Legal and Financial Violations in the South Kordofan State Development Bids

Document date: 24/05/2008

To:  The Minister of Justice

With Reference to the above subject, I would like to convey the following findings to your Excellency:

Following your delegation to me to check and review SKS development contracts in the past period, I have checked most of these contracts that were signed by SKS.  According to the Wali of SKS, these contracts were supposed to be financing and implementation contracts which must be supported by guaranteed cheques from the contractors, according to the Wali’s perception.  The Wali directed the SKS Minister of Finance that the cost of the contracts should be covered by permanent standing orders and not by deferred cheques.  But nothing was mentioned in the contracts.  Moreover, the contracts were poorly drafted.

After reviewing, I found the following irregularities:

  1. Most of the contracts are formulated by lawyer Husham Ali Salih in Khartoum North.  Although this lawyer was delegated for six month only by the Minister of Justice to represent the Government in arbitration proceedings before the Constitutional Court, the lawyer did not show up and this constitutes a clear violation under Article 5/1 of the Ministry of Justice Regulations 1983 that stipulate, “The Minister of Justice is the government’s legal advisor.”  Consequently, the state has lost a lot.  So the lawyer, based on that delegation,   took the responsibility of the contracts under investigation.  Further, there is no legal ground to delegate the above lawyer to represent SKS in drafting these contracts.
  2. All the contracts violate Article 20-1 of the Financial and Accounting Procedures of 1977 which states that “procurement of all items, inputs and services for government institutions should be done through bidding according to the rules and regulations.”
  3. All contracts violate the Financial and Accounting Regulations of 1995 as follows:
    1.  Article 57, states that “All Government departments shall follow public bidding to procure goods or services.”
    2.  Article 58, under which even if urgent procurement of goods or services is required, still there is need for limited bidding procedure with approval of the concerned authorities. 
    3.  Article 60-B, there must be a financial fund initially approved to cover the purchasing cost of the goods and services in the contracts.
    4.  Article 60-C, there must be clear technical specifications of the contract matter.
    5.  Article 61, particularly 61-1, there must be advertisements for the goods, services, or works of contracts in the available media.
    6.  Article 61 (third) that says 2% of the total cost of the bid should be paid as initial insurance by a valid certified cheque or letter of guarantee.  Then this amount should be completed to 10% by the same procedures when the contractor is selected.
    7.  Article 61 (B, C, D, E, F, G, H, I) describes the general bidding procedures.
    8. Article 63- paragraph 2 says, “The selected contractor can be paid not more than 30% out of the bid’s total cost after the signature of the contract and the contractor should submit a valid letter of guarantee    irrevocable during the lifespan of the contract.
    9. Article 63- paragraph 3 states, “The down payment should be used to provide all the materials required and these materials should be received in the store at the project site.”
    10.  Article 63-5 says the contractor should be eligible in terms of financial ability, technical ability, qualifications and good reputation.
    11.  Article 65-1 describes the contracting format.
    12.  Article 65-1-A says the initial insurance should be completed to 10% of the bid total cost by a valid certified bank cheque or bank letter of guarantee valid during the lifespan of the contract.
    13.  Article 65-1-C states, “Upon agreement on down payment, all arrangements and procedures mentioned in Article 63 must be followed.”
    14.  Article 65-1-D that says, “Penalty clauses or compensation or confiscation must be provided for in case of failure of the contractor to fulfil his contractual obligations.”
    15.  Article 65-2 bans signing of contracts by any government institution to purchase goods or implement services or works without referring the matter to the authorized section in the Attorney General’s Chamber or its representative in the government institution for reviewing the provisions of the contract and putting it in the right legal format.
  4. All contracts state that the contractor should pay 3% from the total cost of each contract as follow-up and supervision fees, around SDG 190m (approximately US $ 1 million).  This violates  laws and regulations as follows:
    1. Supervision and follow-up fees must be paid by the works owner to the consultant committee upon monitoring the contractor works as a separate contract.  But this did not happen.
    2.  Including the fees in the contracts, paying them to the contractor and then withdrawing them upon signing, is against the law and constitutes obvious corruption.
    3.  The fees being directly paid by the contractor 30 days after signing the contract have put the supervision committee under the control of the contractor, abolishing the supervision role and affecting the public interests of the state.
    4. The supervision committee to which the fees were paid by the contractors had not yet been formed and the fees were received by third parties who did not deposit the fee money in any state government account.
    5. All the contracts provide for payment of the construction value in equal monthly instalments by deferred cheques issued against governmental accounts, more than 100 (one hundred) cheques, totalling tens of millions, approximately 56395661 SDG (fifty-six million three hundred ninety-five thousand, six hundred sixty-one) SDG, which is equivalent to more than US $26 million.  This violates Financial and Accounting Procedures 1995.  Article (60) (B) provides for money allocation to cover purchase or contract costs.
    6. Some of the deferred cheques were due, while others remained undertakings until 2010.
    7. All these contracts were signed away from state HQ.
    8. All these checks were signed and edited away from state HQ.
    9. All these checks were signed and edited in the Coordination and Follow-up Office in Khartoum.
    10. All these checks were signed by the ex-manager of the Coordination and Follow-up Office in Khartoum.
    11. Ex Minster of Finance signed the contracts on behalf of the state and the Coordination and Follow-up Office manager in Khartoum witnessed.
    12. Minister of Finance and the Director-General of the Ministry of Finance were completely been absent from all contracts procedures completed in the Coordination and Follow-up Office in Khartoum.
    13. In all contracts, there is no mention of attachments to all documents that prove the registration of those companies and their addresses as legal persons established according to law, and not sham bodies.
    14. In all contracts, there is no reference to penal clauses in the state interest.
    15. In all contracts, there are penal clauses in favour of the contractor.
    16. In all contracts, there is reference to authorization for the person who signed all the contracts on behalf of considerable persons, but there is no such kind of authorization in files.
    17. In all contracts, there is no mention of the contract documents and their legal weight, which would remove discrepancies in case of dispute.
    18. In all contracts, there is reference to attachments of tables and specifications, but there is nothing in the files.
    19. In all contracts, contractor offers are not mentioned and are not attached.
    20. Most of the companies did not start the implementation of the contracted work although some payments were due.   
    21. Some companies started endorsing or drawing these deferred cheques in their possession to others who have no relation with these contracts.
    22. When some cheques returned (RD), criminal cases were filed against the Coordination and Follow-up Office manager in Khartoum.   
    23. The Lawyer Hisham Ali Salih did not show all contracts to the Contracts and Documentation Administration in the Ministry of Justice for viewing their texts as it was his legal duty to do, not from the technical text side, but from the cost side, because the cost fall under the competence of the Contracts Administration.
    24. We observed purchasing contracts for cars as follows:-
      1. Overstatement and double-pricing compared with normal prices in the market by at least 50%.
      2. They should all have been completely received by February  2008, but that did not happen.
      3. The contracts were not directly signed with the Toyota Company agent, the Golden Arrow, something that might have added financial burden.
      4. The contracts contained financing fees amounting to 3% of the contracts price; this could be avoided if the contract had been concluded with the agent.
      5. All contracts violated the Companies Act, which provides for the importance of the registration number, attachment of a copy of the registration certificate, the company’s seat, and the business name in the contracts.
      6. Also all contracts violated the Companies Act, which provides for the importance of explaining the company purposes before contracting, to identify its competence in the contract matter.

