4 things to consider before you get into the Construction Industry in Kenya

The Hebrew Bible refers to an interesting occurrence in the book of Genesis (which is a popular story retold in Sunday Schools the Country over). In the captivating story, humanity comes together to embark on the biggest infrastructure project witnessed in all myth and truth. The People want to build a Tower that reaches outer space (heaven). The site is such a marvel that the religious text continues to add that it impressed even God himself or herself or itself (depending on what you believe). So much so that God introduced linguistic confusion that derailed the project as a whole.  Taken away from its religious environment, the text can be looked at as an illustration of the state and challenges facing the construction industry in Kenya.    

In the place of the people building the tower of Babel is the average “Constructor” intending to build and develop an infrastructural project. Whether it’s a basic road in a rural area deep in the innards of Central Kenya or a new terminus at Jomo Kenyatta International Airport. Billion shillings or million shillings, 100,000 shillings or 100 million shillings, the domestic construction landscape faces a similar set of challenges and contains within it a similar set of prospects and opportunities.

Kenya as a country is ripe for infrastructure projects and this enthusiasm is best expressed by the fact that the 2021 budget set aside 310 billion shillings (one-tenth of the entire budget) for the completion of infrastructure projects across the country.[1] Nonetheless, the legal and economic framework is still reactive as opposed to proactive when it comes to dealing with construction disputes or structuring construction projects. What this means is that the legal regime generally reacts as opposed to proactively offering faster and efficient solutions to construction disputes at the onset and providing legislative guidance during the early stages of project structuring.

Drawing from the narrative above, in the place of God is the national legal and economic framework that often introduces confusion into the domestic construction industry. Sometimes some of the major issues that create impediments to the construction journey are literal language barriers for example when a road is being built by a Chinese Expatriate in an African Country. However, most of the time the challenges are less literal and include challenges in Project Financing; Licensing Requirements, Proper Contract Formulation, Government Regulation and Inter-Country Employment Relationships where the Developer is not a Kenyan citizen.   

PROJECT FINANCING

Developers use a variety of ways to get adequate financing for their projects. For individual well to do developers, self-funding is often the clear option. Otherwise, developers have the option of approaching venture capitalists who finance the projects in return for a share in the returns. Aside from this developers may approach financial institutions for well-structured debt financing arrangements where the Bank offers the developer a loan to be repaid after the returns accrue on the project. For example, Consolidated Bank offers a loan scheme where one can get a 24-month loan repayable after 10 years for constructing rental houses. [2]

LICENSING

Depending on the nature of a project, the Developer will be required to get several licenses from government authorities. One of the most common is approval and licensing by the National Environment Management Authority (NEMA). Failing to acquire this approval can stunt a project. A quick example of this is the Lamu Coal Project. The construction, which would have been a first of its kind, was stopped after residents and environmentalists went to court. The National Environment Tribunal ruled that the license for the project was issued with no assessment of the impact it would have on the environment and the health of locals thus bringing the project to a grinding halt. [3]

CONSTRUCTION AGREEMENTS

A major hindrance to the completion of infrastructure projects in the country is endless court cases. [4]More often than not these cases end up in court due to loosely worded Dispute Resolution Clauses in the Construction Contracts. Whereas some of the disputes can be swiftly solved through Construction Adjudication, determined by Experts or through Arbitration they end up in the already overburdened formal justice system.

An example of such a dispute is in the case of Niazsons (K) Ltd v China Road & Bridge Corporation Kenya [2001] eKLR where a dispute revolving around the execution of road works on a 52 km stretch of the Garsen-Hola Road worth over 400 million was stuck in the Court Process for years, finally being determined by the Court of Appeal in 2001.

EMPLOYMENT ISSUES

A good number of infrastructure projects are carried out by Foreign Companies. This often brings with it a clash of cultures and understandings of the legal systems that eventually lead to disputes between the companies and their employees. For example, in the case of Anthony Wangai Kiragu v, China Road And Bridge Corporation [2017] eKLR a Kenyan employee working with the China Road and Bridge Corporation was awarded general damages of over 800,000 shillings for unfair termination where his employer terminated his services without proper notice. Viewed from a different perspective it is an illustration of a conflict between the abrasive Chinese commercial culture that has little regard to worker rights with the worker favouritism present in the Kenyan Employment and Labour Relations Court.[5]  

In conclusion, Kenya’s is a developing country which by its goals expressed through Vision 2030 is keen on infrastructure development. This can be seen as successive regimes introduce policies and road maps like the Big Four Agenda geared towards attracting investors and developing infrastructure across the country. The Kenyan legal regime needs to adopt and embrace alternative means of resolving disputes and legal practitioners should adopt a preventative mindset, where they work to prevent a dispute or lengthy dispute resolution frameworks. The legal regime must also work towards cultural sensitivity in resolving disputes pitting locals and foreigners in the Construction Industry.  

 [1] https://www.capitalfm.co.ke/news/2021/06/govt-allocates-sh310bn-to-complete-infrastructural-projects/

[2] https://consolidated-bank.com/commercial-construction-loans.php

Published by masibolaw

I help ambitious entrepreneurs to overcome legal and regulatory obstacles while growing their businesses.

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