1. The plaintiff instituted this suit vide a plaint dated 24th November 2021 and amended on 23rd January 2021 against the defendant, seeking Judgment against if for special damages amounting to Kshs.12,746,582.20 being the value of the performance bond, Kshs.20,394,531.49 for loss of business opportunity, Kshs.2,022,558.45 as bank guarantee payments and interest, and Kshs.3,823,974.65 being the operating and administrative expenditure incurred. The plaintiff also seeks Judgment for Kshs.24,218,506.14 as loss of profits, Kshs.137,576,320.00 for expenditure on unused plant and equipment, and Kshs.31,900,000/= for payment of unused labour. The plaintiff also prays for general damages for breach of contract, costs of the suit and interest on all the foregoing claims at Court rates.
2. The plaintiff’s case is that it lawfully participated in Tender No. WP Item No. D117/RV/NKU/1902 for proposed piling and substructure works at the Naivasha Industrial Park. That subsequently, the plaintiff’s Tender amongst others was evaluated and the plaintiff was declared the successful bidder, and was awarded the Tender at a contract price of Kshs.254,931,643.58 through a Notification dated 26th January 2021, which it accepted on 1st February 2021. The plaintiff stated that upon expiry of the statutory review period, it secured and furnished a performance bond valued at Kshs.12,746,582.20, and received a formal contract which it duly executed and returned to the defendant for counter-execution. The plaintiff contended that the defendant without any justifiable reason failed to execute the contract within its validity period and subsequently unlawfully assigned the same works to another company, Vaghjivani Enterprises Ltd, contrary to the Public Procurement and Asset Disposal Act and its Regulations.
3. The plaintiff averred that as a result of the foregoing, it pursued administrative and judicial review remedies, which culminated in the High Court quashing the decision of the Public Procurement Administrative Review Board on grounds of legitimate expectation and misapplication of procurement law. The plaintiff asserted that the defendant’s conduct amounts to breach of contract, resulting in its inability to discharge the performance bond and causing it extensive financial loss, including loss of business opportunity, loss of profits, administrative and operational expenditure, bank guarantee payments, and expenditure on labour, plant, and equipment. It further averred that despite persistent requests and issuance of a demand and notice of intention to sue, the defendant has refused or failed to execute the contract, thereby necessitating this suit.
4. In opposition to the suit, the defendant filed a statement of defence dated 8th February 2023 where it denied all the averments in the plaintiff’s amended plaint. The defendant averred that the process leading to the Tender advertisement and award was subject to the Instructions to Tenderers. It specifically denied liability concerning the performance bond referred to in paragraph 8, stating that it was not the holder of the bond and that the bond lapsed upon expiry. It asserted that any failure by the plaintiff to secure discharge of the same, cannot be attributed to the defendant.
5. The defendant asserted that the Tender awarded to the plaintiff was lawfully cancelled following advice from the State Department for Industrialization that a single contractor should undertake both the piling and building works to ensure structural integrity and manage limited resources. It added that the said cancellation was also followed by a directive by the National Development Implementation Committee to vary an existing contract with Vaghjivani Enterprises Limited to include the piling works previously awarded to the plaintiff, in order to reduce project costs.
6. The defendant emphasized that such cancellation was permitted under the Instructions to Tenderers. It maintained that the Public Procurement Administrative Review Board correctly recognized that the Tender was no longer in existence and could not compel the signing of a contract. The defendant further contended that plaintiff ignored the Tender’s invalidity and improperly pursued multiple applications, including one later withdrawn after submissions had been filed. The defendant maintained that no contract was ever executed between the parties herein and therefore no contractual obligations arose. Further, that since no contract existed and no site was handed over, the plaintiff was not authorized to commit any resources and could not have incurred the alleged losses.
7. This matter proceeded to hearing where the plaintiff called one witness in support of its case, and the defendant also called one witness to ventilate its case.
PLAINTIFF’S CASE.
8. Mr. Lejia Chen, the plaintiff’s Managing Director testified as PW1. He adopted his witness statements dated 24th November 2021 & 23rd January 2023 as his evidence in chief. He produced the documents in the plaintiff’s list and bundle of documents dated 24th November 2021 and further bundle of documents dated 23rd January 2023 as plaintiff’s exhibits No. 1 to 14, and disregarded the Expert Report. Mr. Chen confirmed the plaintiff’s participation in Tender No. D117/RV/NKU/1902 for piling and substructure works at the Naivasha Industrial Park. He testified that the plaintiff was evaluated, declared the successful bidder, and awarded the subject Tender at a contract price of Kshs.254,931,643.58 through a Notification dated 26th January 2021, which the plaintiff accepted on 1st February 2021. He contended that no request for review was filed within the statutory period, rendering the Award final.
9. PW1 stated that the plaintiff thereafter secured a performance bond of Kshs.12,746,582.20 from ABC bank and submitted it to the defendant. He further stated that the defendant issued the contract, which the plaintiff executed and returned for counter-execution, but the defendant failed to sign it without justification. Mr. Chen explained the plaintiff’s administrative challenge before the Public Procurement Administrative Review Board, which struck out the request for review and the subsequent Judicial Review application in which the High Court quashed the Board’s decision on grounds of legitimate expectation and improper application of procurement law. He stated that through the aforesaid proceedings, the plaintiff came to learn that the defendant had unlawfully allocated the Tendered Works to Vaghjivani Enterprises Limited without adhering to the requisite procurement procedures.
10. PW1 stated that the said action caused the plaintiff significant loss and damage, including the inability to obtain discharge of the performance bond, loss of business opportunity and profits, and various expenditure committed in preparation of the project. Mr. Chen explained that the plaintiff incurred substantial costs during the Tender process, including providing the performance bond, conducting technical research, and mobilizing equipment such as a crane with a trailer for transporting pillars, an excavator, a loading machine, a drilling machine, two pick-ups, a concrete mix plant, and a welding machine. He added that the plaintiff also booked twenty (20) rooms for workers, engaged five (5) Engineers for specialized works, entered into contracts with them, and later compensated them. He stated that as a result, the plaintiff assumed considerable financial risk, provided bank security for the performance bond, which in turn affected its other Tenders.