From the above, we realized that the contracts had a lot of legal, financial and procedural irregularities, which need to be revised and to hold accountable those persons who did not care about wasting the public money without any controls and without regarding the public interest.  For that, we suggest:

  1. The formation of a Legal committee, in consultation with the Governor, to investigate these transactions, the lawyer, the persons who signed the contracts and the witnesses.
  2. Cancellation of authorization given to the lawyer Husham Ali Salih.
  3. All contract payments were due, works were not achieved, and there are no guarantees according to the Financial and Accounting Procedures.
  4. Three percent was paid in all contracts by the contractor, which constitutes obvious corruption that might cause indictment of all contracts by the State Economic Security Attorney because it affects, at least, the national economic security.
  5. Correction of contract texts and deferred cheques, because they are basically grantee cheques, and payment is connected with the contracted business achievement certificate, not with specific dates.
  6. Importance of the recruitment of a state advisor, to be contracted to follow-up the implementation of the contracts and submit periodic reports about achievements.
  7. Direct the Public Money Attorney and all other attorneys {not} to open criminal lawsuits against the South Kordofan State Coordination and Follow-up Office manager in Khartoum in regard to the deferred grantee cheques, especially ine consideration that these cheques haven’t been achieved.

That is what we see, and the opinion is what you see 

Dr. Muaz Ahmed Mohammed Tango
General Advisor, Ministry of Justice



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