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UNIVERSITY OF NAIROBI

BQS 307: CONSTRUCTION ECONOMICS

GROUP 2: CONSTRUCTION INDUSTRY AND GOVERNMENT POLICY

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GROUP 2 MEMBERS

1. WAKHU CHRISTINE AMIMO B66/31773/2014


2. MUTISYA JEMIMAH WAVINYA B66/0993/2014
3. OROKO AMOS OTACHI B66/5561/2014
4. OKOTH VERAH N. B66/1010/2014
5. MWIRIGI ESTHER GATWIRI B66/1025/2014
6. MUTHENGI LORNA MWENDE B66/1172/2014
7. ONSONGO JOSPHAT ONDITI B66/4993/2014
8. OMANI EVANS OBARE B66/1018/2014

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TABLE OF CONTENTS

Contents
GROUP 2: CONSTRUCTION INDUSTRY AND GOVERNMENT POLICY ........................................................1
GROUP 2 MEMBERS............................................................................................................................2
TABLE OF CONTENTS ..........................................................................................................................3
INTRODUCTION ..................................................................................................................................4
CONSTRUCTION INDUSTRY..............................................................................................................4
CONSTRUCTION INDUSTRY AND THE ECONOMY ...............................................................................5
POLICIES UNDERTAKEN BY THE GOVERNMENT.....................................................................................7
FISCAL POLICY.................................................................................................................................7
MONETARY POLICY .......................................................................................................................12
REGULATORY POLICY ....................................................................................................................14
PROCUREMENT POLICY .................................................................................................................22
VISION 2030 .................................................................................................................................26
ECONOMIC PILLAR.....................................................................................................................27
SOCIAL PILLAR...........................................................................................................................27
REFERENCES.................................................................................................................................28

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INTRODUCTION
CONSTRUCTION INDUSTRY
The construction industry refers to the industry that is involved with the construction, renovation,
demolition, alteration, maintenance of;

1. Buildings
2. Transport systems e.g. roads, railways, harbours, aerodromes
3. Water systems e.g. drainage and irrigation systems
4. Electrical, Mechanical, Chemical, Petrochemical, Telecommunication works.
5. Bridges, Aqueducts, Pipeline.

These construction works involve a number of processes from their inception to fruition.
Inclusive of these are the planning, design, procurement, construction, alteration, maintenance
processes of these works.

The key players in the construction industry include;

1. Client; also called the employer. The client may be an individual or an organisation that
initiates the construction process through employing the services of consultants and
contractors. Usually because he or they have spotted a need for the construction of the
facility. Also, the client is required to the raise the resources to put up the project.
2. Consultants.

i. Architect; He/she is used mainly in building works. The architect is tasked with the
responsibility of coming up with designs to suit the specifications and desires of the
client. He/she is concerned with the aesthetics and space utilization within a building.
ii. Engineers;
a. Structural Engineer; In building works, the structural engineer is tasked with coming
up with structural designs based on the architects designs to fully support the various
loads of the building and recommends suitable materials to be used for the structural
frame of the building.
b. Services Engineer; In building works, the services engineers come up with designs
for, among others, the plumbing, electrical, ventilation mechanisms and installations
within the project. Generally, the services engineers provide for comfort within a
building.
c. Roads and Bridges Engineer; In road works, the roads and bridges engineers come up
with designs for roads inclusive of the drainage on the sides of the road.

iii. Quantity Surveyors; in building works, the quantity surveyor is primarily tasked with
the responsibility of analyzing the designs and advising the client accordingly on the
financial impact of the building project.

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3. Contractors; In both building and road works, the contractors are generally involved with
the implementation of the designs in terms of mobilizing labour and equipment towards
the overall fulfillment of a project.
4. Sub-contractors (where applicable); undertake more specific areas of the project. More
often appointed by the project manager to work alongside the main co ntractor to deliver
the project more efficiently.

The Government may be involved in the construction industry as a, among others;


a) Client through various public organisations e.g. Kenya Highways Authority that is the
client in highway constructions.
b) Financier through, for example, budgetary allocations to specific infrastructural
developments across the country.
c) Regulator through creation of bodies e.g. National Construction Authority, National
Environmental Management Authority. This regulatory form of the government ensures
the quality of the projects meets the set requirements sustainably without causing much
harm to the environment.

CONSTRUCTION INDUSTRY AND THE ECONOMY

As at the year 2014 the Gross Domestic Product of the Republic of Kenya was estimated to have
expanded by 5.3 per cent. In 2013 the growth was by 5.7 per cent. The key contributors to the
growth of the GDP in 2014 on the demand side, was the private final consumption and a rapid
growth in capital investment. On the supply side, the drivers were agriculture, forestry and
fishing; construction; wholesale and retail trade; education; and finance and insurance. Quite
notably, the construction industry is seen as one of the chief contributors to this positive effect on
the GDP of Kenya.

The Building and Construction industry experienced a 13.1 per cent growth in 2014. This is in
comparison to the 5.8 per cent growth witnessed in 2013. An economic survey carried by the
Kenya National Bureau of Statistics showed that the construction industry contributed to 4.8%.
A suitable explanation to this growth is the increase in funding towards the construction of roads
and railways together with the rehabilitation of the existing road network. The State Department
of Infrastructures total expenditure was expected to rise by 37.6 per cent to Kshs 120.5 billion
for the financial year 2014/2015. In addition, the development expenditure on roads was
expected to rise Kshs 94.7 billion in the financial year 2014/2015 from Kshs 64.4 billion in
2013/2014 financial year. Also, the Kenya Roads Board was expected to increase the funds
disbursed by it for the repair and maintenance of roads by 11.2 per cent to Kshs 25.8 billion as at
the financial year 2014/2015.

