The PPP Act Kenya, enacted in 2021 and operational under the 2022 Regulations, has rewired how the country procures roads, power, water and social infrastructure. For general counsel asked to sponsor, fund or contract with a Kenyan project vehicle, the framework is more disciplined than its 2013 predecessor — and considerably less forgiving of late-stage drafting. This article maps the pipeline and flags where deals are won and lost.
At a glance
- The Public Private Partnerships Act No. 14 of 2021 consolidates national and county PPPs under a single statutory framework anchored by the PPP Committee and the PPP Directorate.
- Section 4 recognises a broad menu of PPP arrangements — BOT, BOOT, concessions, management contracts and operation-and-maintenance — giving sponsors structural flexibility.
- Two procurement routes coexist: a competitive bid track and the privately initiated proposal (PIP) route, the latter subject to a Swiss-challenge style process under Part VII.
- Government support under section 23 is permitted but tightly gated by the Public Finance Management Act 2012 and Article 201 of the Constitution.
- Project agreements default to arbitration under the Arbitration Act 1995 (Cap. 49), but the seat, language and rules must be negotiated, not assumed.
The legal framework
Kenya’s PPP regime sits on four statutory pillars and one constitutional foundation. The Public Private Partnerships Act No. 14 of 2021 (the “PPP Act”) is the operative statute, replacing the 2013 Act and now read together with the Public Private Partnerships Regulations 2022. The Public Finance Management Act 2012 (the “PFM Act”) and the PFM (National Government) Regulations 2015 govern fiscal commitments, contingent liabilities and any direct support the National Treasury extends to a project. Above all of these, Articles 201 and 227 of the Constitution of Kenya 2010 set the principles of public finance and procurement — openness, accountability, value for money — that bind every contracting authority.
A second tier of legislation matters in practice. The Public Procurement and Asset Disposal Act 2015 applies wherever the PPP Act does not, and continues to govern ancillary procurements during project delivery. The County Governments Act 2012 is the lens through which a county-level PPP must also be assessed, because county executive committees do not act in a vacuum — they remain answerable to county assemblies on any obligation that touches the county fiscal framework. Dispute resolution defaults to the Arbitration Act 1995 (Cap. 49), unless parties contract out by reference to recognised institutional rules.
It helps to think of these instruments as concentric circles. The PPP Act and its Regulations are the inner ring — they govern project identification, approval, procurement and contracting. The PFM Act sits around them, controlling any flow of public money or guarantees. The Constitution is the outer ring, and a project that cannot be defended against an Article 201 challenge will not survive judicial scrutiny, no matter how elegant its commercial structure. In our view, counsel who treat these as separate workstreams underprepare; the strongest project teams diligence them together from day one.
What the PPP Act 2021 actually does
The 2021 Act is not a wholesale reinvention. It is, however, a meaningful tightening of the institutional, procurement and approval architecture. Three structural features matter most to in-house counsel.
The two-track procurement model
The PPP Act contemplates two main routes to award. The first, set out in Parts V and VI, is conventional competitive bidding: a contracting authority identifies a project, prepares a feasibility study, secures approvals from the PPP Committee, and then tenders the project under defined evaluation criteria. The second, in Part VII, is the privately initiated proposal — the PIP route — where a private party brings an unsolicited proposal and, if the project is accepted as feasible and in the public interest, the proposal proceeds to a competitive process that gives the originator certain advantages, broadly comparable to a Swiss challenge.
The two tracks are not interchangeable. Each has distinct timelines, intellectual-property treatment and cost-reimbursement rules, and the choice has serious downstream consequences for sponsors. The Regulations 2022 supply much of the procedural detail [VERIFY: confirm current text of the PIP procedure timelines against Kenya Law / Parliament site].
Government support and contingent liability
Section 23 of the PPP Act authorises government support — guarantees, viability gap funding, indemnities and the like — but conditions any such support on PFM Act compliance. In practice, this means the National Treasury, through the Debt Management Office, must size and account for the contingent liability before the contracting authority can sign. For sponsors, this is the single most common cause of delay between preferred-bidder announcement and financial close.
The control point matters because lenders price political and termination risk against the strength of the support package. A vague comfort letter is not a guarantee. A guarantee not booked against fiscal ceilings is exposed to challenge under the PFM Act and Article 201 of the Constitution. We have seen otherwise sound transactions stall because the support instrument was negotiated commercially without parallel Treasury engineering.