11. During cross-examination, PW1 acknowledged that the only document provided by the defendant was a Notification of Award, not a formal contract. He stated that the finality of a Notification of Award is contingent upon the bidder’s capacity to perform. He further confirmed his awareness of Section 87(4) of the Public Procurement and Asset Disposal Act and maintained that the plaintiff complied with the requirements relating to the performance bond, which led to the bank charging the plaintiff’s property. He conceded that he did not produce any documentary evidence to support this claim. PW1 affirmed that the performance bond was valid for 365 days. He explained that the plaintiff is claiming interest because the performance bond attracted interest charges and the bank continued to hold the plaintiff’s security, thereby diminishing its cash flow and financial capacity to undertake business.
12. PW1 testified that despite repeated assurances from the defendant’s Director General that the contract would be signed, this never materialized, prompting the plaintiff to escalate the matter to the Public Procurement Review Board and subsequently to the High Court, but by that time, the Tender had already been awarded to another contractor. PW1 confirmed having received the letter dated 7th June 2021, but asserted that it was issued after the Tender validity period had lapsed and not within the prescribed 120 days. He added that once a contract is signed, work is expected to commence within fourteen (14) days. He stated that although the plaintiff had not undertaken work at the site, it had carried out substantial preparatory activities. PW1 testified that as a result of the plaintiff committing itself to the project by signing the letter of acceptance, the bank withheld its security, preventing it from taking up other projects for at least six (6) months.
13. Mr. Chen explained that the claim for Kshs.2,022,558.45 relates to the security held by the bank, while Kshs.3,823,974.65 represents operational and administrative expenses incurred following the Notification of Award, including costs associated with proceedings before the Public Procurement Administrative Review Board and the High Court. He stated that although the plaintiff undertakes other projects and employs other staff, it was also claiming general office and utility expenses. He stated that the claim of Kshs.137,576,320.00 pertains to expenditure on unused plant and equipment. PW1 confirmed that in anticipation of the contract, the plaintiff begun preparing specialized equipment, engaging experts, and booking equipment even before any contract was signed.
14. In re-examination, PW1 reiterated that the defendant did not sign the contract within thirty (30) days of the plaintiff issuing the letter of acceptance of the Tender Award. He emphasized that during that thirty-day period, the plaintiff was not notified of any cancellation of the Notification of Award.
DEFENDANT’S CASE.
15. Mr. Fredrick Otieno Okumu, the defendant’s Manager Supply Chain, testified as DW1. He adopted his witness statement dated 4th May 2024 as his evidence in chief and produced the documents in the defendant’s list and bundle of documents dated 21st March 2023 as defence exhibits No. 1-4. He made reference to paragraphs 5, 6 and 7 of his witness statement and explained that the Tender was cancelled due to inadequate budgetary allocation. He stated that although the Tender in question related to piling works, there was an earlier Tender awarded to Vaghjivani Enterprises Limited for the construction of an administrative block. According to him, the contractor on site discovered soil-related issues, making it impossible to proceed with construction until piling was completed. He stated that a decision was made to cancel the subject Tender so that the piling works could be incorporated into the first Tender, with the scope of the original works being reduced accordingly.
16. Mr. Okumu testified that a letter dated 26th April 2021 from the State Department for Industrialization recommended varying the original contract for the construction of the administration block. He stated that a subsequent letter dated 14th July 2021 from the State Department of Public Works recommended retaining the contractor already on site and carrying out direct procurement for the piling works.
17. DW1 emphasized that direct procurement is lawful and stated that consolidating the two Tenders resulted in savings. He added that the said State Department also observed that having one contractor on site would minimize complications. He maintained that the letter dated 7th June 2021 aligned with the letters of 26th April 2021 and 14th July 2021. He confirmed that the defendant received a copy of the performance bond, which was valid for 365 days and stated that upon its expiry, the defendant bore no liability.
18. He noted that after receiving the letter dated 7th June 2021, the plaintiff never wrote to the defendant seeking discharge from the bond. He denied the claim for loss of business opportunity, stating that the defendant had not instructed Tenderers to refrain from undertaking other business. Mr. Okumu contended that there was no formal site hand over and no meeting to determine the duration of mobilizing equipment and labour. He disputed the claim for loss of profits and asserted that the alleged cost of Kshs.137,576,320.00 was not incurred, as no plant or equipment had been mobilized to the site. He argued that since no site hand over occurred and no contract existed, the plaintiff could not have legitimately incurred Kshs.31,900,000/= in unused labour costs.
19. He further stated that the claim for Kshs.3,823,974.65 for operating and administrative expenses could only arise if a contract had been executed and the plaintiff had moved to a site office, which was not done. Referring to Clause 6.2 on page 18 of the defendant’s bundle of documents, he stated that it reserved the employer’s right to accept or reject any Tender and to cancel the tendering process at any time before the Award of a Contract. He explained that a Notification of Award is merely an intention to award a contract and not a contract itself, issued under Section 87(4) of the Public Procurement and Asset Disposal Act, and does not authorize commencement of site activities.
20. During cross-examination, DW1 confirmed that under Section 53 of the Public Procurement and Asset Disposal Act, the defendant was required to prepare a procurement budget. He stated that the Tender for construction of the administration block and boundary wall had been awarded around 2020, but he could not confirm whether that contract and the Tender in issue were intended to be implemented in the same financial year. He testified that the defendant prepared its procurement budget and submitted it to the State Department of Public Works prior to advertising the subject Tender. Although he claimed that budget approvals had been given, he acknowledged that he did not have any documents to prove this.