In matters housing, the National Housing Corporation completed 243 residential units in Nairobi
at a cost of Kshs 502.1 million. The actual government expenditure on housing increased from
Kshs 3.5 billion in the financial year 2012/13 to Kshs 6.1 billion in 2013/14. The value of
reported private building works completed in the Nairobi City County increased from Kshs 52.3
billion in 2013 to Kshs 59.1 billion in 2014.

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Cement consumption, another key indicator of the industry, increased by 21.8 per cent, this was
in relation to the greater growth in the building and construction sector.

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POLICIES UNDERTAKEN BY THE GOVERNMENT
FISCAL POLICY

Fiscal Policy is defined as the governments actions to influence the economy through the use of
taxation and spending.

It is used when the government wants to regulate the economy in times of overheating and
recessions, that is, when the government believes it is nec essary to influence the economy to
return it to a desired level. If an economy is having a slow growth or a very rapid growth,
through the implementation of Fiscal Policy, it may be regulated.

Governments use fiscal policy to influence the level of aggregate demand in the economy, in an
effort to achieve economic objectives of:
price stability
full employment
Economic growth.

The main tools in place used for fiscal policy are:


Taxation
Government expenditure
Transfer payments

Transfers are payments to households for example, welfare and pension to the elderly. Unlike
taxes, these transfers increase the disposable income of the households.

Taxes are generally used to finance government projects among other sources of revenue. The
impact they have on consumption may be positive or negative depending on the shift. An
increase in taxes levied would cause a drop in the consumption levels because the disposable
income of the consumers within that economy would have dropped.

Government expenditure or purchases are those goods and services that the government spends
on to help it operate and provide public goods to its people.
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Expansionary fiscal policy: This would entail policies by the government to raise the growth of
a nations economy. In cases where the economy is under recession, the government may raise
the government expenditure and/or lower taxes. This would have an effect of increasing the
aggregate demand and thus reducing the recessionary gap. An increase in government
expenditure would have a direct positive impact on the aggregate demand. A reduction in tax
would have an indirect positive impact in the aggregate demand in that the reduction would
cause an increase in the consumption of goods and services by the citizens. Below is the
aggregate demand function. This shows this relation.

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Aggregate Demand=Consumption + Investment +Government Expenditure + Net exports

Consumption is a function of Income and Taxes, that is, Consumption = Income - Taxes

Contractionary fiscal policy: This would entail policies that the government that would
implement in order to slow the rapid growth of the economy, which may lead to inflation. This
could be achieved through the reduction in government expenditure and/or an increase in taxes.
Similarly, but with some degree of difference, as with the expansionary policy a reduction in
government expenditure would have a direct negative impact on the aggregate demand and an
increase in taxes would constitute an indirect negative impact on the aggregate demand by
reducing the consumption levels.

MAIN IMPACTS IN THE CONSTRUCTION INDUSTRY

Fiscal policy has both direct and indirect impacts on the construction industry. Some of these
impacts are as follows;
Taxes, as stated, would have an impact on the consumption levels of the citizens of a
nation. This directly reflects on their purchasing power of the consumers in the
construction industry.
For example, if the government:

a) Increases taxes, this would reduce consumers disposable income of the


consumers. This naturally would suggest that the consumers would be unable to
spend a lot on housing and real estate in general. This affects the construction
industry. Similarly, an increase in VAT would increase the price of goods and
services within the construction industry such as cement. The increase in price
would discourage buying these materials thus a negative effect on the
construction industry and economy.

b) Decreases taxes, this would have an opposite effect as in increasing the taxes. The
ability of the consumers to spend in this case would be increased. In so doing, the
consumers would choose to invest more in the construction industry because of
their increase in income.

Government expenditure.
This could be in the form of government projects. For example, the government of Kenya
may choose to undertake various projects such as building schools or hospitals as a means to
inject money into the economy.

The government plays a crucial role in determining demand for the construction industry
either in output or in its growth prospect because government as a client, buys over 75% of
its output and general economic measures have a powerful influence on the demand for
construction product. In general terms government is a large client of the construction
industry and any changes in its policy towards building and engineering projects are likely to
have a considerable effect on the industry performance. In the classical view, due to the
nature of construction, the effects of demand changes take a long time before it is observed

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and this contributed to changes in the size structure of construction firms within the
construction industry. Thus, the large firm has advantage over the small firm in time of
fluctuating demand because it has the necessary capital reserves to be used during the period
of low demand and also its work load will not fall as much as that of small firms. Similarly,
any reduction in the level of building activity would give rise to unemp loyment and even
some workers in the industry will leave the industry to work elsewhere since the employment
in construction industry is based on casual basis (i.e. it is not a full time employment).

To achieve a better understanding on this issue we took Nigeria as our case study and
highlighted majorly on taxation and government spending.

A case study of how fiscal policy affects the construction industry in Nigeria:

Fiscal Policy effects on the construction works industry in Nigeria was assessed by this research.
Data for this research was obtained from of past Lagos State government budgets with respect to
taxation government spending and capital spending between the years 1980-2006. The relation
was represented by the Pearson moment correlation tables. The study was able to confirm a
significant relationship between the taxation government spending and the construction works. It
was recommended that there be a consistent policy making organization by the government. It
was further recommended that such taxes as VAT, Custom and Excise duty be reduced to
increase the disposable income of the people in order to improve investment in the construction
industry.

