Kenya introduces Law to protect Contractors from Payment Delays

The Kenya Parliament is considering an amendment to the law which will protect contractors and suppliers to government entities from payment delays. 

By Staff Writer on
30th October 2020

The proposed law, the Public Procurement and Asset Disposal Amendment Bill of 2020, will require county and national government procurements to be accompanied by a bank guarantee when a contract is awarded.

The proposed law will require national and county governments to issue bank guarantees, which will see the lenders pay contractors if governments default. Sponsored by Thika Town MP Patrick Wainaina, the Bill states “The national and county government shall make payments to the successful tenderer by way of a bank guarantee. The bank guarantee shall take effect after ninety days”.

According to Legislator Wainaina, the objective of the Bill is to remedy the imbalance that has existed between local and foreign contractors in accessing State contracts, with the former being disadvantaged due to their thin balance sheets.

Delayed payments has been cited in several studies as a major challenge to cashflow management in construction industries across Africa, with several contractors and suppliers being forced to close down their business and others forfeiting assets due to loan defaults caused by late payments.

The Public Procurement and Asset Disposal Amendment Bill of 2020 will also limit the price of contracts to within 15% of engineer estimates. “The successful tender price shall be within a range of fifteen per cent of the Engineers Estimate where applicable” states the Bill. This would prevent companies from setting high prices, stated Legislator Wainaina. Similarly, the caps will prevent underquoting, which could either result in substandard work or upward revision of the contract after awarding a tender, he said.

The amendment also requires international firms to source at least 4% of their materials from local suppliers to qualify for a government tender.

The Bill has already gone through the first reading, and members of the public have been invited to submit comments.

Photo: Entrance to Kenya Parliament Buildings, Nairobi (Vasile Pirnea | Dreamstime)

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