Commencement Of Kenya’s Public Procurement Capacity Building Levy Order

Kenya’s Public Procurement Regime

Kenya’s Public Procurement is governed by a 2015 legislation, the? Public Procurement and Asset Disposal Act, 2015 ( PPDA) , which was enacted to give effect to give effect to Article 227 of? Kenya’s? Constitution; to provide procedures for efficient public procurement and for assets disposal by public entities; and for connected purposes. The one of the institutions established by PPPDA under its section 8 is the Public Procurement Regulatory Authority( PPRA). Under Section9 of ?PPDA 24 of the Act the? key functions of this body include monitoring, assessing, and reviewing the public procurement and asset disposal system in Kenya ?to ensure that they respect the national values and other provisions of the Constitution, including Article 227 and making recommendations for improvements.

In terms of? financial operations, PPDA in section 24 is to the effect that ? PPRA’S funds will come from money appropriated by Kenya’s? Parliament, donations or grants, revenue or fees collected for services rendered by it, capacity building levy. Ths Alert discusses the last avenue? through which the PPRA is expected to raise funds, the ?Capacity Building Levy.

Capacity Building Levy

Section Sections 24(5)(d) and 180 of the PPDA. For more clarity, under 24(5)(d), Kenya’s Cabinet Secretary (CS) for The National Treasury and Economic Planning is mandated to prescribe the percentage of procurements contract price by public entities that should be paid as the capacity building levy. Section 180 of the PPDA mandates the CS to make? Regulations towards the implementation of the? PPDA. However, as matter of legislative procedure in Kenya, the regulations made by the CS must first be approved by Parliament pursuant to the Statutory Instruments Act, 2013 for them to have legal force.

In conformity with the above sections, the Public Procurement Capacity Building Levy Order, 2023 (The Levy Order, 2023) was issued through? Legal Notice No. 206 ?on ?6th November, 2023.? Paragraph 3(1) of The Levy Order, 2023; provides that there shall be paid a Levy by a supplier on all procurement contracts signed between the supplier and a procuring entity, at the rate of zero point zero three per centum (0.03%) of the value of the signed contract, exclusive of applicable taxes. Further with regards to multi-year procurement contracts,? the order provides? in paragraph 3(2) that? the procuring entity shall ensure that full amount of the Levy is determined on the total procurement contract price and progressively deducted and remitted accordingly.

It also important to note that under paragraph? 8 of the Order , the levy is not to be? applied? to contracts fully financed by development partners.

Commencement? Date of the? Levy and Payment Modalities

The commencement date for The Levy Order, 2023 is 1st ?September 2024. What this? means is that e Levy? shall apply to all signed contracts resulting from all procurement proceedings initiated from 1st ?September 2024,? any contract extensions, renewals and/or variations made from 1st ?September 2024 as well as contracts that are long term in nature (Term Contracts) where Local Service Orders (LSOs) or Local Purchase Orders (LPOs) are raised as and when orders are made.

In terms of modalities, Paragraph 5 of the ?Order is to the effect that a procuring entity shall have the Obligation to:(a)deduct the Levy from the contract value at the time of making payments for such contracts; and (b) remit the funds to the Public Procurement Regulatory Authority or its authorized agent? not later than the 20th day of the following month.

Sanctions for Non-Compliance

Finally, according to the order, failure? to comply with the remittance requirements would attract a penalty ?which would be equivalent to 5% of the unpaid funds for every month ?that the same remains unpaid. Further, non-remittance of any sum due under this paragraph shall be deemed to be a civil debt recoverable summarily the Public Procurement Regulatory Authority.

Conclusion

Whereas it is still early to analyze the implications of this levy, going by the massive amounts involved in tenders they are usually issued by Kenya public entities, it is no doubt that this will be an important revenue stream for the government. Also, it would be interesting to see whether there will be any implications this levy would have on the contractor’s appetite for government tenders. Stay tuned for further alerts in the Kenya’s procurement space.

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Patrick Anam

Economic Law & Trade Compliance Practitioner

Nairobi , Kenya