• Kenya adopts new pricing system to cut infrastructure cost overruns
• Reform follows rising contractor debt; $1.3B bond planned to repay arrears
• Framework uses First Principles Approach to boost transparency, efficiency

Kenya’s government has approved a new pricing framework for infrastructure projects, including roads, to curb cost inflation and improve value for public spending, local media reported. The system is designed to eliminate the inconsistent and costly pricing practices that have long slowed government projects.

The reform comes as the government struggles with mounting arrears owed to construction companies amid tight budget conditions. Last week, authorities announced plans to issue new sovereign bonds to raise 170 billion shillings (about $1.3 billion) to clear outstanding debts owed to road contractors.

The new framework introduces a data-driven method for determining project costs, with an emphasis on transparency and sound management of public funds. It requires the use of the “First Principles Approach” (FPA), replacing previous precedent-based estimates. The FPA has been applied in the United Kingdom, Australia and Singapore, and the government believes it could cut cost overruns by up to 25%.

In 2014, a report by the African Development Bank (AfDB) ranked Kenya among the African countries with the highest road construction costs. More recently, a September 2022 review of the Nairobi Southern Bypass Road Project cited management failures that drove up expenses, in part because of a buildup of unpaid bills.

Henoc Dossa