employ. Noble as it appears on the first sight, this practice of awarding contracts has resulted in a massive looting of our resources by a tiny fraction of the society. We characterize the main features of the failure of this policy.

Inhibiting the capacity of the local contract winner to deliver includes:

  1. The lack of start-up money, which oftentimes is not objectively assessed prior to awarding of the contract
  2. Various manipulative actions (chiefly bribing) undertaken
  3. A fear of never getting paid within a reasonable time interval

A number of contracts have been offered on a nepotism basis or through bribery such as a promise to offer a certain percentage to those responsible for awarding contracts. Ten percent has usually been the benchmark when it comes to offering a ‘kick-back’ after winning a contract and those contract winners who had failed to respect this ‘norm’ have been labeled ‘lone eaters’ and their probability of getting another contract severely affected.

The common maneuver around the lack of start-up money has been to find someone else with cash to fund for the delivery of the contract. Well aware of the total lack of funding on the contract winner’s part, potential financiers charge exorbitant interests, for instance, most financiers charge between 10% to 30% return on a loan.

After securing such fund, the contract winner may go ahead and deliver. But she may have to wait for a while to get paid because there is usually a delay at the finance ministry in getting paid for contract delivered. This delay is often unlocked through bribing some ‘brokers’ associated with the finance ministry to speed up the processing of one’s payment. But then if the actual delivery has been done, then the payments that the original contract winner have to perform in order to get her money makes the delivery of goods to government sectors looks like a non-profitable activity, and as such no rational agent will continue playing by these rules and expect to gain.

The actual payoff received by the contract winner is affected by the duration of the payment (a long delay in getting paid means no gain) as well as the costs incurred from the various manipulative actions (bribing), which have been taken during the course of getting the contract, delivering it, and dealing with the finance ministry. The cost of a number of the manipulative actions available to the contract winner can be calculated as follows. Suppose the value of the contract is 2, 000, 000 SSP. Let’s suppose that one half of that is spent on buying goods and delivering them so that 1,000,000 SSP is the profit. Now this profit is shared over various other manipulative costs. The procurement brokers demand around 10% or 200,000 SSP of the original contract value as a kick-back. The local finance brokers demand 5%  or 100,000 SSP and the ministry of finance brokers demand around 5% or 100,000 SSP. The financier also needs a return on his money and that could be around 200,000 SSP. Thus if the contract winner delivers the supply honestly, she may end up with a profit of up to a maximum of 500,000 SSP. Under this process, the original contract winner fails to benefit much. But all is not lost as some seeks an alternative path for incrementing one’s contract value.  To maximize their contract values, a number of local contract winners have discovered another path to strike it rich fast: don’t deliver or deliver just a little something through bring the target department.

Soon one won a contract to deliver fuel or food to a battalion, all one has to do is to contact the battalion commander and negotiate the terms of delivery with him. It matters who one bribes! What one asks the battalion commander to do is to agree to sign a paper that says ‘goods have been delivered.’ He will then ask for a certain percentage of the contract value to be given him in order for him to do that. Then the contract winner will go to the border and bribe the important people there to write a document that says ‘goods have passed here in Nimule.’ Then now one has to bribe at the finance ministry to speed up the process of getting one’s payment to be tabled in the priority list.

Consequently, had the contract value been 2 million South Sudanese pounds, then one may lose half of that in bribery but keeps half. Then the same contract winner will now continue to do that and perhaps sometimes she has to deliver a little something perhaps a fifth of the total contract to avoid putting her collaborators into a problem. The infamous grain saga took place in the manner just narrated but this particular instance deserves treating in a separate note.

However, since there is very minimal that is done in order to deliver [as there is no delivery at all or there is just a little of that], the contract winner does not create a job for anyone and most of them do not even have offices. One of such people in this business was often overheard as referring to himself as a jobless millionaire, which clearly shows that a few could get rich using our public resources and refuse to create jobs for others even when such an option is available to them. A few have invested their money gotten through government contracts on buying expensive cars for showing off and engaging in exploiting our nation’s young school girls.

Besides the obvious failures narrated above, there are other critical issues that this heinous process has generated: if the contractor fails to timely deliver fuel or food to the armed forces [and they often do], the resultant logistical shortcomings can hamper the army’s performance and this can threaten our national security. The fear of fuel or food shortage can deal a serious blow to the army’s morale since this morale depends on the material conditions of the soldiers.

An army institution that pays its regular soldiers roughly five USA dollars per day cannot afford to throw money away in the name of empowering citizens who themselves are incapable of creating jobs.

How much does the army pay to a local supplier who has delivered a sack of maize flour to an army’s base? How much does it cost a supplier to buy this at Konyo-Konyo (in Juba) market? The following table answers  such questions.

Item Description

Quantity

The price Bilpam pays to a supplier

Cost (SSP) in Konyo-Konyo

Maize flour

50 kgs

284 SSP

135 SSP

Sugar

50 kgs

479 SSP

220 SSP

Rice

50 kgs

500 SSP

188 SSP

Cooking oil

20 ltrs

228 SSP

112 SSP

Beans

50 kgs

360 SSP

175 SSP

Lentils

25 kgs

583 SSP

132 SSP

Fuel

1 liter

9 SSP

6 SSP

The difference is staggeringly high! Even a contract winner who buys his goods from retailers [forget supermarkets] will still make 45% gain off every South Sudanese pound spent. So if a contract winner buys her goods in Kenya or Uganda in a supermarket, then she can even make a higher profit.  It does not cost that much to transport goods from Konyo-Konyo to Bilpam as the cost for transporting a 50 kgs bag of maize flour from Konyo-Konyo to Bilpam includes 4SSP for loading and uploading and 12 SSP for transportation.

The blanket shouts of corruptions oft-intended to generally portray those in the government in negative lights while those outside of the government with clean hands and clean hearts have been nothing less than exercises in futility. In order to avoid repeating all the previous mistakes associated with the awarding of contracts, there is a need for the government organs that offer contracts to citizens to seek out information on their performances and use that information to learn how to better deliver such services. The government officials ought to see such mistakes as an opportunity to learn what went wrong and how to do better going forward.

The idea of empowering local citizens through involving them in government’s contracts is noble but there has to be a better way of implementing it than it has been handled in the recent past years. Before South Sudan’s independence, as a result of heavy dependence on Khartoum, the government lived on a paycheck to paycheck and it could not afford to pay anything on time. The policy of giving government contracts to capable companies to be paid later once the government is in a better position financially might have been informed by the government total reliance on a paycheck from oil revenues, which were almost always delayed. If the government is able financially, it is recommended that a payment of 50% in advance be given to a contract winner to start the contract. Then 20% of payment done in the middle while the remaining paid after the contract is delivered. A stringent follow-up and performance evaluation is a must. Failure to perform can be punished by legal means and denial of future contracts.

 

 

Topics: Uncategorized | 1 Comment »

One Response to “Supply Contracts Scrutinized”

  1. Office Furniture Says:
    February 12th, 2014 at 2:34 pm

    Thanks for your great post. You are really did an excellent post. This 1st visit but I think this the blog which are I try to find. Please, keep posting.

Comments