Taxation

An economic growth can be fuelled through tax rate reduction by the government. Lower
taxes paid by people means that they have more money which they can spend or put in an
investment like a building which is a construction output. Improved economic growth is
brought about by increased consumer spending or investment.

Effect of Taxation on Construction Sector


This section compares the significant effect of taxation on construction sector by using
correlation analysis to achieve the result. Pearson correlation coefficient was used in
assessing the level of association as well as the strength of relationship between the two
variables.

Table 1: Effect of Taxation on the Prices of Building Materials and labor

S/No Taxation/Building Pearson Ranking


materials Correlation
Value
1 Cement (50kg) 0.922 very high positive
relationship
2 Mild steel bar 0.918 very high positive
relationship
3 High tensile bar 0.923 very high positive

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relationship
4 100mm solid 0.893 high positive
concrete block relationship
5 150mm solid 0.927 very high positive
concrete block relationship
6 200mm solid 0.927 very high positive
concrete block relationship
7 Skilled labor 0.766 high positive
relationship
8 Unskilled labor 0.766 high positive
relationship

It could be observed from table 1 that, the relationship between taxation and cement, mild
steel bar, high tensile bar, 150mm solid concrete block, 200mm solid concrete block is of a
very high significant while that of 100mm solid concrete block, skilled labor, and unskilled
labor is of high positive significant.
Also, the correlation result as shown in table 1 has shown that, there is a direct positive effect
of taxation on the prices of building materials and labors since they are the factors under
construction sector.
From the analyzed result, it was observed that there is a significant relationship between
taxation and government spending on construction work. This can be justified since any
government policy which lead to an increase in taxes such as direct taxes (VAT, tax on
imported building materials (custom duties), royalties, road tolls, petrol duties etc.) or
indirect taxes (wages tax, rent tax, interest tax, profit tax etc.) could cause reduction in the
works of construction sector. Economic theories indicate that indirect taxes reduce the total
demand for goods and services. Certainly, this means that indirect taxes have most
significant resultant effect on construction goods and services. Inconsistent policy of taxation
especially VAT, customs and exercise duties, inheritance tax on construction goods and
services lead to less production and demand. Increased taxes will also make contractors and
material manufacturers feel reluctant to commit themselves to additional capital expenditure
on materials, labours, plants and equipment because there will be less money in circulation,
thereby leading to an increase in cost of construction.

Government Spending
The other possibility is by the government where it decides to amplify its own spending. A
good example is initiating construction projects like by constructing additional highways or
building structures. This scenario was seen recently in Kenya when the government
initiated Economic Stimulus Projects (ESP).
It could be observed that there is a significant relationship between government spending and
government spending on construction work. Generally the government plays a crucial role in
determining demand for the construction industry either in output or in its growth prospect
because government as a client, buys over 75% of its output and general economic measures
have a powerful influence on the demand for construction product. The government therefore
being the largest client of the construction industry, any changes in its spending policy
towards building and engineering projects are likely to have a considerable effect on the
industry performance. In the classical view, during the time of increased in government

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spending and cut in taxes (e.g. tariff on foreign and local materials), more money will be in
circulation thereby the cost of construction will be reduced and there will be an increased in
demand for construction work. Thus, the material manufacturers will be able to purchase his
raw material components offshore or local at lesser rates, in which the price of his final
product will be at affordable price.
In a nutshell, it was observed that an increase in taxes and government spending has a
significant (High positive) effect on construction sector in Lagos at a percentage of 96.4%.
This denotes that failure to consider the effect of fiscal policy (taxation and government
spending policies) adopted by any government has a high positive tendency of leading to
reduction in construction performance and productivity in any economy. The analysis also
shows that considering the relationship between the construction sector and government
policies, it is therefore necessary that government economic policies should be favorable to
the construction sector by for example neutralizing the rates of taxes and increase spending
so that more money will be in circulation and individuals and corporate bodies would have
more disposable income thus leading to greater demand for housing by individuals and
infrastructures being built by organizations.
Note: The effects of fiscal policy will be the same to the Kenyan construction industry as
fiscal policy has the same effects on any economy.

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MONETARY POLICY

Monetary policy may be defined as the management of money and interest rates to achieve a
desired economic outcome. It is generally controlled by the Central Bank of a country on behalf
of the countrys government. Basically, monetary policy seeks to control inflation in an economy
as well as exchange rate. Monetary policy involves actions that would affect the money supply
within a nation and thus the nations interest rates and exchange rates.

Monetary policy could be as such that the central bank directly influences the interest rates. The
Central Bank could set the maximum and minimum interest rates. In addition the central bank
may set the bank credit controls. The Central Bank may also lend money to the commercial
banks as a last option to facilitate the banks to meet their liquidity needs as lenders. The rates of
these loans are set in such a way that it compels the banks to be more efficient in their liquidity
management.

Similarly, the Central bank is capable of indirectly impacting the money supply within a nation
by buying and selling government securities. The buying of government securities in the form of
bond from banks would increase the money supply within a nations economy because the
money used on these purchases may now be lent out by those banks. The Converse is true in that
if the central bank wanted to reduce money supply within a nation it would sell bonds to the
banks thus reducing some of the money the banks would possibly lend to potential borrowers.