21. DW1 stated that there was correspondence dated 26th April 2021 addressed to the State Department of Public Works and that several consultative meetings had been conducted. He conceded that he was not aware of the exact date when the meeting that led to the cancellation of the Tender was held, and could only rely on the letter of 26th April 2021. DW1 testified that the defendant communicated the cancellation of the Tender to the plaintiff on 7th June 2021, approximately one and a half months after the letter of 26th April 2021. Referring to Section 63(1) of the Public Procurement and Asset Disposal Act, which permits cancellation of a Tender at any time before Notification of Award, he explained that their letter dated 26th January 2021 was merely an intention to issue a Notification of Award, although it was titled "Notification of Award." He pointed out that paragraph 1 of that letter indicated that the Award was subject to there being no appeal, and none had been filed.
22. He stated that a formal letter of Notification of Award was to be issued to the plaintiff together with the contract documents, and that such notification letters are sent to all bidders. DW1 confirmed that the Tender validity period was 120 days from the date of submission being 30th November 2020 and conceded that the cancellation letter was issued after the expiry of the Tender validity period. Nonetheless, he maintained that the defendant was awaiting official communication from the Ministry and denied that the cancellation was unprocedural. He insisted that the plaintiff could not have had any legitimate expectation of executing the contract before signing it.
23. In re-examination, DW1 reiterated that a Notification of Award does not amount to a contract. He asserted that since there was no contract, any claim made on expenses incurred by the plaintiff are false.
24. On being examined by the Court, DW1 clarified that a Letter of Award is issued only to the successful bidder and it is accompanied by contract documents, and before that stage, a letter of notification of intention to award is issued pursuant to Section 87(1) of the Public Procurement and Asset Disposal Act. He explained that Section 135 of the said Act governs the issuance of an Award. He also stated that Standard Tender Documents contain a template for a notification of intention to award, which is sent to all bidders. In regard to the letter dated 26th January 2021, he noted that it is headed “Notification of Award,” and its last paragraph states that in view of the Award, the bidder is required to acknowledge acceptance within seven (7) days from the date of the letter.
25. At the close of the defendant’s case, the Court directed parties to file written submissions. The plaintiff’s submissions were filed on 26th February 2025 by the law firm of Jamal Bake & Associates Advocates, while the defendant’s submissions were filed by the Hon. Attorney General on 1st April 2025.
26. Mr. Bake, learned Counsel for the plaintiff submitted that the defendant unlawfully cancelled the subject Tender after issuing a Notification of Award on 26th January 2021, despite the plaintiff having complied with all conditions set out therein, including forwarding the executed contract on 26th February 2021. He stated that the defendant only communicated the alleged budgetary constraints on 7th June 2021, nearly four (4) months later, during which period the plaintiff had mobilized significant resources in preparation of the project commencement. Counsel argued that although the Tender document reserved to the defendant a right to cancel the Tender, that provision is subordinate to Section 63 of the Public Procurement and Asset Disposal Act (PPADA), which strictly permits cancellation only before Notification of Award and sets out mandatory procedures for reporting and notifying bidders.
27. He relied on the cases of Wilfak Engineering Limited v Kenya Ports Authority [2020] KEHC 3283 (KLR) and Republic v Principal Secretary Ministry of Mining Ex-parte Airbus Helicopters Southern Africa (PTY) Ltd [2017] KEHC 8337 (KLR), and asserted that the cancellation of the subject Tender was in blatant violation of Statute. Mr. Bake pointed out to the testimony of DW1, who admitted that the defendant advertised the Tender before securing an approved procurement budget contrary to Section 53 of the PPADA, an issue previously identified by the High Court in JR No. E094 of 2021, where the defendant’s conduct was found to be inconsistent with the Act. Counsel asserted that the Notification of Award created a legitimate expectation that contract documents would be issued within 14 days and the contract executed within the Tender validity period, which expectation the defendant frustrated without justification.
28. Mr. Bake submitted that the defendant, being a public entity bound to uphold the rule of law, acted illegally and unprocedurally in cancelling the Tender and should be held liable for the losses occasioned. He cited the cases of Adan v Farah & 3 others [2021] KEHC 107 (KLR), Republic v County Government of Lamu & 2 others Ex parte Superserve Limited [2021] KEHC 825 (KLR), and asserted that the plaintiff is entitled to the reliefs being sought in the amended plaint.
29. Ms Kanini, learned Counsel for the defendant submitted that the Notification of Award issued to the plaintiff on 26th January 2021 neither concluded the procurement process nor did it create a binding contract. She relied on the provisions of Sections 87(4) & 135(4) of the PPADA and stated that a Notification of Award does not constitute a contract and that no binding Agreement arises until a written contract is signed by both parties. She argued that since there was no contract between the parties herein, the Tender process had not reached the contractual stage, thus no enforceable rights or obligations as against the defendant had crystallized. She maintained that the Tender document applicable to all bidders expressly reserved the employer’s right to reject any Tender or cancel the procurement process at any time prior to the Award of the Contract.
30. Counsel cited the case of Republic v Kenya Ports Authority; Ethics & Anti-Corruption Commission (Interested Party) Ex parte Feradon Associate Limited [2020] KEHC 6674 (KLR), and stated that since no contract had been formed, the defendant’s decision to cancel the Tender on account of budgetary constraints was within the parameters of both the Tender document and the PPADA.
31. Ms Kanini referred to the Court of Appeal case of Capital Fish Kenya Limited v The Kenya Power & Lighting Company Limited [2016] KECA 56 (KLR), and submitted that the plaintiff had failed to strictly prove special damages as required by law. She argued that although the plaintiff pleaded losses relating to performance bonds, mobilized equipment, labour, administrative expenses and loss of business opportunity, none of the said claims were backed by credible evidence. She submitted that the plaintiff cannot claim reimbursement for costs allegedly incurred without authorization, since the project site had not been handed to over, and no contract existed permitting mobilization.
