Part 2: Multimillion naira contract inflation scandal rocks Kwara tractorisation exercise 

*Contract contravenes Kwara State Procurement Law
*VAT waiver illegally granted to contractor – investigation

By Abdulrasheed Akogun (Ilorin) and Godwin Irue (Abuja)

A memorandum of understanding (MoU) prepared in June 2020, entered into by the Kwara state government and MECA, partly reads;

“That the required cost of hiring the tractor per day is #35,000.00. That the green pilot (operator) shall be paid #5,000 per day fee in advance for the numbers of days sought to MECA, who shall pay same to the operator.

“Kwara State shall provide the operators with feeding and accommodation for the duration of the hire. That the total contract sum is forty-eight million, six hundred thousand naira (#48,600,000) only which covers tractor hire fees, operators fee, conveyance logistics and refundable caution deposit.

“The Kwara State shall pay MECA the total sum of forty-five million, one hundred and Nine-Eight thousand naira only (45,198,000.0) in full, after charging of 9% taxes and deductions on the tractor hire fees, operators fees, conveyance logistics and refundable caution deposit… “That Kwara State government shall service the tractors every seven working days before being taken out of base.

“That Kwara State government shall undertake repairs on tractors under hire below the cost of #10,000.00 upon approval by MECA officials and repairs carries out by MECA approved mechanics… ” That the Kwara State government shall renew the hire contract with MECA at least 7 days before the expiration of the contract.

“That the tractors shall work for a maximum of eight (8) hours per day within the period of 8am to 5pm and the tractor shall be allowed an idle time of one hour within the working hours per day.

“That for as long as the tractor has no major issue in which MECA has not repaired, the Kwara state government shall be responsible for the rental per day of any tractor under hire whether the tractor is in use or not.

…”That this agreement shall commence on the effective date hereof and shall endure for a period of not more than 45 days (in one year planting season 2020), with an option of two (2) seasons (2021 & 2022) extension based on satisfactory performance”, it concluded

From this MoU, it is glaring that all waivers including exemption from VAT, tenders fee, contracting vetting fee among others sought by MECA was granted and thus the tax payable reduced from 16.5% to 9%.

Fresh Insight findings however, showed that according to extant laws, the Nigeria VAT is governed by Value Added Tax Act Cap V1, LFN 2004 (as amended).
Chapter VI, Part 1, item 7 of the VAT laws which deals with administration of VAT states;

“The tax shall be administered and managed by the Federal Board of Inland Revenue (in this Act
referred to as “ the Board”).

“Under the Nigerian VAT regime, three groups of taxpayers are obligated to deduct VAT at source and remit directly to the tax authority, which includes:

a. Nigerian companies that are carrying on VATable transactions with non-resident companies within the country;

b. Government ministries, statutory bodies and other agencies of government; and

c. Companies operating in the oil and gas sector”

Taxes are compulsory levies, which makes it a must paid on transactions, including contracts, it must be noted that VAT is not collected by the state government, so granting waivers on that is beyond it’s power. Also, withholding and retention fees cannot be waived, as they are all ingredients of a good transparent contract agreement.

The aforestated implies Kwara state government lacks the power to exempt MECA from paying VAT, which is a federal tax and ought to have deducted it (7.5% VAT) at the point of paying MECA, and thus erred by exempting MECA from VAT payment, a waiver which can only be granted by the federal government or its duly assigned agents.

Accordingly, section 62 (1),(2a), (2b) and (3) of the Kwara state Procurement Law of 2018, as assented to on August 20th, 2018, clearly states;

“Advance payment of 30% may be paid to a supplier or contractor provided that advance payment above 30% may be paid where supplier or contractor submits a written request justifying the need for such payment advance above 30% shall be guided by regulations prescribed.

Section 62 (2) reads, “Advancement payment is subject to the following (a) In the case of national competitive bidding, an unconditional bank guarantee or insurance bond is issued by a reputable bank or institution acceptable to the board (b) In the case of international competitive bidding, an unconditional bank guarantee or insurance bond issued by a reputable bank or institution acceptable to the board.

Section 62 (3) reads, “After advance payment has been made to a contractor or supplier, no further payment shall be made to supplier or contractor without an interim performance certificate issued in accordance with the contract agreement.

According to the MoU signed with Traxi however, which partly reads “That the required cost of hiring the tractors per day is #35,000… “That the operator shall be paid #5,000 per day fee in advance for the numbers of days sought.

“That the lessee (KWSG) shall pay the lessor (Traxi) the total sum of forty-four million, three hundred and twenty five thousand naira only (#44,325,000.00) inclusive of 16.5% taxes and deductions being cost of leasing and transporting of 26 units of tractors to Ilorin.

“The the lessor (Traxi) shall be paid 75% of the total contract sum as mobilisation fee in the sum of thirty-three million, two hundred and forty-three thousand, seven hundred and fifty naira (#33,243,750.00) only (inclusive of 16.5% taxes and deductions).

“That a second tranche of 20% of the total contract sum #8,865,000 inclusive of 16.5% taxes and deductions shall be paid on the 30th day of satisfactory performance of the tractors.

“That the balance of 5% of the total contract sum being #2,216,250.00 (inclusive of 16.5% taxes and deductions shall be paid after 45th day of satisfactory performance of the tractors…” Among others as highlighted in MECA’s MoU

Fresh Insight investigation showed, that as against operator fee of #4,000 proposed by the Kwara state government through the Ministry of Agriculture and contained in the letter of provisional award of contract to Traxi, whose conditions and terms were accepted in its entirety by Traxi as seen in its acceptance letter, they were paid #5,000 as operation fee, leaving a clear unexplained #1,000 increment as contained in the MoU, which was different from the offer and acceptance letter by both contracting parties.

It would also be deduced from this MoU, that as against stipulated 30% payment prescribed by the Kwara state procurement Law of 2018, a whopping 75% was paid as mobilisation fee in clear contravention and violation of the procurement law.

It is glaring that from the separate MoUs with MECA and Traxi, the price variance showed an infringement concern of the same items for different prices of the same standard.

Further investigation by Fresh Insight, showed that abinitio the contract awarded to MECA and Traxi was unknown to the extant procurement laws of Kwara state, as it never followed due process as prescribed by the law.

According to section 31 (3) of the Kwara state 2018 procurement Law which reads, “No negotiations unless otherwise provided for by this law shall be conducted with the suppliers, contractors…”, this provision was negated according to the acceptance letter written by MECA which confirms that all the conditions included in the provisional offer letter was against earlier negotiations entered into by both parties.

In the same vein, according to section 32 (3) of the procurement Law, “In the case of goods, works and services valued under National competitive bidding, the invitation for bids shall be advertised on the notice board of the procuring entity and the state procurement journal and at least one national newspaper not less than 6 weeks before the deadline of the invitation bid”.

The Kwara state government tractorization project clearly violated the provision of section 32 (3) of the State Procurement Law, as there was no advertisement on a national newspaper inviting interested members of the public to participate in the bidding process.

Corroborating the section above, Section 46 reads, “Where a procuring entity wishes to procure services for its needs which are precise and ascertainable: (a) It shall solicit for expression of interest or applications to pre-qualify to provide services by publishing a notice to that effect in at least two (2) national newspapers and procurement journals”.

These two (2) provisions of the Kwara state 2018 procurement Law, shows that the lease of tractors contract awarded to MECA and Traxi contravenes the extant laws of Kwara state.

To be continued….