The unprecedented move came after the county governments systematically failed to pay the youths who had supplied goods and services leaving Youth Fund in debt.
This now puts thousands of youths at risk as it is difficult to access bank loans that can enable them to fund the tenders they win.
The Youth Enterprise Development Fund has blacklisted a staggering 41 counties from tenders assigned to youth, women and the disabled.
Banks normally demand collateral like title deeds which are beyond reach for Kenyans under 35 who get preferential government tenders.
The six counties that are in Youth Fund’s good books are Murang’a, Taita-Taveta, Busia, Kilifi, Laikipia and Nairobi.
Youth Fund chair Ronald Osumba has said they will be making their case at the upcoming Devolution Conference in March.
“We are planning to approach the counties and have an MoU signed between us and the counties and we would need the governor, the procurement department, the minister for Finance and that of Youth. We have also approached the Council of Governors on a framework of engagement,” he said.
Nominated MP Johnson Sakaja, who sponsored the Bill that advocates the 30 per cent rule, said the Equal Opportunities committee that he chairs will table a report in Parliament on how the government agencies were handling the tenders assigned to youth, women and the disabled.
“We are studying the report from the PPOA (Public Procurement Oversight Authority) board,” he said.
The damning report now casts a long shadow on county governments’ adherence to the public procurement Act which stipulates that payments should be made within one month of the start of the contract.
“With the introduction of the 30 per cent access to government procurement opportunities to the youth, the fund has developed a product to assist youth finance the local purchase/service orders (LPOs/LSOs) from the government institutions, parastatals, county governments and government agencies,” reads the report.
It adds: “This facility targets youth who win government tenders and require bid bonds and LPO financing.”
Youth Fund has encountered a myriad of problems that resulted in its decision to part ways with the counties.
Among the challenges is that some procuring entities are reluctant to sign the letter of undertaking committing themselves to paying through a designated account held by Youth Fund.
A delay in issuing the LPOs by the procuring entities has been a problem making it hard for the youth to apply for financing on time and meet the set deadline.
“Delayed payment by procuring entities upon successful delivery, installation and inspection. The payments are sometimes delayed for more than the 30 days stipulated in the procurement Act. The outstanding loan accrues penalty interest for late payment. This makes it difficult for the Fund to have confidence to finance other LPOs from institutions that delay in releasing payments,” says the report.
It goes on to state that some procuring entities sign the letters of undertaking only for them to dither on terms of the undertaking.
One way of flouting the letters of undertaking is by paying money directly to the supplier and the fund is left with the burden of following up with the clients to recover the loans administered.
As a result, the fund as a financing entity, lacks a surety that the money will ever be recovered. Cases of partial payments especially for those undertaking LSOs have also been reported.
“Non-servicing of the contracts by the youth despite the fund having granted the financing leaves the fund exposed and with no fallback thus requesting for securities,” says the report.
According to the report, the Youth Fund has so far issued bid bonds to guarantee contracts more than Sh350 million and financed LPOs to the tune of Sh259 million.
The LPO portfolio repayment rate is at 65 per cent and the outstanding loan balance is Sh102 million.
Though it singles out county governments as being the most notorious in payments, it also notes that most government ministries, agencies and institutions have also failed to adhere to the letters of undertaking.
Youth Fund provides bid bonds of up to Sh2 million with a commission charge of Sh1,000.
The LPO financing involves providing money to youth owned businesses and companies with the LPO acting as the collateral.
All that is required from a youth-owned business or company is a letter of undertaking from the institution being supplied to and its financed up to 70 per cent of the contract price with a maximum limit of Sh5 million.