32. Counsel maintained that the plaintiff’s claim is untenable as the Tender validity period lapsed on 31st March 2021 before any contract could be signed. Further, that since the plaintiff conceded awareness of Sections 87(4) and 135(4) the PPADA, it makes it clear that a Notification of Award neither forms a contract nor alters the Tender validity period. Ms Kanini relied on the Supreme Court case of Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others [2014] KESC 53 (KLR), and argued that expecting a contract to be signed after expiry of the validity period, or after notification of budgetary constraints, contravenes Article 227 of the Constitution and the principles of transparency, competitiveness, and cost-effectiveness governing public procurement. She submitted that reliance and the alleged mobilization costs was unreasonable and unsupported.
ANALYSIS AND DETERMINATION.
33. I have considered and analyzed the evidence adduced in line with the pleadings filed, as well as with the written submissions by Counsel for the parties. The issues that arise for determination are –
i) Whether a binding contract existed between the parties herein;
ii) Whether the cancellation of the Tender was lawful;
iii) Whether the plaintiff had a legitimate expectation; and
iv) Whether the plaintiff is entitled to the reliefs being sought.
Whether a binding contract existed between the parties herein.
34. The plaintiff contended that a binding contract arose upon issuance of the Notification of Award dated 26th January 2021, which it accepted on 1st February 2021. The plaintiff stated that in addition to accepting the Notification of Award, it executed the contract documents and returned them to the defendant for counter-execution, but the defendant failed to execute the contract. It contended that failure to sign the contract within thirty (30) days, coupled with its subsequent allocation of the works to another contractor, constituted a breach of contract.
35. The defendant on the other hand stated that the letter dated 26th January 2021 was merely a notification of intention to award, despite its title. It emphasized that a formal contract can only arise once executed by both parties in accordance with Section 135(4) of the Public Procurement and Asset Disposal Act. The defendant asserted that no enforceable contract was ever formed between the parties herein and no contractual obligations arose.
36. A Notification of Award is provided for under Section 87 of the PPADA which states that –
1) Before the expiry of the period during which Tenders must remain valid, the accounting officer of the procuring entity shall notify in writing the person submitting the successful Tender that his Tender has been accepted.
2) The successful bidder shall signify in writing the acceptance of the award within the time frame specified in the Notification of Award.
3) When a person submitting the successful Tender is notified under subsection (1), the accounting officer of the procuring entity shall also notify in writing all other persons submitting Tenders that their Tenders were not successful, disclosing the successful Tenderer as appropriate and reasons thereof.
4) For greater certainty, a notification under subsection (1) does not form a contract nor reduce the validity period for a Tender or Tender security. (Emphasis added).
37. From the above provisions, it is clear that pursuant to the provisions of Section 87(4) of the PPADA, a Notification of Award does not form a contract. In addition, Section 135(4) of the PPADA which is couched in mandatory terms provides that a procurement contract must be in writing and signed by both parties. In view of the above, and the plaintiff’s admission that the defendant never executed any contract, this Court is satisfied that no binding contract ever came into existence between the parties herein. Consequently, no contractual obligations capable of enforcement, performance, or even implication can arise as between the parties herein.
38. In the circumstances, this Court finds that the plaintiff’s claim for breach of contract automatically fails.
Whether the cancellation of the Tender was lawful.
39. The plaintiff’s position is that the cancellation letter dated 7th June 2021 was unlawful as it was issued after the lapse of the Tender validity period of 120 days, which begun on 30th November 2020. According to the plaintiff, the earlier communication constituted a Notification of Award and therefore the subsequent cancellation contravened Section 63 of the PPADA. The plaintiff further asserted that although the defendant cited budgetary constraints as the basis for the cancellation, it failed to provide evidence of such constraints or of the alleged meetings, rendering the decision abrupt, procedurally flawed and unfair.
40. The defendant maintained that the cancellation was justified on the grounds of budgetary constraints and concerns regarding structural integrity. It explained that the decision was reached following directions from the State Department for Industrialization and the State Department for Public Works. The defendant relied on Clause 6.2 of the Tender document, which granted discretion to cancel the Tender process at any stage prior to execution of the contract. It further argued that the letter of 26th January 2021 constituted only a notice of intention to award, not a binding Award.
41. As correctly pointed out by the plaintiff, Section 63 of the PPADA provides for cancellation of Tenders. It states that –
1) An accounting officer of a procuring entity, may, at any time, prior to notification of Tender award, terminate or cancel procurement or asset disposal proceedings without entering into a contract where any of the following applies –
a) the subject procurement have been overtaken by –
i) operation of law; or
ii) substantial technological change;
b) inadequate budgetary provision;
c) no Tender was received;
d) there is evidence that prices of the bids are above market prices;
e) material governance issues have been detected;
f) all evaluated Tenders are non-responsive;
g) force majeure;
h) civil commotion, hostilities or an act of war; or
i) upon receiving subsequent evidence of engagement in fraudulent or corrupt practices by the Tenderer.
2) An accounting officer who terminates procurement or asset disposal proceedings shall give the Authority a written report on the termination within fourteen days.
3) A report under subsection (2) shall include the reasons for the termination.
4) An accounting officer shall notify all persons who submitted Tenders of the termination within fourteen days of termination and such notice shall contain the reason for termination.
42. It is clear that Section 63(1) of the PPADA regulates cancellation before Notification of Award. In the present case, the defendant had issued communication that amounted to a Notification of Award, meaning the stage contemplated under Section 63 had already passed. Accordingly, Section 63 of the PPADA was not applicable to the cancellation undertaken in this case. The defendant instead relied on Clause 6.2 of the Tender documents, which expressly reserved the right to cancel the tendering process prior to the execution of the contract, without incurring liability. Clause 6.2 of the Tender document provides as follows-
Notwithstanding clause 6.1 above, the Employer reserved the right to accept or reject any Tender, and to cancel the Tendering process and reject all Tenders, at anytime prior to the award of Contract, without thereby incurring any liability to the affected Tenderer or Tenderers or any obligation to inform the affected Tenderer or Tenderers of the grounds for the action.
