Secrets Reporters
An audit of procurement activities has raised concerns over the payment of N358.09 million as mobilisation fee to a contractor for the supply and installation of passenger security screening systems at two of Nigeria’s major international airports, after auditors found that the payment was backed by a conditional Advance Payment Guarantee (APG) instead of the unconditional guarantee required by the Public Procurement Act.
The payment, made to Adroit Landstyle Ltd, was part of a contract for the supply and installation of two sets of complete high capacity passenger security screening systems for the Murtala Muhammed International Airport, Lagos, and Nnamdi Azikiwe International Airport, Abuja.
According to the audit finding, the contractor received N358,089,294, representing a 15 percent mobilisation fee, through payment voucher number 253256 dated October 17, 2023.
But auditors questioned the legality and security of the payment after discovering that the Advance Payment Guarantee presented by the contractor was conditional, rather than unconditional as stipulated by the procurement law.
The finding invokes Section 35(a) of the Public Procurement Act, 2007, which provides that a mobilisation fee of not more than 15 per cent may be paid to a supplier or contractor, but such payment must be supported by an unconditional bank guarantee or insurance bond issued by an institution acceptable to the procuring entity.
The distinction between the two types of guarantees is significant. An unconditional guarantee is intended to provide government with a stronger layer of protection over money advanced to a contractor before the contracted work or supplies are fully delivered. Where the contractor fails to perform, the guarantee is designed to provide a mechanism for recovering the public funds advanced.
The audit found that this safeguard was not followed in the case of Adroit Landstyle Ltd.
N358m Paid as Mobilisation
The audit examined payment records from 2023 and found that the contractor received the N358.089 million mobilisation payment in October 2023.
The payment represented 15 percent of the relevant contract value, consistent with the maximum mobilisation fee permitted under the cited provision of the Public Procurement Act.
However, rather than being supported by an unconditional guarantee, the payment was backed by a conditional Advance Payment Guarantee issued by Consolidated Hallmark Insurance Plc on behalf of Adroit Landstyle Ltd.
The insurance bond carried policy number 25122035801248 and related specifically to the contract for the supply and installation of the two high-capacity passenger security screening systems.
It is at this point that the audit trail becomes more troubling. According to the auditors, the bond was valid from March 28, 2022, to the close of business on September 27, 2022.
Yet the mobilisation payment was not made until October 17, 2023 more than a year after the stated expiry date of the bond.
The audit further noted that the last noticeable payment was made on November 1, 2023, indicating that the contract was still running after the guarantee had expired.
In other words, government funds were advanced in 2023 under a guarantee whose stated validity period had already ended in 2022.
That raises a basic but important accountability question “what protection did government have over the N358 million mobilisation payment when the guarantee supporting it had already expired?”
A Guarantee That Had Expired
The purpose of an advance payment guarantee is to protect the procuring entity when public money is released to a contractor before the full delivery of a contract.
Government effectively gives the contractor access to public funds on the understanding that the contractor will use the money to commence or facilitate the contracted work.
The guarantee provides an additional layer of security. But in this case, the audit found that the insurance bond presented in respect of the contract had a validity period ending in September 2022.
The mobilisation payment, however, was made in October 2023. This means there was a gap of more than one year between the expiration of the bond and the payment of the mobilisation fee.
The contract itself also remained active after the bond’s expiry, according to the audit. For auditors, the circumstances amounted to a clear departure from the requirement cited under the Public Procurement Act.
The concern is not simply that a document had expired. It is that the document was supposed to protect government against the risk associated with advancing hundreds of millions of naira to a contractor.
Once that protection expires while the contract remains active, the government’s exposure potentially increases.
What Happens If the Contractor Fails?
The auditors identified the most significant risk arising from the arrangement as the possibility of government losing money if the contractor fails to complete the contract.
The audit noted that accepting a conditional bank guarantee for the mobilization fee could expose government funds to possible loss.
If a contractor abandons a project after receiving mobilization funds, the procuring entity would ordinarily need to rely on the guarantee or other contractual mechanisms to recover the money.
But where the guarantee is conditional or, as the audit found in this case, where the relevant bond had already expired the government’s ability to rely on that protection becomes a major concern.
The audit specifically warned that if the contractor abandoned the contract before the mobilisation fee had been fully recovered, the loss of government funds would be imminent.
The amount identified in the audit is N358,089,294 money that had already left government coffers as mobilisation and because the contract involved sophisticated passenger security screening systems at two major international airports, any failure in delivery could have consequences beyond financial loss.
The auditors also identified the possibility of substandard equipment being supplied as another risk. The contract was not for ordinary office supplies. It involved high-capacity passenger security screening systems intended for the country’s two major international airports.
Any concern over procurement controls surrounding such equipment therefore raises questions not only about financial accountability but also about the quality and reliability of the equipment ultimately supplied.
Why Was the Guarantee Accepted?
The audit’s recommendation is direct. The Managing Director was asked to explain why the organisation acted contrary to the provisions of the Public Procurement Act, 2007 but the question goes beyond why a conditional guarantee was accepted, it also raises questions about the chronology of the transaction.
Why was a bond with a validity period ending on September 27, 2022 relied upon for a payment made on October 17, 2023? Was the bond renewed before the mobilisation payment was made? If it was renewed, why does the audit identify the original bond as expired? Was a new unconditional guarantee obtained before the ₦358 million was released? And if no new guarantee was obtained, who authorised the payment? The audit finding provided does not answer these questions.
It therefore becomes important for the procuring entity to provide documentation showing the status of the guarantee at the time the payment was made.
The Bigger Procurement Problem
The issue also highlights the importance of compliance with procurement rules when public funds are released before contractors have completed their obligations.
Mobilisation payments are not inherently irregular. The Public Procurement Act expressly allows mobilisation fees of up to 15 percent under the conditions stipulated by law.
The concern identified by the auditors is that the condition attached to such payment was allegedly not met. That distinction is important, the audit does not say that the N358 million mobilisation payment itself was unlawful simply because it was a mobilisation payment. Rather, it questions the form of guarantee supporting the payment and the validity of the bond when the money was released.
This creates an accountability trail that should be easy to establish. The procuring entity should be able to produce the contract, the guarantee, any renewal or replacement of the guarantee, the payment voucher, evidence of delivery and subsequent payments.
Together, these documents should show whether the government’s financial exposure was adequately protected throughout the contract.
A Question of Public Protection
At the heart of the audit finding is a simple issue: when government releases hundreds of millions of naira to a private contractor before the completion of a contract, what protects the public money?
In this case, auditors say the prescribed protection was not properly in place. The N358.09 million mobilisation payment was made in October 2023, while the insurance bond cited in the audit had expired in September 2022. The contract was still running when the last noticeable payment was made on November 1, 2023. That leaves a significant accountability gap.
The government agency responsible for the procurement now has an opportunity to close that gap by explaining what happened between the expiry of the guarantee and the release of the mobilisation fee.
It should also clarify whether the passenger screening systems were eventually supplied and installed at both airports, whether the contract was completed, how much was ultimately paid to the contractor and whether the mobilisation fee was fully recovered through the execution of the contract.
Until those questions are answered, the audit finding leaves a troubling picture of N358 million in public funds released under a guarantee that auditors say was conditional rather than unconditional and whose stated validity period had already expired more than a year before the payment was made.
For a procurement involving security equipment at two of Nigeria’s busiest international airports, that is not simply a matter of paperwork. It is a question of whether the safeguards designed to protect public money were actually working when they were needed most.
Source: Secretsreporter