In addition, the central bank may influence money supply by their interest rates. Changes in the
Central Bank interest rates would generally trickle down in banks to all the sectors and as a result
affect the lending rates and thus the borrowing/lending activity. If the central bank were to raise
their interest rates the effect would be felt in the commercial banks and they would raise their
lending rates. This would ultimately result in a drop in the borrowing activity as these potential
customers might be discouraged by the higher interest rates.

IMPACTS OF MONETARY POLICY IN THE CONSTRUCTION INDUSTRY

The Construction is highly dependent on loans therefore naturally it may be assumed that
monetary policy plays a big role in the construction industry.

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1. Inflation rate

This is the rate of increase of the prices of goods and services. In relation to the construction
industry, as the inflation rate increases the price of construction materials also increases. For
example, steel, an important material in the construction of reinforced structures. If the inflation
rate rises rapidly during the course of a construction project lifetime, the total cost would greatly
increase. Taking the example of the steel, the price of the steel would rise and ultimately that of
the whole project. Thus, unstable inflation rates discourage local investment in the construction
industry as it would appear comparatively expensive on the occurrence the interest rate increases.

2. Inte rest rates

The Construction industry is highly dependent on loans. Therefore, any changes in the interest
rates would directly affect the construction industry. Interest rates tend to rise when there is
inflation in an attempt regulate this inflation. Generally, an increase in interest rates would
reduce the activity of the construction industry and vice versa. It would affect the financing of
the project as some clients and property developers seek financing from banks. In addition, it
would affect the purchase of the finished buildings as some the buyers similarly rely on bank
loans. Furthermore, loan repayment would be a challenge if the interest rates increase.

3. Exchange rates

The construction industry is an international industry therefore some materials may be imported
to the site from a foreign country; especially the finishes. Therefore, to purchase these materials,
the client must buy them from their country of manufacture and to do so he/she must buy the
foreign countrys currency. On the occurrence of a lower domestic exchange rate than that of the
foreign country, the materials would seem comparatively more expensive thus discouraging
construction activity. The converse is true.

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REGULATORY POLICY
The construction industry is subject to a diverse range of statutes formulated by various
government bodies and agencies. The main objective of statutory regulation is to protect and
preserve public interest and the interest of the various players in the industry.

The construction regulation targets among others the following thematic areas;-

i. Health, safety, environmental and land planning regulations-these regulations ensures the
safety of the objects constructed, implementing urban and land use planning and
preserving the environment. Contractors and proprietors typically have to comply with
multiple authorization requirements and procedures prior to service provision or pre-
qualification requirements. Some of these authorizations shall be outlined later.
ii. Commercial presence and the movement of people regulations-some regulations deal
with trade in construction services and products especially on foreign direct investment.
Foreign contractors may be required to source personnel and products locally. Visas and
entry permits, as well as related administrative procedures can affect the movement o f
natural persons. Employment regulations may extend minimum wages, rules on working
hours of foreign workers employed temporarily at construction sites, and requirements on
foreigners to participate in social security systems etc.
iii. Government procurement regulations-procurement laws in Kenya guide the process of
selecting a service provider for construction services in Kenya, especially in the public
sector.

Historically the professionals representing the land and built environment have depended upon
and trusted their professional and regulatory bodies both to uphold educational and professional
standards among its members and also to regulate the profession for the benefit of members and
broader society.

The professional and regulatory bodies that govern the works of these professionals in the Kenya
construction industry include:

1. Board of Registration of Architects and Quantity Surveyors (BORAQS)


2. Architectural Association of Kenya (AAK)
3. Institute of Quantity Surveyors of Kenya (IQSK)
4. National Environmental Management Authority (NEMA)
5. Nairobi City Council (NCC)
6. Ministry of Public Works (MoPW)
7. Engineers Registration Board (ERB)

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1) BORAQS is a Kenya government professional regulatory body established to regulate
professionals in the fields of Architecture and Quantity Surveying towards a Sustainable
Built and Natural Environment. The body executes its mandate through training,
registration and enhancement of ethical practice.
No person should practice under any name, title or style containing any of the wo rds or
phrases "architect", "architecture", "architectural", "quantity surveyor" or "quantity
surveying" unless he is registered under the Act as an Architect or a Quantity Surveyor. 1

2) Architectural Association of Kenya (AAK) on the other hand was establis hed in 1967 to
be Kenyas leading Association for professionals in the built and natural environment in
Kenya incorporating Architects, Quantity Surveyors, Town Planners, Engineers,
Landscape Architects and Environmental Design Consultants and Construction Project
Managers. The Association is registered under the Societies Act and brings together
professionals from the Private Sector, Public Sector and Academia.