43. Upon reviewing the Tender document, this Court notes that Clauses 6.14 and 6.15 similarly empowered the defendant to terminate the procurement proceedings before contract execution, subject only to the requirement to notify Tenderers. Courts have consistently held that such contractual clauses are enforceable provided that the d
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2. The plaintiff’s case is that it lawfully participated in Tender No. WP Item No. D117/RV/NKU/1902 for proposed piling and substructure works at the Naivasha Industrial Park. That subsequently, the plaintiff’s Tender amongst others was evaluated and the plaintiff was declared the successful bidder, and was awarded the Tender at a contract price of Kshs.254,931,643.58 through a Notification dated 26th January 2021, which it accepted on 1st February 2021. The plaintiff stated that upon expiry of the statutory review period, it secured and furnished a performance bond valued at Kshs.12,746,582.20, and received a formal contract which it duly executed and returned to the defendant for counter-execution. The plaintiff contended that the defendant without any justifiable reason failed to execute the contract within its validity period and subsequently unlawfully assigned the same works to another company, Vaghjivani Enterprises Ltd, contrary to the Public Procurement and Asset Disposal Act and its Regulations.
3. The plaintiff averred that as a result of the foregoing, it pursued administrative and judicial review remedies, which culminated in the High Court quashing the decision of the Public Procurement Administrative Review Board on grounds of legitimate expectation and misapplication of procurement law. The plaintiff asserted that the defendant’s conduct amounts to breach of contract, resulting in its inability to discharge the performance bond and causing it extensive financial loss, including loss of business opportunity, loss of profits, administrative and operational expenditure, bank guarantee payments, and expenditure on labour, plant, and equipment. It further averred that despite persistent requests and issuance of a demand and notice of intention to sue, the defendant has refused or failed to execute the contract, thereby necessitating this suit.
4. In opposition to the suit, the defendant filed a statement of defence dated 8th February 2023 where it denied all the averments in the plaintiff’s amended plaint. The defendant averred that the process leading to the Tender advertisement and award was subject to the Instructions to Tenderers. It specifically denied liability concerning the performance bond referred to in paragraph 8, stating that it was not the holder of the bond and that the bond lapsed upon expiry. It asserted that any failure by the plaintiff to secure discharge of the same, cannot be attributed to the defendant.
5. The defendant asserted that the Tender awarded to the plaintiff was lawfully cancelled following advice from the State Department for Industrialization that a single contractor should undertake both the piling and building works to ensure structural integrity and manage limited resources. It added that the said cancellation was also followed by a directive by the National Development Implementation Committee to vary an existing contract with Vaghjivani Enterprises Limited to include the piling works previously awarded to the plaintiff, in order to reduce project costs.
6. The defendant emphasized that such cancellation was permitted under the Instructions to Tenderers. It maintained that the Public Procurement Administrative Review Board correctly recognized that the Tender was no longer in existence and could not compel the signing of a contract. The defendant further contended that plaintiff ignored the Tender’s invalidity and improperly pursued multiple applications, including one later withdrawn after submissions had been filed. The defendant maintained that no contract was ever executed between the parties herein and therefore no contractual obligations arose. Further, that since no contract existed and no site was handed over, the plaintiff was not authorized to commit any resources and could not have incurred the alleged losses.
7. This matter proceeded to hearing where the plaintiff called one witness in support of its case, and the defendant also called one witness to ventilate its case.
PLAINTIFF’S CASE.
8. Mr. Lejia Chen, the plaintiff’s Managing Director testified as PW1. He adopted his witness statements dated 24th November 2021 & 23rd January 2023 as his evidence in chief. He produced the documents in the plaintiff’s list and bundle of documents dated 24th November 2021 and further bundle of documents dated 23rd January 2023 as plaintiff’s exhibits No. 1 to 14, and disregarded the Expert Report. Mr. Chen confirmed the plaintiff’s participation in Tender No. D117/RV/NKU/1902 for piling and substructure works at the Naivasha Industrial Park. He testified that the plaintiff was evaluated, declared the successful bidder, and awarded the subject Tender at a contract price of Kshs.254,931,643.58 through a Notification dated 26th January 2021, which the plaintiff accepted on 1st February 2021. He contended that no request for review was filed within the statutory period, rendering the Award final.
9. PW1 stated that the plaintiff thereafter secured a performance bond of Kshs.12,746,582.20 from ABC bank and submitted it to the defendant. He further stated that the defendant issued the contract, which the plaintiff executed and returned for counter-execution, but the defendant failed to sign it without justification. Mr. Chen explained the plaintiff’s administrative challenge before the Public Procurement Administrative Review Board, which struck out the request for review and the subsequent Judicial Review application in which the High Court quashed the Board’s decision on grounds of legitimate expectation and improper application of procurement law. He stated that through the aforesaid proceedings, the plaintiff came to learn that the defendant had unlawfully allocated the Tendered Works to Vaghjivani Enterprises Limited without adhering to the requisite procurement procedures.
10. PW1 stated that the said action caused the plaintiff significant loss and damage, including the inability to obtain discharge of the performance bond, loss of business opportunity and profits, and various expenditure committed in preparation of the project. Mr. Chen explained that the plaintiff incurred substantial costs during the Tender process, including providing the performance bond, conducting technical research, and mobilizing equipment such as a crane with a trailer for transporting pillars, an excavator, a loading machine, a drilling machine, two pick-ups, a concrete mix plant, and a welding machine. He added that the plaintiff also booked twenty (20) rooms for workers, engaged five (5) Engineers for specialized works, entered into contracts with them, and later compensated them. He stated that as a result, the plaintiff assumed considerable financial risk, provided bank security for the performance bond, which in turn affected its other Tenders.
