By Mary Karugaba
and Milton Olupot

THE Government has been forced to pay sh37b to a French firm, Basir Read Bouygues, for breach of contract. The company in February 2004 won the sh85b contract to rehabilitate the 73km Jinja-Bugiri road, funded by the European Union.

Justice minister Khiddu Makubuya said the money was awarded to the firm after the arbitration tribunal in France and South Africa ruled that it was wrong for the Government not to modify the contract after a change in the Value Added Tax law.

The arbitrators also ruled that the Government failed to notify the changes in asphalt specification to the firm within reasonable time.

Makubuya explained that after negotiations conducted in Paris in June 2009, the Government agreed to pay the firm 13m euros by October 31, 2009.

“On October 21, the Attorney General approved that the Government pays euro 13m as its best option and accordingly a settlement agreement was concluded,” he said.

He was responding to questions raised by the legal and parliamentary affairs committee on supplementary expenditure. Makubuya wants the funds through a supplementary budget.

In February 2005, the contractors terminated the contract on grounds that the Government had delayed to make payments of VAT and to make a decision regarding modification of asphalt specifications.

Other reasons were that the Government did not amend the contract to provide for compensation to the firm for changes in VAT law.

The firm said the Government did not take appropriate measures to mitigate the effects of unexpected cables and utilities on the project site and did not supply original project drawings and design data within the prescribed time.

But the Government regarded the termination as invalid and argued that issues raised by the contractor were being addressed with a view of giving the firm compensation and extension of time.

Makubuya explained that when the two parties failed to reach an amicable resolution, the firm took the matter for arbitration in London, seeking euros 18m (about sh48b). “We called on the advance payment guarantees that had been issued by banks in France and South Africa but again the firm challenged the calls in the courts of law in both countries.”

Makubuya said out of the five grounds presented by the firm, the tribunal upheld only two, saving the Government sh2.3b and euro 9.7 million.

“The implication of this ruling was that although the Government succeeded in challenging the other three grounds, the two grounds won by the firm meant that their termination was valid,” he said.

Scrutinising the supplementary budget yesterday, MPs were shocked to find that despite the minister’s assurance that the Government would win the case, the ministry is looking for funds to compensate the firm.

“The minister lied to us that this was a good case. He never came back to inform us that we had lost the case,” Geoffrey Ekanya (FDC) complained.

Nathan Byanyima (NRM) wondered why the ministry waited to pay and included the money in the supplementary budget.