The stated objectives of AAK are:

i. To co-ordinate the activities of professionals concerned with built and natural


environment in Kenya and promote professionals integrity and to direct the members of
Association in all matters of professional practice;
ii. To advance the science and art of planning and building by developing the standards of
professional education, training and practice, and facilitate matters of mutual interest of
the member professions;
iii. To create public awareness by marketing the services of member professions and provide
professional opinions on the matters pertaining to violation of the statutes provided for
good maintenance of the built and natural environment;
iv. To establish and accredit Continuing Professional Development programmes for the
members of the Association and encourage collaboration of professionals and societies
engaged in the built and natural environment;
v. To offer community services by participation in the enhancement of built and natural
environment, maintain building information services, and monitor quality assurance on
materials;
vi. To liaise with the Government and regulatory agencies on the matters affecting
Registration and licensing of the professionals engaged in the built and natural
environment;
vii. To foster National, Regional and International co-operation in matters dealing with the
professions related to build and natural environment;
viii. To maintain and protect heritage of the built and natural environment;

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Architect and Quantity Surveyors Act, 2010

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ix. To facilitate research and dissemination of information for advancement of professional
education, training, and practice;
x. To publish documents and publications for the benefit of the members of the Association
and the general public in matters of the built and natural environment.
xi. To create revenue generating activities for the Association. 2

3) Institute of Quantity Surveyors of Kenya (IQSK) is an organization specifically charged


with promoting and safeguarding the interests of the Kenyan Quantity Surveyor. The
primary objective of IQSK is to promote the advancement of the practice of Quantity
Surveying and its application in Kenya.
The Institute of Quantity Surveyors of Kenya (IQSK) was founded in 1994 as a non-
political and non-profit making organization whose primary objective is to promote the
general advancement of the practice of Quantity Surveying and its application in Kenya
including facilitating the exchange of information of the institute and otherwise.
It cooperates with universities, other educational institutions and public education
authorities for furtherance of education and training in Quantity Surveying and practice.
In addition it works closely with the Board of Registration of Architects and Quantity
Surveyors, and other relevant societies on matters concerning Quantity Surveying
education, training, examinations and practice 3

4) The Engineers Registration Board (ERB). The Engineers in Kenya are governed by the
Engineers Registration Board (ERB) through Engineers Registration Act of the laws of
Kenya. The Act requires that for a person to be registered as an Engineer, he must be a
holder of a degree, diploma or license of a university or school of engineering which may
be recognized for the time being by the Board as furnishing sufficient evidence of an
adequate academic training in engineering. The person must also have three years'
practical experience of such a nature as to satisfy the Board as to his competence to
practice as a registered engineer. 4 It provides for temporary registration for persons with
intends to be present in Kenya in the capacity of an engineer for the express purpose of
carrying out specific work for which he has been engaged. He or she must however
immediately before entering Kenya be in practice as an engineer in such a capacity as to
satisfy the Board of his fitness to serve the public as a registered engineer. 5

5) Nairobi City Council (NCC) is the local authority governing the city of Nairobi, Kenya. It
is the largest of the 175 local Authorities in the country and is under the Urban Areas and

2
The AAK Constitution and By Laws
3
IQSK, 2012
4
Engineers Registration Act, 2009
5
Engineers Registration Act, 2009

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Cities Act, 2011. NCC is mandated to provide and manage basic social and physical
infrastructure services to the residents of Nairobi. These services include basic education,
housing, health, water and sewerage, refuse and garbage collection, planning and
development control, urban public transport and fire services among others 6

APPROVAL OF BUILDINGPLANS
Various departments are involved with the approval processes within most of the county
councils. There are basic requirements that they have in each of them, and each checks
the relevant parts of zoning requirements or building codes that relate to them. The main
departments that one is likely to encounter in the process of seeking approvals includes
i. Physical planning department this deals with zoning and large scale planning
regulations, and ensures that a proposed development is in conformity to the
allowable building types for an area, as well as observes the relevant rules
regarding building setbacks, road reserves, plot coverage and plot ratios.
ii. Roads and sewerage departments deal with civil works-oriented types of
approval, especially with regard to planning of roads and verification of sewer
provisions in large estate developments and similar master plans.
iii. Health department deals with internal provisions as relates to human comfort
within habitable rooms. They scrutinize provisions for house plans in Kenya with
regard to ventilation, room sizes, drainage systems, and similar provisions.
iv. Fire department seeks conformity with allowable fire safety provisions,
especially regarding multiple dwelling units and office blocks.
v. Factories and Industrial Departme nts are involved with approvals of large
industrial facilities such as factories, go downs and any buildings in which
industrial and manufacturing processes are likely to be undertaken.

6) The Ministry of Public Works (MoPW) is a Kenya government ministry that facilitates
provision, construction and maintenance of quality government buildings and other
public works for sustainable socio-economic development. The ministry is further
mandated to formulate public work policy for public works, spearhead public works
planning, develop and maintain public buildings, maintain inventory of government
property, provide mechanical and electrical (building services), coordinate procurement
of common user items by government ministries, and register and regulate the work of
contractors, consultants for buildings and civil works and materials suppliers. 7

7) The National Environment Management Authority (NEMA). It is is a body established


under the Environmental Management and Coordination Act of the laws of Kenya to

6
City Council of Nairobi, 2011
7
MoPW, 2012

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exercise general supervision and co-ordination over all matters relating to the
environment and to be the principal instrument of Government in the implementation of
all policies relating to the environment. 8
Roles of this body include:
i. Co-ordinate the various environmental management activities;
ii. Establish and review in consultation with the relevant lead agencies, land use
guidelines;
iii. Examine land use patterns to determine their impact on the quality and quantity of
natural resources;
iv. Identify projects and programs or types of projects and programs, plans and
policies for which environmental audit or environmental monitoring must be
conducted under this Act, including all construction projects;
v. Publish and disseminate manuals, codes or guidelines relating to environmental
management and prevention or abatement of environmental degradation. 9

It requires that any person, being a proponent of a project, including all construction
projects, to execute and submit a project report to the Authority, giving the prescribed
information regarding the nature of the project. An environmental impact assessment 10
study and report is then executed after studying the project report submitted to the
authority to assess the impact that the intended project may or is likely to have or will
have on the environment 11