11. During cross-examination, PW1 acknowledged that the only document provided by the defendant was a Notification of Award, not a formal contract. He stated that the finality of a Notification of Award is contingent upon the bidder’s capacity to perform. He further confirmed his awareness of Section 87(4) of the Public Procurement and Asset Disposal Act and maintained that the plaintiff complied with the requirements relating to the performance bond, which led to the bank charging the plaintiff’s property. He conceded that he did not produce any documentary evidence to support this claim. PW1 affirmed that the performance bond was valid for 365 days. He explained that the plaintiff is claiming interest because the performance bond attracted interest charges and the bank continued to hold the plaintiff’s security, thereby diminishing its cash flow and financial capacity to undertake business.
12. PW1 testified that despite repeated assurances from the defendant’s Director General that the contract would be signed, this never materialized, prompting the plaintiff to escalate the matter to the Public Procurement Review Board and subsequently to the High Court, but by that time, the Tender had already been awarded to another contractor. PW1 confirmed having received the letter dated 7th June 2021, but asserted that it was issued after the Tender validity period had lapsed and not within the prescribed 120 days. He added that once a contract is signed, work is expected to commence within fourteen (14) days. He stated that although the plaintiff had not undertaken work at the site, it had carried out substantial preparatory activities. PW1 testified that as a result of the plaintiff committing itself to the project by signing the letter of acceptance, the bank withheld its security, preventing it from taking up other projects for at least six (6) months.
13. Mr. Chen explained that the claim for Kshs.2,022,558.45 relates to the security held by the bank, while Kshs.3,823,974.65 represents operational and administrative expenses incurred following the Notification of Award, including costs associated with proceedings before the Public Procurement Administrative Review Board and the High Court. He stated that although the plaintiff undertakes other projects and employs other staff, it was also claiming general office and utility expenses. He stated that the claim of Kshs.137,576,320.00 pertains to expenditure on unused plant and equipment. PW1 confirmed that in anticipation of the contract, the plaintiff begun preparing specialized equipment, engaging experts, and booking equipment even before any contract was signed.
14. In re-examination, PW1 reiterated that the defendant did not sign the contract within thirty (30) days of the plaintiff issuing the letter of acceptance of the Tender Award. He emphasized that during that thirty-day period, the plaintiff was not notified of any cancellation of the Notification of Award.
DEFENDANT’S CASE.
15. Mr. Fredrick Otieno Okumu, the defendant’s Manager Supply Chain, testified as DW1. He adopted his witness statement dated 4th May 2024 as his evidence in chief and produced the documents in the defendant’s list and bundle of documents dated 21st March 2023 as defence exhibits No. 1-4. He made reference to paragraphs 5, 6 and 7 of his witness statement and explained that the Tender was cancelled due to inadequate budgetary allocation. He stated that although the Tender in question related to piling works, there was an earlier Tender awarded to Vaghjivani Enterprises Limited for the construction of an administrative block. According to him, the contractor on site discovered soil-related issues, making it impossible to proceed with construction until piling was completed. He stated that a decision was made to cancel the subject Tender so that the piling works could be incorporated into the first Tender, with the scope of the original works being reduced accordingly.
16. Mr. Okumu testified that a letter dated 26th April 2021 from the State Department for Industrialization recommended varying the original contract for the construction of the administration block. He stated that a subsequent letter dated 14th July 2021 from the State Department of Public Works recommended retaining the contractor already on site and carrying out direct procurement for the piling works.
17. DW1 emphasized that direct procurement is lawful and stated that consolidating the two Tenders resulted in savings. He added that the said State Department also observed that having one contractor on site would minimize complications. He maintained that the letter dated 7th June 2021 aligned with the letters of 26th April 2021 and 14th July 2021. He confirmed that the defendant received a copy of the performance bond, which was valid for 365 days and stated that upon its expiry, the defendant bore no liability.
18. He noted that after receiving the letter dated 7th June 2021, the plaintiff never wrote to the defendant seeking discharge from the bond. He denied the claim for loss of business opportunity, stating that the defendant had not instructed Tenderers to refrain from undertaking other business. Mr. Okumu contended that there was no formal site hand over and no meeting to determine the duration of mobilizing equipment and labour. He disputed the claim for loss of profits and asserted that the alleged cost of Kshs.137,576,320.00 was not incurred, as no plant or equipment had been mobilized to the site. He argued that since no site hand over occurred and no contract existed, the plaintiff could not have legitimately incurred Kshs.31,900,000/= in unused labour costs.
19. He further stated that the claim for Kshs.3,823,974.65 for operating and administrative expenses could only arise if a contract had been executed and the plaintiff had moved to a site office, which was not done. Referring to Clause 6.2 on page 18 of the defendant’s bundle of documents, he stated that it reserved the employer’s right to accept or reject any Tender and to cancel the tendering process at any time before the Award of a Contract. He explained that a Notification of Award is merely an intention to award a contract and not a contract itself, issued under Section 87(4) of the Public Procurement and Asset Disposal Act, and does not authorize commencement of site activities.
20. During cross-examination, DW1 confirmed that under Section 53 of the Public Procurement and Asset Disposal Act, the defendant was required to prepare a procurement budget. He stated that the Tender for construction of the administration block and boundary wall had been awarded around 2020, but he could not confirm whether that contract and the Tender in issue were intended to be implemented in the same financial year. He testified that the defendant prepared its procurement budget and submitted it to the State Department of Public Works prior to advertising the subject Tender. Although he claimed that budget approvals had been given, he acknowledged that he did not have any documents to prove this.
21. DW1 stated that there was correspondence dated 26th April 2021 addressed to the State Department of Public Works and that several consultative meetings had been conducted. He conceded that he was not aware of the exact date when the meeting that led to the cancellation of the Tender was held, and could only rely on the letter of 26th April 2021. DW1 testified that the defendant communicated the cancellation of the Tender to the plaintiff on 7th June 2021, approximately one and a half months after the letter of 26th April 2021. Referring to Section 63(1) of the Public Procurement and Asset Disposal Act, which permits cancellation of a Tender at any time before Notification of Award, he explained that their letter dated 26th January 2021 was merely an intention to issue a Notification of Award, although it was titled "Notification of Award." He pointed out that paragraph 1 of that letter indicated that the Award was subject to there being no appeal, and none had been filed.
