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Key Changes Introduced by the Recently Published Public Procurement and Asset Disposal Regulations, 2020

24 June 2020
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The much awaited Public Procurement and Asset Disposal Regulations, 2020 (the “New Regulations”) were finally gazetted by the Cabinet Secretary for the National Treasury on 22 April 2020 through Legal Notice Number 69 of 2020. The Regulations are currently before the respective Committees on Delegated Legislation of the National Assembly and the Senate for final approval in accordance with the Statutory Instruments Act, 2013 before they come into full force and effect.

While the Public Procurement and Asset Disposal Act, 2015 (the Act) and the New Regulations apply to public entities, this alert will outline some of the key changes introduced by the New Regulations which in our view may need to be considered by private parties participating in public procurements.

a) Procurements undertaken pursuant to bilateral/multilateral agreements

These procurements are commonly referred to as ‘government-to-government’ procurements.

Government-to-government procurements are exempt from the provisions of the Act pursuant to Section 4(2) (f) which provides that procurements and disposal of assets under bilateral or multilateral agreements between the Government of Kenya and any other foreign government, agency, entity or multilateral agency are not procurements or asset disposals with respect to which the Act applies (the G2G Exemption). It is however important to note that government-to-government procurements are still required to comply with Article 227 of the Constitution of Kenya which requires that all procurements be undertaken in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. This requirement has recently been confirmed by the court of appeal of Kenya.

As a result, the Government has taken advantage of the G2G Exemption to undertake a number of prominent projects such as the Standard Gauge Railway Project (which was financed through a concessional loan from the Peoples Republic of China) without any visibility around what sort of value for money assessment (if any) was carried out on the total cost of the project.

The New Regulations spell out the requirements for a procurement to qualify for the government-to-government exemption under the Act:

  • where a government-to-government procurement is financed through a negotiated loan, the Public Procurement and Asset Disposal will apply unless the agreement specifies the procurement and asset disposal procedures to be followed;
  • procurement professionals from the respective procuring entity must be involved during the negotiations of the bilateral/multilateral agreement for the purposes of ensuring that the public procurement and asset disposal interests of Kenya are considered; and
  • local content requirements – unless an exemption is issued by the National Treasury, the tender documents for a government to government procurement must contain requirements that the tenderer shall:
    • include a plan for technology transfer to locals;
    • plan to reserve 50% employment opportunities for Kenyans; and
    • 40% of inputs must be sourced locally.

Although the New Regulations provide that the relevant bilateral/multilateral agreement has to specify a procurement procedure, no further guidance has been provided with respect to the type of procurement procedure to be adopted. For example, the New Regulations do not expressly provide that a competitive open tender process has to be followed and this ambiguity leaves the door open for parties to the relevant bilateral/multilateral agreement to adopt procedures such as direct procurement or restricted procurement in awarding contracts pursuant to the G2G Exemption. The New Regulations do require that all procurement contract be published and publicized within fourteen days after signing the contract. It is not clear whether this requirement applies to historical procurement contracts, however, the hope is that all future procurement contracts will be published allowing for an opportunity for them to authenticated against the cost effectiveness and value for money requirements of the constitution  and the spirit of the Public Procurement and Asset Disposal Act and the New Regulations.

b) Debarment proceedings

Under the provisions of the Act, a tenderer who is found to have breached the provisions of the Act may be blacklisted and debarred from participating in procurements for a period of not less than 3 years. The New Regulations operationalize this by introducing procedures for the hearing and determination of debarment proceedings by the Public Procurement Regulatory Board. We note that a tenderer who is the subject of the proceedings can now contest the accusations and will be allowed to respond and submit evidence in its defense.

Other points to note in relation to debarment include:

  • where an entity is debarred, any successor entity of that entity is also debarred;
  • debarment extends to directors and partners if the debarred person is a company or a partnership; and
  • a debarment decision will not relieve the debarred person of its obligations under any contract entered into with a procuring entity before the debarment.

c) E-procurement

In a bid to encourage the adoption of information technology and efficiency in procurement, the New Regulations provide guidance and elaborate procedures for the establishment and use of e-procurement systems and a central online portal to be developed by the Public Procurement Regulatory Authority.  

If successfully implemented, e-procurement systems could potentially save costs, eliminate paperwork and improve transparency and efficiency in procurement processes.

d) Preferences and Reservations

Section 155 of the Act provides for preferences and reservations to be applied by procuring entities. Preference should be given to:

  • supplies wholly mined and produced in Kenya;
  • supplies partially mined or produced in Kenya or assembled in Kenya; or
  • firms with 51% Kenyan shareholding.

The New Regulations now further provide that the tender documents must as a mandatory requirement specify that the successful bidder shall:

  • transfer technology, skills and knowledge through training, mentoring and participation of Kenyan citizens;
  • reserve at least 75% employment opportunities for Kenyan citizens for works, consultancy services and non-consultancy services, of which not less than 20% shall be reserved for Kenyan professionals at management level;
  • Include in its tender a local content plan specifying:
    • positions reserved for employment of local citizens;
    • capacity building and competence development programmes for local citizens;
    • timeframes within which to provide employment opportunities;
    • demonstrable efforts for accelerated capacity building of Kenyan citizens;
    • succession planning and management; and
    • a plan demonstrating linkages with local industries which ensures at least 40% inputs are sourced from locally manufactured articles, materials and supplies partially mined or produced in Kenya, or where applicable have been assembled in Kenya.

In circumstances where an international tender does not meet the above requirements, specific approval from the National Treasury shall be required.

e) Clarity in relation to ‘Specifically Permitted Procurements’ under Section 114A of the Act

In 2017, the Act was amended to include procurement though a procurement method specifically permitted by the National Treasury. The New Regulations limit the use of ‘Specifically Permitted Procurements’ to instances where such procedure is in “…the public interest or interest of national security”. These terms are however not defined.

f)   Amendment and variation of Contracts

The New Regulations now distinguish between a variation and amendment of a contract entered into following a tender award.

An amendment is defined as a change to the terms and conditions of an awarded contract and contract while a variation refers to a change to the price, completion date or statement of requirements of a contract.

Parties therefore have greater flexibility when making amendments to contracts but variations may only be considered 12 months after the date of signing the contract and only where the proposed variation meets the conditions specified in Section 139 (4) of the Act.