The management of real estate assets is also regulated by a number of statutes. These laws
regulate the leasing, transfer and maintenance of real estate. This includes the following:

The Public Health Act, which relates to maintenance of property in a good habitable
condition. The workings of this Act spell out the minimum standards to keep the property
in and the consequences likely due in default.
Landlord and Tenant Act which aims to make provisions with respect to certain
premises for the protection of tenants of such premises from evictions or exploitation and
other incidentals. It works as a counterpart of the Rent Restriction Act Cap 296 in
commercial properties. It spells out the lease terms under the Acts control, maintenance
and repair roles, payment of certain charges etc. The Distress for Rent Act is used for the
recovery of rent arrears. Other notable statutes include:-
The Registered Land Act
The Local Government Act

8
Environmental Management and Coordination Act, 1999
9
Environmental Management and Coordination Act, 1999
10
Environmental Impact Assessment (EIA) is defined as the process of identifying, predicting, evaluating and
mitigating the biophysical, social, and other relevant effects of development proposals prior to major decisions
being taken and commitments made (IAIA, 1998)
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Environmental Management and Coordination Act, 1999

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Factories Act
the Building Code
Occupiers Liability
Sectional Properties Act
the Estate Agents Act which governors the property management
profession in Kenya

In terms of urban development there are two key statutes:


the Physical Planning Act (Cap 286)
The Local Government Act (Cap 265).

There are other laws that govern the physical planning and are found mostly related to land.
Some of these legislations are:

Physical Planners Registration Act, 1996


Environmental Management and Co-ordination Act, 1999
Public Health Act (Cap 242)
Agriculture Act (Cap 318), Rev.1986
Land Control Act (Cap 302)
Land Acquisition Act (Cap 295), 1968
Registered Lands Act (Cap 300)
Survey Act (Cap 299)
The Building By-Laws (Grade I &II), 1968
Housing Act (Cap 117)
Water Act, 2002

Notably, most of the laws in the Acts mentioned in this study are outdated by time and no longer
effective in guarding professionalism in Kenya. The penalties and fines proposed in these laws
are too lenient for todays social and economic setting in Kenya. For instance, section 3 of the
Architects and Quantity Surveyors Act recommend a fine not exceeding five thousand Kenya
shillings for any person who contravenes the provisions of subsection 1 of this section, which
include the unlawful use of protected names under this act by un-registered persons 12 , For
Engineers, any person who pretends to be a registered engineer shall be guilty of an offence and
liable to a fine not exceeding twenty thousand Kenya shillings 13 . These penalties in the acts have
not been reviewed in a long time to reflect on the rising inflation and lose of currency value of
the Kenya shilling despite the extent of contravention of the same laws by un-trained and un-
qualified persons.

12
Architect and Quantity Surveyors Act, 2011
13
Engineers Registration Act of Kenya, 2009

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REMUNERATION OF ARCHITECTS AND QUANTITY SURVEYORS

The general remuneration of the architects and the quantity surveyors is guided by law under
CAP 525 part 3 of the ARCHITECTS AND THE QUANTITYSURVEYORS ACT.

i. An architect can charge for normal service is 6 per cent for new works and 10 per cent for
works to existing buildings.
ii. Quantity Surveyor. For purposes of the report and the general appreciation of the class
the group focused more in the remuneration of the quantity surveyor.
The following shall be the charges to be made by a quantity surveyor in connexion with:
a. Taking out and preparing bills of quantities:
Basic scale2 per cent upon the estimated cost of the work.
Works of alterationthe charges in subparagraph (i) shall be increased by
not less than per cent in respect of works of alteration according to the
nature of the work.
b. Measuring and making up accounts of variations upon contracts, including pricing
and agreeing totals with contractors:
3 per cent upon the gross amount of the additions; 1 per cent upon the
gross amount of omissions less the total of the provisional sums omitted or
work omitted as a whole.
c. When bills of quantities are prepared for several distinct works, including
housing, being a repetition of one design the fee for 2 per cent shall be charged
on one complete work so repeated and a fee of half per cent shall be charged on
each repetition of the design constructed, provided that all works or portions of
works re-measured shall be charged for at the full rate of 2 per cent.
d. Measuring from drawings and specifications and preparing bills of quantities of
labour only or materials only, the fee to be double the foregoing rates.
e. Taking out and preparing bills of quantities or measuring for making up accounts
for decoration contracts: 2 per cent above the rates of the foregoing paragraphs.
f. Pricing bills of quantities:
per cent
g. Preparing approximate quantities and estimating upon same:
per cent upon the estimated cost or alternatively a charge to be based
upon the time involved.
h. Surveying work in progress, taking particulars and reporting for interim
certificates:
per cent upon each valuation less the amount of any previous valuation
or valuations upon which fees shall have been paid, or alternatively, a
charge to be based upon the time involved.

20
i. Taking particulars on site and writing specifications for works of alterations or
repair:
7 per cent upon the amount expended, or alterntively, a charge based
upon the time involved.
j. Measuring from completed works and preparing bills of quantities:
3 per cent
k. Preparing a full cost analysis:
1/3 per cent of the value of the work (as defined in clause B.1 (a) (iii)), or
alternatively a charge to be based upon the time involved.