22. He stated that a formal letter of Notification of Award was to be issued to the plaintiff together with the contract documents, and that such notification letters are sent to all bidders. DW1 confirmed that the Tender validity period was 120 days from the date of submission being 30th November 2020 and conceded that the cancellation letter was issued after the expiry of the Tender validity period. Nonetheless, he maintained that the defendant was awaiting official communication from the Ministry and denied that the cancellation was unprocedural. He insisted that the plaintiff could not have had any legitimate expectation of executing the contract before signing it.
23. In re-examination, DW1 reiterated that a Notification of Award does not amount to a contract. He asserted that since there was no contract, any claim made on expenses incurred by the plaintiff are false.
24. On being examined by the Court, DW1 clarified that a Letter of Award is issued only to the successful bidder and it is accompanied by contract documents, and before that stage, a letter of notification of intention to award is issued pursuant to Section 87(1) of the Public Procurement and Asset Disposal Act. He explained that Section 135 of the said Act governs the issuance of an Award. He also stated that Standard Tender Documents contain a template for a notification of intention to award, which is sent to all bidders. In regard to the letter dated 26th January 2021, he noted that it is headed “Notification of Award,” and its last paragraph states that in view of the Award, the bidder is required to acknowledge acceptance within seven (7) days from the date of the letter.
25. At the close of the defendant’s case, the Court directed parties to file written submissions. The plaintiff’s submissions were filed on 26th February 2025 by the law firm of Jamal Bake & Associates Advocates, while the defendant’s submissions were filed by the Hon. Attorney General on 1st April 2025.
26. Mr. Bake, learned Counsel for the plaintiff submitted that the defendant unlawfully cancelled the subject Tender after issuing a Notification of Award on 26th January 2021, despite the plaintiff having complied with all conditions set out therein, including forwarding the executed contract on 26th February 2021. He stated that the defendant only communicated the alleged budgetary constraints on 7th June 2021, nearly four (4) months later, during which period the plaintiff had mobilized significant resources in preparation of the project commencement. Counsel argued that although the Tender document reserved to the defendant a right to cancel the Tender, that provision is subordinate to Section 63 of the Public Procurement and Asset Disposal Act (PPADA), which strictly permits cancellation only before Notification of Award and sets out mandatory procedures for reporting and notifying bidders.
27. He relied on the cases of Wilfak Engineering Limited v Kenya Ports Authority [2020] KEHC 3283 (KLR) and Republic v Principal Secretary Ministry of Mining Ex-parte Airbus Helicopters Southern Africa (PTY) Ltd [2017] KEHC 8337 (KLR), and asserted that the cancellation of the subject Tender was in blatant violation of Statute. Mr. Bake pointed out to the testimony of DW1, who admitted that the defendant advertised the Tender before securing an approved procurement budget contrary to Section 53 of the PPADA, an issue previously identified by the High Court in JR No. E094 of 2021, where the defendant’s conduct was found to be inconsistent with the Act. Counsel asserted that the Notification of Award created a legitimate expectation that contract documents would be issued within 14 days and the contract executed within the Tender validity period, which expectation the defendant frustrated without justification.
28. Mr. Bake submitted that the defendant, being a public entity bound to uphold the rule of law, acted illegally and unprocedurally in cancelling the Tender and should be held liable for the losses occasioned. He cited the cases of Adan v Farah & 3 others [2021] KEHC 107 (KLR), Republic v County Government of Lamu & 2 others Ex parte Superserve Limited [2021] KEHC 825 (KLR), and asserted that the plaintiff is entitled to the reliefs being sought in the amended plaint.
29. Ms Kanini, learned Counsel for the defendant submitted that the Notification of Award issued to the plaintiff on 26th January 2021 neither concluded the procurement process nor did it create a binding contract. She relied on the provisions of Sections 87(4) & 135(4) of the PPADA and stated that a Notification of Award does not constitute a contract and that no binding Agreement arises until a written contract is signed by both parties. She argued that since there was no contract between the parties herein, the Tender process had not reached the contractual stage, thus no enforceable rights or obligations as against the defendant had crystallized. She maintained that the Tender document applicable to all bidders expressly reserved the employer’s right to reject any Tender or cancel the procurement process at any time prior to the Award of the Contract.
30. Counsel cited the case of Republic v Kenya Ports Authority; Ethics & Anti-Corruption Commission (Interested Party) Ex parte Feradon Associate Limited [2020] KEHC 6674 (KLR), and stated that since no contract had been formed, the defendant’s decision to cancel the Tender on account of budgetary constraints was within the parameters of both the Tender document and the PPADA.
31. Ms Kanini referred to the Court of Appeal case of Capital Fish Kenya Limited v The Kenya Power & Lighting Company Limited [2016] KECA 56 (KLR), and submitted that the plaintiff had failed to strictly prove special damages as required by law. She argued that although the plaintiff pleaded losses relating to performance bonds, mobilized equipment, labour, administrative expenses and loss of business opportunity, none of the said claims were backed by credible evidence. She submitted that the plaintiff cannot claim reimbursement for costs allegedly incurred without authorization, since the project site had not been handed to over, and no contract existed permitting mobilization.
32. Counsel maintained that the plaintiff’s claim is untenable as the Tender validity period lapsed on 31st March 2021 before any contract could be signed. Further, that since the plaintiff conceded awareness of Sections 87(4) and 135(4) the PPADA, it makes it clear that a Notification of Award neither forms a contract nor alters the Tender validity period. Ms Kanini relied on the Supreme Court case of Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others [2014] KESC 53 (KLR), and argued that expecting a contract to be signed after expiry of the validity period, or after notification of budgetary constraints, contravenes Article 227 of the Constitution and the principles of transparency, competitiveness, and cost-effectiveness governing public procurement. She submitted that reliance and the alleged mobilization costs was unreasonable and unsupported.