Project identification and the pipeline
Parts V and VI also formalise how projects enter the pipeline. The PPP Directorate, established under Part IV, screens project concepts, supports contracting authorities in feasibility work, and reports to the PPP Committee, which is the principal approving body under Part III. The published pipeline is the first place sponsors should look when scoping market entry — it signals not only what the government wants built, but also which contracting authority is leading, which is a non-trivial diligence point.
Analysis: where deals are won and lost
The Act sets the rules. Practice determines outcomes. Six issues recur in our work for sponsors, lenders and contracting authorities.
Bankability and the direct agreement
Project finance lenders advance against the project’s contractual matrix, not the sponsor’s balance sheet. That places weight on the direct agreement between the contracting authority and the lenders, under which the lenders may step in, cure defaults and, in defined circumstances, substitute a new project company. The PPP Act and its Regulations contemplate direct agreements, but the substantive negotiation happens at the project-agreement stage.
In our view, three drafting points deserve early attention. First, the cure period should be long enough to allow a real-world workout — 90 to 180 days is common in comparable markets. Second, step-in should not require the lenders to assume historical liabilities of the project company, only those accruing from the step-in date. Third, the contracting authority’s termination compensation regime should track the lenders’ outstanding debt under defined scenarios, particularly authority default and prolonged force majeure.
Risk allocation, in practice
The classic discipline of PPP — allocate risk to the party best able to manage it — is sound in theory and harder in execution. Land acquisition risk in Kenya is a good example. The Land Act 2012 and the Land Acquisition framework place the practical levers with the National Land Commission, not the contracting authority. A clause that allocates “site availability” risk to the project company in absolute terms is a clause the project company will quietly price into its bid, or refuse to honour at financial close.
Political and change-in-law risk follows a similar logic. We typically distinguish between general changes in law (project-company risk) and discriminatory or sector-specific changes (contracting-authority risk). The PPP Regulations 2022 do not prescribe the split; the project agreement must.
User-pay vs availability payment vs hybrid
The Act is structure-agnostic. Section 4 recognises a wide menu of arrangements, and the choice between user-pay (tolls, tariffs), availability payments and hybrid structures is a commercial question — but with significant legal consequences.
Consider a worked hypothetical. A 25-year toll-road concession is awarded to a sponsor consortium for a greenfield 80-kilometre bypass. Under a pure user-pay model, the project company bears traffic and tariff-collection risk. The contracting authority pays nothing if the road is built and operated, but the project is vulnerable to traffic underperformance, currency mismatch between KES-denominated tolls and USD-denominated debt, and political pressure on tariff escalation. Move the same project to an availability-payment model, and the risk inverts: the contracting authority pays a defined sum (often partly USD-indexed) provided lane availability and quality KPIs are met, and the fiscal commitment must be carried on the books under the PFM Act. A hybrid — minimum revenue guarantee plus toll upside-sharing — can soften both extremes but introduces drafting complexity that often disappoints in operation.
In our experience, the structure that survives is the one that aligns with the contracting authority’s actual fiscal headroom, not the one that sounds most elegant in the feasibility study.
The PIP / Swiss-challenge trap
The PIP route is attractive to sponsors with proprietary technology or unique site control. It is also a frequent source of dispute. The Act contemplates that an unsolicited proposal, once accepted, must be subjected to a competitive process. The originator’s advantage is procedural, not absolute — and originators who behave as though they have a sole-source mandate routinely come unstuck.
It is arguable that the PIP framework, as drafted, leaves too much discretion at the screening stage, and we have seen projects accepted into the pipeline only to be re-scoped competitively in ways that erode the originator’s economics. The mitigant is contractual and procedural discipline from the outset: a clear cost-reimbursement undertaking, IP carve-outs, and an exit strategy if the project is repackaged.
For comparative perspective only, the UK Treasury’s PF2 framework and the World Bank PPP Reference Guide both emphasise that unsolicited proposals require unusually robust competitive testing to maintain value for money — a principle Kenya has plainly adopted, even if the local mechanics differ.
County PPPs and the dual approval problem
Counties may procure PPPs, but a county PPP that creates a fiscal commitment requires engagement both with the county assembly under the County Governments Act 2012 and, where the project touches national fiscal ceilings, with the National Treasury under the PFM Act. The PPP Act overlays its own institutional approvals on top.