21
PROCUREMENT POLICY

Procurement may generally be defined as the acquisition o f goods, works or services from a
source outside an organization usually by means of a competitive tendering process. A more
detailed definition would be; the acquisition by purchase, rental, lease, hire purchase, license,
tenancy, franchise, or by any other contractual means of any type of works, assets, services or
goods 14
For purposes of the report we will focus on the works aspect of the definition. Works in this
context refers to; the construction, repair, renovation or demolition of buildings, roads or other
structures. 15
The concept of Value for Money would generally refer to more than just the cost of procurement.
More requires to be taken into account such as the cost effectiveness of the works over its life
time. Ideally, the public entities on awarding these tenders should choose those that have been
able to meet the value for money of these goods and services. That is in the long run will not
prove costly to maintain and meet the social and environmental regulations.

History and evolution of the Public Procurement Process in Kenya

Locally, the public procurement process has evolved over the years from a very basic system of
practically no regulations to a more detailed one that is in use now.
During the colonial period the systems that were in place were generally to enable the colonial
masters in the acquisition of cheap materials for their home countries- in our case Britain.
It is these very systems that were in place after attaining our independence in 1963 but adapted to
fit the local setting. The agency system in place during the colonial period was carried forward
but the agents were to supply goods and services to the newly instituted government of the
Republic of Kenya.

A key introduction to the procurement process was that of the Supplies Manual in 1978. It was
used as a guideline for the supplies of goods to the government. Other documents that were
referred to were circulars by the President, Ministry of Public Works and Treasury. Notably, the
manual did not cover works. Therefore, the Ministry of Public Works and the Office of the
President had free access to public funds intended to be used in public works projects. Also, the
document did not cover corporations and parastatals.

During the period of District Focus on Rural Development Strategies, the document that was
most referred to on procurement policy was the Blue Book (Nyachae Book).

As of the year 2001 onwards public procurement policy has undergone numerous changes that
have realized good results. These include; the enactment of the exchequer and audit (Public
Procurement) Regulations. Under this it saw the establishment of the Public Procurement
Directorate and Public Procurement Appeals Board. Also, parastatals and corporations were
subjected to these regulations stating that each public unit was required to set up a procuring unit
14
The Public Procurement and Disposal Act CAP412C Article 3
15
The Public Procurement and Disposal Act CAP412C Article 3

22
to manage all the procurement and disposal processes. In addition, this period saw the approval
and operationalization of the public procurement and disposal act. Furthermore, during this
period the government initiated public private partnerships. This was owing to the fact the
government realized it did not have enough monetary resources to meet the needs it saw
necessary to realize economic growth. Thus, this is was in a bid to mobilize these requisite
resources. The Constitution of Kenya, 2010 states when a State organ or any other public entity
contracts for goods or services, it shall do so in accordance with a system that is fair, equitable,
transparent, competitive and cost-effective.16

More recently, The Procurement and Disposal Regulations (Preservations and Reservations),
2009 is meant to provide an opportunity to the disadvantaged groups who may not be able to
compete fairly with the more established firms. Also, the Procurement and Disposal Regulations
(County Governments), 2013 were introduced to cover the then newly formed county
governments. It was to allow the integration of the Procurement and Disposal Act to the county
governments.

Objectives of the Public Procure ment and Disposable Act and Bodies arisen from the Act

The act was put in place to achieve certain objectives. These are;
a. To maximize economy and efficiency;
b. To promote competition and ensure that competitors are treated fairly;
c. To promote the integrity and fairness of those procedures;
d. To increase transparency and accountability in those procedures; and
e. To increase public confidence in those procedures;
f. To facilitate the promotion of local industry and economic development. 17

The bodies that were established as a result of the Act notably are:
i. Public Procurement Oversight Authority: It is responsible for the oversight,
regulation and policy development of public procurement in Kenya. 18
ii. Public Procurement Oversight Advisory Board: It is the body that supervises and
offers guidance to the Procurement Oversight Authority on its powers.
Open Tenders

This is one in which the tender is advertised in a local daily that invites contractors to apply for
the tender. This is a competitive process which encourages the public entity to select the
contractor that meets the requirements and offers the best price for the tender. In the Public
Procurement and Disposal Act, the advertisement of the tender if is sufficient for national
advertisement should be posted in a conspicuous location in a daily paper of nationwide
circulation at least two times.

This type of tender is advantageous as it encourages competition in the tendering process and
thus ideally, the best contractor would be selected for a particular work.

16
The Constitution of Kenya Article 227(1)
17
The Public Procurement and Disposal Act Article 2
18
Public Procurement Oversight Authority Brochure, 2009

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Other Procurement methods

Some of the other Procurement methods are:

1. Selective tendering: A pre-selected list of suppliers or contractors are chosen and invited
to tender for a project. Firms that have a track record on that particular field are those that
are preselected
2. Negotiated tendering: appropriate for works requiring high specialty. Contractor given a
bill of approximate quantities of price and invited to tender.
3. Public Private Partne rship: Private firms are asked to invest in the provision of a good
with public consumption in mind in partnership with a public body/ entity.
4. Two-stage: For very high specialist work. Firms are invited to provide a technical
proposal which is the design of the work and if selected asked to provide a financial
proposal on the cost of the project.
5. Serial tendering: Serial tendering generally involves the preparation of tenders based on
a typical or notional bill of quantities or schedule of works. 19
6. Design and Build: The Contractor is given some responsibility in the design of the
project itself. The liability would fall on the Contractor. It ensures an expedient start on
site as the contractor is both responsible for the design and the construction. As opposed
to the client seeking another consultant for the design then seeking the contractor for the
construction.
7. Fast Track: This is where the construction of the site may start before the design is
complete. A risk is that the cost of the site is unknown at the inception of the site.
8. E-procure ment: Alternatively e-tendering, is an online platform that allows contractors
to bid for tenders on the web. It is a cost effective and time saving method as it does not
require purchases of papers and has no transport cost because one can apply from any
location. In addition, it is transparent as no one is able to access the tenders before they
are posted online.

