How Kenya entrepreneurs can take advantage of local content legislation

For quite a while the economy has been lagging behind owing to cash flight to foreign countries. This is despite the same cash having been being generated in Kenya.

Technology and skills gap between foreign and local contractors has also been quite wide. This state of affairs has created the need to promote local content to support Kenyan local industries and citizen contractors.

Such provisions are found in the Public Procurement and Asset Disposal Act 2015, the National Construction Authority Act 2011 and subsequent National Construction Authority Regulations 2014.

Section 3(i) and (j), Section 89(f) of the Public Procurement and Asset Disposal Act, 2015 list the promotion of local industry, sustainable development and promotion of citizen contractors as cardinal values and principles to guide State organs and public entities in the procurement of goods and services.

Section 6(4) (a) and (b) read with section 6(1) is instructive that where a procurement is done through or is as a result of a treaty, agreement or other convention ratified by Kenya and to which the country is a party to and it favours an external beneficiary (read external contractor) then the procurement through contributions made by Kenya, shall be undertaken in Kenya through contractors registered in Kenya and all relevant insurances shall be placed with companies registered in Kenya.

Section 89(f) proceeds to state that where local or citizen contractors participate in international tendering and competition they shall be entitled to preferences and reservations key among this having 20 per cent of their total score in the evaluation.

Under Section 155(2) and (3) preferential treatment is given to materials or supplies mined, produced or assembled in Kenya or firms where Kenyans hold at least 51 per cent shareholding.

Under Section 157(8) (a) exclusive preference is also given to Kenyan contractors in cases where the funding is 100 per cent from the national or county government or Kenyan body.

Closely related to this is Section 157(9) which provides that for the purposes of ensuring sustainable promotion of local industry, a procuring entity shall have in its tender documents a mandatory requirement as a preliminary criteria for all foreign contractors participating in international tenders to source at least 40 per cent of their supplies from citizen contractors prior to tender submission.

National Construction Authority Act 2011 and the NCA Regulations 2014.

Regulation 9(1) & (2) read together with regulation 12(2) provide that unlike local contractors who can be registered under any NCA category a foreign contractor is restricted to and can only be registered for the NCA-1 category.

Section 18 of the Act provides among other things that for the NCA board to accredit a firm incorporated outside Kenya as a contractor for purposes of construction the firm must satisfy the board that it intends to be present in Kenya only for the purpose of carrying out the specific works for which it has been contracted. The import of this provision is that an award of a contract to a foreign contractor becomes as a condition precedent before the NCA certification.

This puts the foreign contractor at some disadvantage in procurements where the NCA certification is put as a mandatory requirement for the bid placement and evaluation unless such a requirement is waived in the first instance, deferred and made a condition precedent before the contract sign off with the contracting authority.

This would be strategic in ensuring that the contracting authority in procuring a foreign contractor does not violate the provisions of regulation 17(5) which requires project owners to ensure that tenders for construction works, contract or projects are awarded only to persons, firms or contractors registered under the Act.

Regulation 12(4)(a) provides that any registration of a foreign contractor shall be valid for the period of the construction works contract or project in question.

Regulation 12(3)(d) provides that an application by a foreign contractor shall be accompanied by an undertaking in writing that it shall subcontract or enter into a joint venture with a local person or local firm for not less than thirty percent (30 per cent ) of the contract value for which the temporary registration is sought and that it shall transfer technical skills not available locally to a local person or firm in such a manner as the authority may determine from time to time.

Regulation 16(2)&(3) respectively provide that profits of the construction works shall be shared in the same ration as provided under regulation 16(1) and that the employees of the joint venture shall in the first instance be competitively recruited from the local labour market.

There is no doubt that with effective implementation the local content provisions will help boost the capacity of and offer a lifeline to the citizen contractors and suppliers.

The provisions will also facilitate, bring home and retain the much-needed skills and technology transfer which has hitherto been left untapped and give the local players the long yearned for a bite of the lucrative NCA-1 big-ticket infrastructure projects making them attractive for upcoming and future projects financing.

This cherry has before been the preserve of foreign contractors from Japan, India, Germany, Dubai and now China who enjoy the benefits of cheap credit and finance from financial institutions and development finance agencies and corporations from their country of incorporation.