Arbitration between Panafrica Builders & Contractors Ltd (PABCO) and Board of Trustees National Social Security Fund (NSSF)

NSSF Board of Trustees





Pan Africa Builders & Contactors Ltd herein referred to as PABCO entered into a building contract with the Fund to construct houses, apartments and shopping Centre on the Fund’s property Block No. 101 Kitisuru Estate at the value of Kshs.1,949,729,740/=. The contractual completion date scheduled as 11 May, 2000. The Fund hired Project Architects and Quantity Surveyors to act as consultants of the project.

Around 1999, the project was restructured and the scope of works scaled down to the value of Kshs.822,469,991/=. As a result of El nino rains and financial difficulties on the part of the Fund as well as other factors, the certificate of practical completion was issued on 23 August 2003 and official hand over of the site was done around February 2007.

After practical completion, PABCO rendered their final accounts to the Fund’s Consultants, but the accounts were never settled.

PABCO sued the Fund for a total of Kshs.1,333,545,013/=.

After the hearing by the Joint Arbitrators the award was made on 22 July 2010 and summarized as follows:-
  • Unpaid certificate of Kshs.6,676,035.00 and interest thereon of Kshs.317,079.00.
  • Loss and expenses for extension of time
  • Head office overheads of Kshs.6,947,139.00
  • Plant and Equipment of Kshs.34,559,605.00
  • Inflation of cost of building materials of Kshs.3,454,018.00
  • Loss of restructuring of the project
  • Unrecovered head office overheads of Kshs.1,474,479.00
  • Unrecovered site overheads of Kshs.1,752,255.00
  • Under-utilization of plant and equipment Kshs.7,319,596.00
  • Additional cost of remaining works of Kshs.39,316,900.00
  • Loss of profit of Kshs.120,891,968.00
  • Failure to honour payment certificate in time in the sum of Kshs.969,697.00
  • Handling charges for unfixed materials in the sum of Kshs.304,350.00
  • Interest on the aggregate amount of 14% per annum from 17th January 2003 initial payment in full.
On 31 August, 2010 Hon Lady Justice Koome confirmed the award and issued decree for Kshs.667,993,986.96 plus costs and interest. The said amount of Kshs.667,993,986.96 was to continue accruing interest at 14% per annum until payment in full.

Sometimes on 3 October 2010 PABCO obtained Court Warrant to attach movable property of the Fund in execution of the award . On 5 October 2010 Garam Investments Auctioneers proclaimed property belonging to the Fund by way of inventory. The Fund obtained a stay of execution and also applied to have the award set aside by the High Court.

On 27 January, 2011, Hon Justice Muga Apondi rejected the Fund’s application and confirmed the award given by the arbitrators.

Further to the award and the amount indicated above, the Fund received a Garnishee Order absolute issued by Hon. Lady Justice Martha Koome dated 6 September 2010 ordering the Fund to pay Kshs.170,000,000.00 Speedwings Mercantile Co. Ltd, a subcontractor of Pan Africa Builders and Contractors Limited . The said amount was to be paid on behalf of the contractor and it was to be deducted from the award.

At the time, the Fund had also received decree nisi orders in favour of Liteline Enterprises Limited, also a subcontractor of Pan Africa Builders. The High Court later confirmed the decree and ordered the Fund to pay the subcontractor.

The Board evaluated the chances of success in the Court of Appeal, the interest rate that was accumulating at approximately Kshs.7 million per month and decided to negotiate with Pan Africa Builders & Contractors Ltd. As at March 2011, the sum had accumulated to approximately Kshs.771209,686/=. After negotiations, the contractor accepted to be paid Kshs.590 million in full and final settlement of the claim.

The Garnishee Court Order to pay Speedwings Mercantile Company Ltd was initially confirmed at Kshs.170,000,000/= but PABCO instructed the Fund to pay Kshs.121,000,000/= as negotiated between them.

The Fund therefore, settled the claim pursuant to Court Orders which Pan Africa Builders confirmed. In settling the claim, the Fund paid Kshs.590 million down from the claimed sum Kshs.1.3 billion as claimed before the arbitrators.

The Board, in negotiating the matters out of court, have substantially reduced the contingent liabilities which are a burden to the members in the long term and also obtained cost savings.

We reiterate that the reforms embarked on since 2004 are still on course.

The Transformation Bill was published in 2005 and 2007. However, on both occasions, Parliament was dissolved and the Bill lapsed. It is now revamped in line with the New Constitution and seeks to enhance governance structures in the management of workers’ funds.

The process is ongoing and the Board held the Stakeholders’ Forum to discuss the Bill on 8 March, 2012 and it will now be presented to the Parliamentary Committee on Social Security and Welfare.

Indeed, as part of compliance with the RBA Investments guidelines and in a bid to invest prudently, the Fund commenced the process of recruiting Fund Managers and Custodians in 2008. The Manager/Custodians are now in place.

The Fund is currently paying a return of 7.5% on member accounts and will continue improving the rate of return on its investments for the benefit of members.

3 April, 2012

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