ANALYSIS AND DETERMINATION.
33. I have considered and analyzed the evidence adduced in line with the pleadings filed, as well as with the written submissions by Counsel for the parties. The issues that arise for determination are –
i) Whether a binding contract existed between the parties herein;
ii) Whether the cancellation of the Tender was lawful;
iii) Whether the plaintiff had a legitimate expectation; and
iv) Whether the plaintiff is entitled to the reliefs being sought.
Whether a binding contract existed between the parties herein.
34. The plaintiff contended that a binding contract arose upon issuance of the Notification of Award dated 26th January 2021, which it accepted on 1st February 2021. The plaintiff stated that in addition to accepting the Notification of Award, it executed the contract documents and returned them to the defendant for counter-execution, but the defendant failed to execute the contract. It contended that failure to sign the contract within thirty (30) days, coupled with its subsequent allocation of the works to another contractor, constituted a breach of contract.
35. The defendant on the other hand stated that the letter dated 26th January 2021 was merely a notification of intention to award, despite its title. It emphasized that a formal contract can only arise once executed by both parties in accordance with Section 135(4) of the Public Procurement and Asset Disposal Act. The defendant asserted that no enforceable contract was ever formed between the parties herein and no contractual obligations arose.
36. A Notification of Award is provided for under Section 87 of the PPADA which states that –
1) Before the expiry of the period during which Tenders must remain valid, the accounting officer of the procuring entity shall notify in writing the person submitting the successful Tender that his Tender has been accepted.
2) The successful bidder shall signify in writing the acceptance of the award within the time frame specified in the Notification of Award.
3) When a person submitting the successful Tender is notified under subsection (1), the accounting officer of the procuring entity shall also notify in writing all other persons submitting Tenders that their Tenders were not successful, disclosing the successful Tenderer as appropriate and reasons thereof.
4) For greater certainty, a notification under subsection (1) does not form a contract nor reduce the validity period for a Tender or Tender security. (Emphasis added).
37. From the above provisions, it is clear that pursuant to the provisions of Section 87(4) of the PPADA, a Notification of Award does not form a contract. In addition, Section 135(4) of the PPADA which is couched in mandatory terms provides that a procurement contract must be in writing and signed by both parties. In view of the above, and the plaintiff’s admission that the defendant never executed any contract, this Court is satisfied that no binding contract ever came into existence between the parties herein. Consequently, no contractual obligations capable of enforcement, performance, or even implication can arise as between the parties herein.
38. In the circumstances, this Court finds that the plaintiff’s claim for breach of contract automatically fails.
Whether the cancellation of the Tender was lawful.
39. The plaintiff’s position is that the cancellation letter dated 7th June 2021 was unlawful as it was issued after the lapse of the Tender validity period of 120 days, which begun on 30th November 2020. According to the plaintiff, the earlier communication constituted a Notification of Award and therefore the subsequent cancellation contravened Section 63 of the PPADA. The plaintiff further asserted that although the defendant cited budgetary constraints as the basis for the cancellation, it failed to provide evidence of such constraints or of the alleged meetings, rendering the decision abrupt, procedurally flawed and unfair.
40. The defendant maintained that the cancellation was justified on the grounds of budgetary constraints and concerns regarding structural integrity. It explained that the decision was reached following directions from the State Department for Industrialization and the State Department for Public Works. The defendant relied on Clause 6.2 of the Tender document, which granted discretion to cancel the Tender process at any stage prior to execution of the contract. It further argued that the letter of 26th January 2021 constituted only a notice of intention to award, not a binding Award.
41. As correctly pointed out by the plaintiff, Section 63 of the PPADA provides for cancellation of Tenders. It states that –
1) An accounting officer of a procuring entity, may, at any time, prior to notification of Tender award, terminate or cancel procurement or asset disposal proceedings without entering into a contract where any of the following applies –
a) the subject procurement have been overtaken by –
i) operation of law; or
ii) substantial technological change;
b) inadequate budgetary provision;
c) no Tender was received;
d) there is evidence that prices of the bids are above market prices;
e) material governance issues have been detected;
f) all evaluated Tenders are non-responsive;
g) force majeure;
h) civil commotion, hostilities or an act of war; or
i) upon receiving subsequent evidence of engagement in fraudulent or corrupt practices by the Tenderer.
2) An accounting officer who terminates procurement or asset disposal proceedings shall give the Authority a written report on the termination within fourteen days.
3) A report under subsection (2) shall include the reasons for the termination.
4) An accounting officer shall notify all persons who submitted Tenders of the termination within fourteen days of termination and such notice shall contain the reason for termination.
42. It is clear that Section 63(1) of the PPADA regulates cancellation before Notification of Award. In the present case, the defendant had issued communication that amounted to a Notification of Award, meaning the stage contemplated under Section 63 had already passed. Accordingly, Section 63 of the PPADA was not applicable to the cancellation undertaken in this case. The defendant instead relied on Clause 6.2 of the Tender documents, which expressly reserved the right to cancel the tendering process prior to the execution of the contract, without incurring liability. Clause 6.2 of the Tender document provides as follows-
Notwithstanding clause 6.1 above, the Employer reserved the right to accept or reject any Tender, and to cancel the Tendering process and reject all Tenders, at anytime prior to the award of Contract, without thereby incurring any liability to the affected Tenderer or Tenderers or any obligation to inform the affected Tenderer or Tenderers of the grounds for the action.
43. Upon reviewing the Tender document, this Court notes that Clauses 6.14 and 6.15 similarly empowered the defendant to terminate the procurement proceedings before contract execution, subject only to the requirement to notify Tenderers. Courts have consistently held that such contractual clauses are enforceable provided that the d
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