County workers' pension at risk in Sh2 billion Lapfund real estate mess

The Auditor General has flagged irregular contract changes and project delays that risk the loss of Sh2 billion at the Local Authorities Provident Fund (Lapfund).

In a new report, the Auditor General has pointed to unauthorised increases in project costs and overpayments across two multi-billion-shilling real estate developments in Kisumu and Nairobi, raising questions on what could be irregular payments that bypassed standard procurement laws.

In Kisumu, the audit report shows that the cost of the Makasembo housing project was increased by Sh693.6 million without a written justification or legal approval.

Meanwhile, in Nairobi's Bellevue project, Lapfund paid the contractor an advance of Sh2.89 billion. This is even as the project runs 16 months behind schedule, which could mean that the contractor has been paid  Sh1 billion more than the actual value of work completed on the ground as of June 2025.

The findings have put Lapfund's management on the spot, setting the stage for further scrutiny with oversight bodies, including Parliament's move to investigate the illegal cash flows and whether millions in retirement funds have already been lost.

The National Assembly’s Special Funds Account Committee has already started looking into the audit report and had in early July made a site visit to the Bellevue project to gather on-the-ground information regarding the audit queries raised by the Auditor General.

Lapfund had in May 2022 awarded a contract for the construction of mixed-use development-Makasembo Project, Kisumu at a cost of Sh6.62 billion. The amount was however increased by Sh693.6 million, which, according to the audit report, was done without relevant approvals contrary to the Public Procurement and Asset Disposal Act.

“In the course of implementation of the project, the total contract sum was reviewed upwards by Sh693.6 million to Sh7.3 billion,” reads the audit report on the Kisumu project.

“However, no evidence was provided to show that justification was provided and appropriate approval obtained for the upward review of the contract sum contrary to Section 139(1 ) of the Public Procurement and Asset Disposal Act, 2015 which requires that a contract variation should be approved in writing by the tender awarding authority; and Sub-section (2)(a) which requires the Accounting Officer, on the recommendation of an Evaluation Committee, to approve a request for extension of contract period and contract sum on production of a certificate from the tenderer making a justification for such cost.”

On the Bellevue project, Lapfund awarded the Sh16.1 billion contract on January 31, 2023. Construction of the mixed-use development started on April 26, 2023 and was set to take 31 months, with an expected completion date of October, 2025.

“A site visit carried out on 10 July, 2025 revealed that although the contractor was on site and the works were ongoing, the project was 16 months behind schedule, with 25 out of 31 calendar months having elapsed, equivalent to 81 per cent of the contract period. Further, no revised or updated project timelines had been submitted or approved by the Procurement Unit and the Board,” said the Auditor General in the report for the year to June 2025.

“It was also observed that an advance payment of Sh2.89 billion was made whereas the value of works certified as at 30 June, 2025 stood at Sh1.59 billion, raising concerns on efficient utilisation of funds. In the circumstances, it is unlikely that the project will be delivered within the time provided and value for money may not be realised.”

The payments have put at risk Sh2 billion of pension contributions by county government employees. Lapfund manages the retirement savings of thousands of county government and regional water companies workers across Kenya.

Lapfund  management did not respond to requests for comment by the time of publication.

The National Assembly’s Special Funds Accounts Committee on July 2 conducted an inspection visit to the Bellevue mixed-use project in what in the committee, in a later statement, was part of its examination of the Auditor-General’s Report on the audited accounts of Lapfund for the financial year 2024/2025.

“The visit enabled the Committee to gather first-hand information on the audit queries raised regarding the project,” said the committee chaired by Fatuma Mohammed.

During the inspection, the MPs sought clarifications on factors that led to the delay in opening the development.

The contractor said the delays were on account of securing payments as well as increased project costs resulting from price escalations as well as additional works during the implementation of the project.

 The contractor assured the MPs that the project would be complete by December 10, 2026, more than a year after the initial completion date.