New rule hands local firms a cut of mega projects pie

The government has provided a lifeline to local contractors by making it mandatory for multinationals to form partnership with them when applying for multi-billion shillings contracts.

Under the new rules, foreign firms must ensure that a minimum of 30 per cent shareholding of their local operations goes to local partners before they are allowed to operate.

The new rules by the National Construction Authority (NCA) are meant to boost local contractors’ stature and capacity to handle large projects that cost more than Sh1 billion.

The move would also see local contractors seek mergers to form strong firms that provide a wide array of services from surveying, legal work, branding, construction, engineering, IT, research and development, among other consulting services that foreign firms offer at no extra cost.

The National Construction Authority Act now requires all foreign firms to form joint ventures with local companies on a 30 to 70 per cent shareholding ratio.

After gaining the necessary capacity, Kenyan firms will be able to seek registration as NCA Category One contractors. Currently, a paltry 22 Kenyan firms are in the category, compared to 56 Chinese companies and 45 other foreign entities.

“Foreign firms only get a licence for one project in a given specific period and the licence is only renewed after satisfactorily carrying out the first project. Kenyan firms are mostly known for cost variations and delays that end up costing the taxpayer and investors more money,” said NCA’s Official and Quantity Surveyor David Mathu.

Public Works Principal Secretary Prof. Paul Maringa expressed optimism that the proposed Contractors Development Fund and Guarantee would be well funded to enable it cushion local contractors against high interest fees charged by local banks for project guarantees.

The Fund will enable local contractors to bid for mega projects with the backing of the government. The firms will also be able to lease equipment once they clinch a contract.

Local firms blame the unfavourable conditions against them “for exportation of jobs to China” whose contractors enjoy low cost bank guarantees of between 3 and 4 per cent, compared to Kenya’s 17-20 per cent. Chinese contractors also get government support when sourcing for jobs.

Formidable entity

In their earlier survey, NCA found that while up to 50 Chinese small firms merge to form a formidable single entity, many Kenyan companies remain one-man outfits that lack diversity in their offering of services and experiences for various projects, hence losing out to foreign firms.

Professor Maringa said NCA and the Board of Real Estate, Architects and Quantity Surveyors (BORAQS) would oversee the implementation of the proposed guarantee fund.

He said part of the levy in the industry will be used in upgrading skills of local contractors, construction workers and labourers, leading to certification. Speaking at a recent event convened by Women in Real Estate (WIRE), dubbed ‘Hammer N Heels Breakfast’  the PS said the move will also rid the construction industry  of quacks.

The new requirements will see workers at all levels — from unskilled, semi-skilled to trained artisans at certificate, diploma and degree levels — receive certification befitting their status, thereby enabling firms to meet the requirements that NCA needs for various projects.

The PS added that to ease operations of all stakeholders, extensive consultations on taxes in the construction industry will be conducted. He added that the talks could see some levies scrapped, others merged and one-stop application and tax remission point be established.

“These proposals are being polished and statutory approvals sought before they are sent to the public for deliberations,” he said.

On gender balance, the PS said that an effective forum would be created at all levels, in private and public bodies, to give women a chance to contribute to nation development both in business and decision making.