We have seen well-structured county projects delayed by twelve months or more because the dual-approval architecture was treated as a sequencing detail rather than a critical-path item. In our view, sponsors should map every approval — county executive, county assembly, PPP Directorate, PPP Committee, Cabinet Secretary, Treasury — before bidding, not after.
Dispute resolution: arbitration as the default
The PPP Act and most project agreements default disputes to arbitration under the Arbitration Act 1995 (Cap. 49). Sponsors should not assume the seat. A Nairobi seat is workable, supported by a mature judiciary on arbitration matters and reasonably well-developed Nairobi Centre for International Arbitration jurisprudence. An offshore seat — London, Singapore or Mauritius — is sometimes preferred by lenders, particularly where political-risk insurance is in place.
Whatever seat is chosen, the agreement should be explicit on the rules (UNCITRAL, ICC, LCIA), the language, the number of arbitrators, and the carve-out for interim relief from the Kenyan courts. The PPP Act does not prescribe these details, and silence on them is the silence of a future dispute.
What you should do now
For sponsors:
- Diligence the contracting authority’s mandate and the project’s place in the published pipeline before committing bid costs.
- Stress-test the proposed support package against PFM Act ceilings, not just against the contracting authority’s commercial appetite.
For contracting authorities:
- Engage the PPP Directorate early and treat feasibility as a legal exercise, not only a technical one.
- Avoid drafting risk-allocation clauses that the market will not price — they delay financial close and erode credibility.
For lenders:
- Insist on a fully negotiated direct agreement, with substitution rights and termination compensation aligned to outstanding debt.
For all parties:
- Map every approval — sectoral, fiscal, county and national — on a single critical-path schedule, and update it weekly from preferred-bidder stage to financial close.
Frequently asked questions
Q: Does the PPP Act apply to county-level projects?
A: Yes. The PPP Act No. 14 of 2021 applies to both national and county contracting authorities. County projects must additionally satisfy the County Governments Act 2012 and, where fiscal commitments arise, engage the PFM Act 2012 and the National Treasury.
Q: What is a privately initiated proposal under the Act?
A: A PIP is an unsolicited proposal submitted to a contracting authority by a private party. Under Part VII, if accepted, it proceeds to a competitive process that confers procedural advantages on the originator, broadly comparable to a Swiss-challenge mechanism.
Q: Can the government give guarantees to a PPP project?
A: Yes, but only within the PFM Act 2012 framework. Section 23 of the PPP Act permits government support, including guarantees and indemnities, subject to Treasury approval and the fiscal-responsibility principles in Article 201 of the Constitution.
Q: What dispute resolution mechanism is standard?
A: Project agreements typically default to arbitration under the Arbitration Act 1995 (Cap. 49). Seat, rules, language and tribunal composition are negotiated. Interim relief is usually preserved for the Kenyan High Court.
Q: How long does it take to reach financial close?
A: Timelines vary materially by sector and structure. From PPP Committee approval to financial close, 18 to 36 months is realistic for complex transactions. PIP timelines tend to be longer because of the competitive-testing requirement under Part VII.
How OLM Law can help
Our Projects & PPP team advises sponsors, lenders and contracting authorities across the project lifecycle — from feasibility and procurement strategy through to project agreements, direct agreements and dispute resolution. We work alongside the firm’s banking, regulatory and disputes practices on the points where they intersect. To discuss a specific transaction, please contact [PARTNER NAME] in our Projects & PPP team.
Sources and authorities
- Public Private Partnerships Act No. 14 of 2021 (Kenya), particularly sections 3, 4, 23 and 47–53, and Parts III–VII
- Public Private Partnerships Regulations 2022 (Kenya) [VERIFY: confirm current LN number on Kenya Law]
- Public Finance Management Act No. 18 of 2012, and the Public Finance Management (National Government) Regulations 2015
- Public Procurement and Asset Disposal Act No. 33 of 2015
- County Governments Act No. 17 of 2012
- Arbitration Act No. 4 of 1995 (Cap. 49)
- Constitution of Kenya 2010, Articles 201 and 227
- For comparative perspective only: UK Treasury, A new approach to public private partnerships (PF2); World Bank Group, PPP Reference Guide
Disclaimer: This article is for general information only and does not constitute legal advice. For advice on your specific circumstances, please contact us.
