An Assessment of the Public Procurement Levy

Commencement of the Levy Order
The Public Procurement Regulatory Authority issued a circular on 30 August 2024 indicating the commencement of the Public Procurement Capacity Building Levy Order 2023 (the Levy Order) which took effect from 1 September 2024.
The Levy Order was initially published in the Kenya Gazette in August 2023 and  provides for the payment by entities procuring goods or services from the government or government agencies to the Public Procurement Regulatory Authority (the PPRA) of a levy equivalent to 0.03% of the contract value of a signed contract involving public procurement in accordance with the Public Procurement and Asset Disposal Act (the Levy). 
The Levy will be deducted by the procuring entity from the payment(s) due to the supplier of goods or services under a contract for such supply and paid to the Public Procurement Regulatory Authority.
This order will apply to a vast array of government contracts as the definition of a procuring entity is very wide and includes inter alia  the national and county governments, constituencies, the judiciary, commissions and independent offices, state departments and corporations, public schools, colleges and universities, diplomatic missions, pension funds for public entities and any entities owned by the government or in which the government holds a controlling interest.

Additional Provisions under the PPRA circular
In addition to stating the commencement date for charging and collection of the Levy, the circular from the Public Procurement Regulatory Authority (the PPRA) also provides clarifications to procuring entities on the application and manner of collection of the levy as follows:
  1.The levy amounts deducted by procuring entities shall be paid to the PPRA through the eCitizen payment platform by the 20th day of each subsequent month;
  2.Procuring entities are required to file monthly returns by the 20th day of the subsequent month setting out all amounts deducted and remitted to the PPRA through the Public Procurement Information Portal and
  3.The deductions shall apply to long-term contracts where local service orders or local purchase orders are raised and shall be deducted as and when orders are paid for. It will not however apply to contracts that are fully funded by development partners as stipulated in the Levy Order.
  4.The circular further indicates that failure to remit Levy amounts shall attract a penalty of 5% of the outstanding Levy for each month in which the Levy remains unpaid  although the payment of this levy is ambiguous.

Possible questions arising from the Levy Order
Although the circular does seek to clarify some issues previously raised by various stakeholders, it still leaves some questions unanswered, including:
1. Payment terms for the Levy: the term “contract value” is not defined and accordingly its application is open to interpretation. In essence, it is not clear what proportion of this amount becomes payable where payments are done in instalments (for example, if the total Levy will be payable at the point of payment of the initial instalment in full or will be pro-rated for each instalment payment made) and how adjustments to the contract value will affect the computation of the Levy payable.

2.The non-application of the Levy to contracts funded by Development Partners: the term “development partners” as indicated in the Levy Order is not defined and accordingly there is no direction on who would be considered a development partner for purposes of exemption from the payment of this Levy. We are of the view that the ordinary rules of interpretation of statutes under common law will apply to the interpretation of this term and in particular the following rules:

• The rule that ordinary words must be given ordinary meaning; which would restrict the meaning of the term development partners to specific persons or entities that have undertaken a partnership of mutual benefit with a public entity, and not just a supplier of goods and services for value.

• The rule of interpretation which provides that when a prior act is found to concern a similar matter it can aid in the interpretation of an ambiguous provision. In this regard we note that the only other definition of the term development partner in Kenyan Statute is contained in the Public Finance Management Act which defines a development partner as “a foreign government, an international organisation of states or any other organisation prescribed by regulations in this Act”.

Based on the above noted rules it is likely that a narrow interpretation will be applied to the term development partner however further clarification is required from the PPRA in this regard.

3. The penalty for late payments: The circular is ambiguous on whether the procuring entity will be liable to pay the 5% penalty for late payments or whether this penalty will be levied on the supplier. We take the view that the fair interpretation would be for the penalty to only apply to the supplier where the full value of the contract has been paid by the procuring entity without any deduction. If the contract amount is paid to the supplier less the Levy however it would only be reasonable for the relevant procuring entity to be liable for the penalty. Further clarification is required from the PPRA on the application of this penalty. 
It is also notable that sections of the Public Procurement and Asset Disposal Act grants the Cabinet Secretary the authority to create regulations in particular with respect to the capacity building levy and provides that such regulations shall not take effect unless approved by Parliament. We note that in addition to providing for the commencement of the Levy Order, the circular issued by the PPRA also includes substantive provisions in relation to the administration of the Levy which were not contained in the Levy Order. 
Accordingly, for the provisions of the circular to take effect the Cabinet Secretary of the National Treasury would be the party to issue the changes and the same would need to be approved by Parliament. We note that the circular was not issued by the Cabinet Secretary but  instead was issued by the Director General of the PPRA and no delegation of such authority has been formally notified to the public to the best of our knowledge. It is therefore not clear whether the circular has been properly issued in accordance with Kenyan law in a manner that can provide legitimacy to the commencement date or the additional provisions regarding the Levy indicated in the circular as these are matters that are to be directed by the appropriate Cabinet Secretary.

Conclusion
Although the purpose of the Levy as stated in the Levy Order is to provide funds for the development of capacity through training, technical support and mentoring of persons involved in public procurement and asset disposal, the push to collect this Levy has been the source of disquiet from affected private sector players due to its ambiguity. 
The private sector stakeholders do however recognise that they continue to experience challenges in obtaining timely payments from procuring entities signifying an actual need for capacity building. The corollary here is that these same stakeholders have an interest in both reducing their costs and getting additional input and transparency on the purpose and necessity for bearing the liability for an increased number of “capacity building levies” that have emerged in recent times such as the National Industrial Training Levy.
If the PPRA’s assessment is correct, public procurement is estimated to account for between 10%-13% of Kenya’s GDP; a significant portion of which may be directed towards the Levy. Accordingly, there is legitimate justification for ensuring that there is transparency in how this Levy is computed, collected, utilised and administered. Clarification of the outstanding issues would therefore be necessary in order to ensure proper implementation and collection of the Levy.

This opinion piece serves the purpose of general guidance and is not intended to constitute specific legal advice. For legal advice concerning this article, please contact our Partners Julius.Wako@CMS-DI.com and Kevin.Kwasa@CMS-DI.com.