Supreme Court Clarifies Specially Permitted Procurement Procedure (SPPP) and Constitutional Principles in Public Procurement

The Supreme Court of Kenya, in the recent case of Okiya Omtatah Okoiti v Portside Freight Terminals Limited & 12 Others KESC 44 (KLR), has issued a landmark judgment that significantly clarifies the nature, scope, and application of the Specially Permitted Procurement Procedure (SPPP) and its alignment with constitutional principles governing public procurement. This decision underscores the paramount importance of transparency, fairness, and competition in all public contracts.

What is the Specially Permitted Procurement Procedure (SPPP)?

The SPPP is one of thirteen procurement methods introduced through the Finance Act No. 15 of 2017, which amended the Public Procurement and Asset Disposal Act, 2015 (PPAD Act) by introducing Section 114A. It was envisioned as a “grand policy panacea” to address delays and corruption in public procurement, particularly for emergency or urgent situations.

A procuring entity may use SPPP if permitted by the National Treasury. The National Treasury’s permission is granted in situations where “exceptional requirements make it impossible, impracticable or uneconomical to comply with the Act and the Regulations”. Additionally, Regulation 107(1) allows SPPP where it is “in the public interest or interest of national security”. Public interest relates to general public benefit and prudent use of funds, while national security concerns protecting Kenya’s territorial integrity, people, rights, and vital infrastructure from threats.

How a Procuring Entity Should Go About SPPP:

Before the Cabinet Secretary for National Treasury grants approval, an accounting officer of a procuring entity must follow a four-step roadmap as per Regulation 107(2) and Section 93 of the PPAD Act:

1. Issue a written justification for using the procedure, detailing its uniqueness from other procurement methods.
2. Plan the subject procurement and include it in the approved annual procurement plan, if applicable.
3. Prepare tender documents for the subject procurement, which must include specifications, conditions of tendering, and contracting.
4. Submit the tender documents and the proposed procedure to the Cabinet Secretary for approval, detailing the justification for using the method.

Crucially, Section 93 of the PPAD Act mandates a pre-qualification procedure as a basic step prior to adopting any alternative procurement method other than open tender, especially for complex and specialized goods, works, and services. This pre-qualification process ensures fairness, transparency, and competitiveness by requiring the accounting officer to:

1. Publish an invitation notice for candidates to submit applications for pre-qualification, outlining the procurement’s nature, requirements, and eligibility criteria.
2. Have an evaluation committee assess applications.
3. Submit results and recommendations to the accounting officer for approval. Only pre-qualified applicants are then invited to tender. The word “may” in Section 93(1) is interpreted as mandatory when imposing a duty on a public body, ensuring alternative methods align with constitutional principles.

Why the Supreme Court Faulted KPA for the Procurement of Portside Freight Terminals Limited:

The Supreme Court found that KPA’s procurement process violated fundamental constitutional principles, specifically Articles 10(2)(c), 201(a), and 227(1) of the Constitution, which mandate integrity, transparency, accountability, openness, fairness, equity, competitiveness, and cost-effectiveness in public finance and procurement.

The specific reasons for the Supreme Court’s decision included:

1. Violation of Constitutional Principles: The process lacked open competition, transparency, fairness, and equity, which are fundamental requirements for public procurement under Article 227(1). The Court of Appeal had erred in holding that SPPP could release a procuring entity from these obligations, which was a “clear misapplication and misinterpretation of Article 227”.
   1. Procedural Irregularities with SPPP:
2.  Confusion over Procurement Method: Portside’s proposal was characteristic of a Public Private Partnership (PPP) project (Design, Finance, Build, Operate, Maintain, and Transfer – DFBOT) under the Public Private Partnerships Act (now Cap 430), not SPPP under the PPAD Act. The type of contract granted to Portside, allowing it to operate the facility for 33 years after designing and building, was “alien to the Act” under which it was procured.
3. Failure to Conduct Mandatory Pre-Qualification: KPA failed to conduct a pre-qualification procedure in accordance with Sections 93 to 95 of the PPAD Act, a significant omission and infraction of constitutional principles.
4. Conditional Approval Not Adequately Met: The Cabinet Secretary’s approval for SPPP was conditional, requiring KPA to review the tender document to enhance technical requirements, evaluation criteria, and contractual arrangements, and to ensure adherence to Article 227. KPA proceeded with the tender process almost immediately without clear evidence that these conditions were satisfied, rendering the conditional approval ineffective.
5. Failure to Demonstrate Exceptional Requirements: KPA did not sufficiently demonstrate how “exceptional requirements” (such as adjacent land, strategic partnership, or security concerns) made open competition impossible, impracticable, or uneconomical, especially when other firms had shown interest in the project.
6. Discrimination and Unfair Treatment: The application of SPPP was found to have unfairly favored Portside Freight Terminals Limited, disregarding other bidders whose proposals were not subjected to competitive evaluation. KPA acted against its own statute, the KPA Act, which enjoins it to ensure “no particular person or body is given any undue preference or is subjected to any undue disadvantage”.
   1. Master Plan Variation (Secondary Fault): While KPA had the power to vary its Port Master Plan without fresh public participation, the manner in which it was done to accommodate Portside’s unsolicited proposal highlighted the underlying unconstitutional procurement process.

Key Takeaways as Regards Public Procurement:

The Supreme Court’s judgment provides critical guidance for all public procuring entities:

1. Supremacy of the Constitution: All public procurement, regardless of the method chosen, must conform to the fundamental principles enshrined in the Constitution, particularly Articles 10(2)(c), 201(a), and 227(1). Upholding the Constitution is considered the greatest public interest.
   1. Article 227 is Non-Negotiable: The existence of alternative procurement methods, including SPPP, does not exempt a procuring entity from adhering to the constitutional principles of fairness, equity, transparency, competitiveness, and cost-effectiveness.
   1. Mandatory Procedural Adherence for Alternative Methods: Even when using alternative methods like SPPP, strict compliance with statutory procedures, such as the mandatory pre-qualification process under Section 93 of the PPAD Act, is essential to ensure transparency and competition.
   1. Clear Justification for Deviations: There must be a reasonable and demonstrable rationale for resorting to alternative procurement methods over the preferred open tendering, and this justification must be robust enough to ensure the decision is accountable and does not unduly restrict competition.
   1. Distinction Between Procurement Methods: Procuring entities must clearly understand and apply the correct procurement method, distinguishing between those under the PPAD Act and the Public Private Partnerships Act, as their procedures and permissible contract types differ significantly.
   1. “Preference” Does Not Mean Single Sourcing: The concept of “categories of preference” under Article 227(2) and the PPAD Act typically refers to affirmative action for specific groups (e.g., women, youth, persons with disabilities) and does not equate to single sourcing or releasing an entity from competitive requirements. SPPP does not constitute a preference scheme.
   1. Public Interest and National Security Do Not Override Constitution: While public interest and national security are valid considerations for using SPPP, they do not justify bypassing the constitutional requirements for transparent and competitive processes.
   1. Accountability and Integrity: The ultimate goal of procurement systems, as highlighted by international conventions like the United Nations Convention against Corruption (UNCAC), is to promote transparency, competition, and objective decision-making to prevent corruption and favouritism.
   1. Importance of Planning: The choice of the right procurement method, determined in advance, is paramount for the design of the entire procurement process in terms of transparency, efficiency, and competitiveness.

This judgment serves as a stern reminder that all procurement processes, irrespective of the method employed, must be meticulously executed to uphold the highest standards of constitutional fidelity and good governance.