Subcontract Agreement (Kenya)

A Subcontract Agreement in Kenya governs the relationship between the parties by fixing what each must do.

The National Construction Authority Act No. 41 of 2011 established the National Construction Authority (NCA) as the statutory body responsible for the regulation and development of the construction industry in Kenya. All contractors and subcontractors undertaking construction works in Kenya must be registered with the NCA under Section 17 of the National Construction Authority Act No. 41 of 2011 and the National Construction Authority Regulations 2014. The NCA maintains a register of contractors classified by category (NCA 1 to NCA 8) and by works category (civil works, building works, roads, mechanical, electrical). A subcontractor must hold the appropriate NCA registration for the class of works being subcontracted. Engaging an unregistered subcontractor for NCA-regulated works exposes the main contractor to liability under the NCA Regulations.

The Public Procurement and Asset Disposal Act No. 33 of 2015 and the Public Procurement and Asset Disposal Regulations 2020 govern subcontracting on government-funded construction projects in Kenya. Section 63 of the Public Procurement and Asset Disposal Act No. 33 of 2015 requires the main contractor to obtain prior written approval from the procuring entity before subcontracting any part of the works exceeding 25% of the contract value. Unauthorised subcontracting on government projects is a breach of the main contract and may result in termination.

The Employment Act No. 11 of 2007 administered by the Ministry of Labour and Social Protection is relevant to subcontracting arrangements in Kenya. Where subcontract workers are in substance employees of the main contractor — due to direction and control exercised by the main contractor — the courts may hold that an employment relationship exists under Section 8 of the Employment Act No. 11 of 2007, notwithstanding the subcontract label. The National Social Security Fund (NSSF) Act No. 45 of 2013 and the National Hospital Insurance Fund (NHIF) Act Cap. 255 require contributions for all workers at a construction site, whether employed directly or through subcontractors.

The Occupational Safety and Health Act No. 15 of 2007 (OSHA) administered by the Directorate of Occupational Safety and Health Services (DOSHS) places safety obligations on both main contractors and subcontractors at Kenyan construction sites. Section 13 of OSHA requires every employer — including a subcontractor employing workers on site — to confirm the health, safety, and welfare of workers. The main contractor must incorporate OSHA compliance requirements into the Subcontract Agreement, including the obligation to maintain a site safety plan, provide personal protective equipment (PPE), and report workplace accidents to DOSHS.

The Value Added Tax Act No. 35 of 2013 and the Income Tax Act Cap. 470 administered by the Kenya Revenue Authority (KRA) have implications for subcontract payments. Construction services attract VAT at the standard rate of 16%. Payments to subcontractors are subject to withholding tax under Section 35 of the Income Tax Act Cap. 470 at the applicable rate, and the main contractor must withhold and remit the tax to the KRA through the iTax system.

A Subcontract Agreement in Kenya is required whenever a main contractor engages another registered contractor to perform a defined portion of a construction, civil engineering, mechanical, electrical, or specialist services project, and the works extend beyond a single day's informal engagement.

A Subcontract Agreement is needed when a main building contractor registered with the National Construction Authority (NCA) requires specialist subcontractors — such as an electrical subcontractor (NCA Category E), a plumbing subcontractor, a glazing subcontractor, or a structural steel subcontractor — to perform works that fall outside the main contractor's own technical capability or workforce capacity.

A Subcontract Agreement is required on all government-funded construction projects in Kenya where subcontracting any portion of the works requires prior approval of the procuring entity under Section 63 of the Public Procurement and Asset Disposal Act No. 33 of 2015. The written Subcontract Agreement must be submitted to the procuring entity as evidence of the approved subcontracting arrangement.

A Subcontract Agreement is needed when a main contractor on a road construction project under the Kenya Roads Board Act No. 7 of 1999 or the Kenya Urban Roads Authority Act No. 13 of 2007 engages specialist earthworks, drainage, or surfacing subcontractors. The Kenya National Highways Authority (KeNHA) and the Kenya Roads Board require subcontract agreements to be in place before site access is granted to subcontract workers.

A Subcontract Agreement is required when a main contractor on a private residential or commercial development project needs to engage a nominated subcontractor — one specified by the employer or architect in the main contract — on terms flowing down from the main contract.

A Subcontract Agreement is needed when a main contractor undertaking a large fit-out, interior design, or M&E (mechanical and electrical) installation project engages multiple specialist trades subcontractors and needs a written framework for progress claims, variation orders, defects liability, and dispute resolution between the parties.

Parties in Kenya should prepare a Subcontract Agreement (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Kenya Subcontract Agreement under the National Construction Authority Act No. 41 of 2011 and the Law of Contract Act Cap. 23 must contain the following elements to be enforceable and commercially sound.

Parties and NCA Registration: Full legal names and addresses of the main contractor and the subcontractor; NCA registration numbers and categories for both parties (verified through the NCA portal); the main contract reference number, project name, and employer's name. Both parties must hold valid NCA registration certificates for the works category being subcontracted.

Scope of Subcontract Works: A precise technical description of the subcontract works — referencing the main contract drawings, specifications, bills of quantities, or work package description by document title and revision number. Ambiguity in scope is the most frequent cause of subcontract disputes at Kenyan construction sites.

Subcontract Sum and Payment: The agreed subcontract price (lump sum, schedule of rates, or cost-plus), the currency (Kenya Shillings KES), the payment claim procedure (application date, assessment period, payment due date), the right to suspend work for non-payment under Clause 31 of the NCA Standard Form, and withholding tax obligations under the Income Tax Act Cap. 470.

Programme and Completion: The subcontractor's start date, milestone dates, the date for completion of the subcontract works, the requirement to comply with the main contractor's master programme, and the consequences of delay including liquidated damages at a stated daily rate per Section 73 of the Law of Contract Act Cap. 23.

Flowing-Down Obligations: Provisions making the subcontractor bound by all relevant terms of the main contract — safety, quality, insurance, dispute resolution, variations — to the extent applicable to the subcontract works. The subcontractor must not take any action that would cause the main contractor to breach the main contract.

Occupational Safety and Health: The subcontractor's obligation to comply with the Occupational Safety and Health Act No. 15 of 2007, maintain a site-specific safety plan, provide all required PPE, register workers with NSSF and NHIF, and report accidents to the Directorate of Occupational Safety and Health Services (DOSHS). The subcontractor indemnifies the main contractor for any OSHA breach fines or penalties.

Variation Orders: The procedure for ordering, valuing, and paying for variations to the subcontract works — written instructions only, with pricing agreed before execution where possible. Verbal instructions must be confirmed in writing within 24 hours to be a valid variation order.

Defects Liability: The subcontractor's obligation to remedy defects in the subcontract works appearing during the defects liability period (typically 12 months from practical completion of the main works), at the subcontractor's cost, failing which the main contractor may engage others and recover the cost from the subcontractor.

Insurance: The subcontractor's obligation to maintain contractors' all-risks insurance, employer's liability insurance, and professional indemnity insurance (for design elements) with insurers licensed by the Insurance Regulatory Authority (IRA) under the Insurance Act Cap. 487, with the main contractor named as co-insured.

Dispute Resolution and Governing Law: Governed by the laws of Kenya. Disputes to be referred to adjudication (if provided in the main contract), then arbitration under the Arbitration Act No. 4 of 1995 before the Nairobi Centre for International Arbitration (NCIA), or litigation before the High Court of Kenya (Commercial Division).

The forms-legal.com Kenya Subcontract Agreement template complies with the National Construction Authority Act No. 41 of 2011 requirements and aligns with NCA standard form subcontract conditions.