Failures in the System


Despite all these regulations there are some challenges that face the Procurement process. In
summary, they all result undermining the objectives and core values of the procurement process
in general.
Some of these issues are:
Corruption
Cartels/Monopolies
Lack of Accountability
Lack of transparency
Public funds include those from grants and aids from donors to governments to engage in
activities, for example, development projects. Therefore, mismanagement of these funds
ultimately leads to a lack of confidence in a regime and fewer countries or organisations would
want to invest in such an economy. Thus gravely affects the economy.

19
http://www.designingbuildings.co.uk/wiki/Serial_tendering

24
Conclusion

The procurement process in the country has undergone concrete changes since the turn of the
millennium. However these changes are not final. Over time there ma y be revisions and
amendments to the Act to curb corruption in forms that were unforeseen prior to the enactment
of the Act that may undermine the procurement process.

25
VISION 2030
Following past social and economic challenges the government of Kenya imple mented economic
and structural reforms through the Economic Recovery Strategy for the period between the years
2003-2007. The strategies implemented sought to pull the economy out of the recession.
Through various fiscal and monetary policies, the Kenyan economy growth increased from
virtual stagnation in 2002 at 0.6 per cent to 6.1 per cent in 2006.

Building on this remarkable growth through the Economic Recovery Strategy, the government
set up the vision 2030. Vision 2030 is a long-term development policy initiated by government in
2007 as it sought to transform Kenya into a newly industrializing, middle-income country
providing a high quality life to all its citizens in a clean and secure environment. 20 In essence
what the government was attempting to achieve through this vision is trying to meet the
Millennium Development Goals for its citizens. The Millennium Development Goals were eight
goals that United Nations member states agreed to try and achieve by the year 2015. It was
signed in the year 2000.

These goals mainly touched on the health matters within the society. With the lapse of time for
the Millennium Development Goals, the United Nations convened in the year 2015(last year),
and set up a set of new goals to be attained by the year 2030-The Sustainable Development
goals.

Vision 2030 marries with the Sustainable Development Goals in that, among others, member
states should try to build infrastructure. Generally vision 2030 is founded on three main pillars:
Economic pillar

20
Vision 2030

26
Social pillar
Political pillar
For purposes of this report we will focus mainly on the economic pillar and social pillar.
ECONOMIC PILLAR
INFRASTRUCTURE
One of the aims of vision 2030 is to have a country well connected through roads and other
transport systems, that is, railways, airports, ports and waterways. Also, water and sanitation
systems should be provided to all its citizens.

The aim of infrastructural developments in general is that by the year 2030, it would be
impossible to refer to any region of the country as remote.21

In order for the country to achieve its economic pillar, that is, to achieve and maintain a 10 per
cent growth rate yearly, the government identified various important sectors that could enable the
government to achieve it- agriculture; tourism; manufacturing; wholesale and retail process
outsourcing and financial services.

In order to attain these economic targets it is of importance that the infrastructure is given some
level of priority because of its causative effect towards the general economy. Among those
sectors that would greatly benefit through the development of infrastructure are:
a) Tourism through the development of resort cities. Kenya aims to be one of the top ten
tourist destinations by the year 2030.
b) Agriculture.
c) Wholesale and retail trade.
d) Manufacturing.

A well networked transport system would encourage various investors to put up their resources
in terms of investment towards a venture thus building up the construction sector and generally,
the economy.

SOCIAL PILLAR
HOUSING AND URBANIZATION
Within the Social Pillar of Vision 2030 is a topic on Housing and Urbanization. It is projected
that by the year 2030 Kenya will be predominantly an urban country. It is important that the
government provides for the high quality life o f its which it aims to do by the year 2030. The
vision is that by the year 2030, Kenya will be an adequately and decently- housed nation in a
sustainable environment.22

This will be attained through:


i. Better development affordable and adequate housing.
ii. Adequate finance for developers and buyers.
iii. Setting up reforms to unlock the potential of the housing sector.
iv. Nationwide urban planning campaigns.

21
Vision 2030
22
Vision 2030

27
REFERENCES
Journal of the federation of building and civil engineering contractors in Nigeria
Economic theory and the construction industry by Hildebrandt
Construction economics by Danny M.
Nigerian fiscal policy
Vision 2030
National Construction Authority
National Environmental Authority
Macroeconomics Class Notes
The Public Procurement and Disposal Act
The Long Term Policy Framework For Public Procurement In Kenya
The Historical Evolution Of Public Procurement In Kenya, Joseph M. K. Mokaya
The Constitution of Kenya
Investopedia
https://www.centralbank.go.ke/index.php/monetary-policy- faq
Monetary and Fiscal Policy Factors That Affect Construction Output in Kenya,
Emmanuel Thyaka Mbusi, Titus Kivaa Mbiti, Githae Wanyona
http://www.tikenya.org/index.php/press-releases/277-public-procurement- in-kenya-cash-
cow-for-the-corrupt-or-enabler- for-public-service-delivery

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