Supply Agreement (Kenya)

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

The Consumer Protection Act No. 46 of 2012, enforced by the Competition Authority of Kenya (CAK), applies where the buyer is a consumer as defined by the Act. Where both parties are businesses, the Consumer Protection Act does not apply, but the general implied terms of the Sale of Goods Act (Cap. 31) continue to govern the quality and fitness of the goods supplied. A well-drafted Supply Agreement will specify whether the implied warranties of the Sale of Goods Act are incorporated, modified, or excluded — noting that exclusions of implied terms must satisfy the reasonableness requirement that Kenyan courts have developed by reference to both the Sale of Goods Act and the Law of Contract Act.

Taxation of the supply transaction is governed by the Value Added Tax Act No. 35 of 2013, administered by the Kenya Revenue Authority (KRA). A Supply Agreement for taxable goods must specify whether the stated prices are inclusive or exclusive of VAT at the standard rate of 16%, and must identify which party bears withholding tax obligations where applicable under the Income Tax Act (Cap. 470). The Kenya Revenue Authority requires VAT-registered suppliers to issue Electronic Tax Invoices (ETI) via the Tax Invoice Management System (TIMS) or the Electronic Tax Invoice (eTIMS) system with effect from August 2023.

The Business Registration Service (BRS) registration number of both parties should be stated in the Supply Agreement. The BRS, operating under the Business Registration Service Act No. 15 of 2015, is the body through which companies and business names are registered in Kenya via the eCitizen portal. A Supply Agreement that does not identify the parties by their legal registered names and BRS numbers creates evidentiary challenges in enforcement proceedings before the High Court of Kenya or in arbitration before the Nairobi Centre for International Arbitration (NCIA).

International supply agreements involving the import of goods into Kenya must comply with the East African Community Customs Management Act 2004, administered by the Kenya Revenue Authority's Customs and Border Control Department, and may require an import declaration form (IDF) submitted through the Kenya Trade Network Agency (KenTrade) via the Kenya TradeNet System. Kenya Standards compliance under the Kenya Bureau of Standards (KEBS), established by the Standards Act (Cap. 496), may also be required for specified regulated goods.

A Supply Agreement in Kenya should include a clear dispute resolution clause. Parties frequently opt for arbitration under the Arbitration Act No. 4 of 1995, administered through the NCIA, rather than litigation before the Commercial Division of the High Court of Kenya, given the relative speed and confidentiality of arbitration proceedings. For cross-border supply arrangements, the parties should agree expressly on governing law and jurisdiction.

A Supply Agreement in Kenya is required whenever a supplier and a buyer intend to establish an ongoing commercial relationship for the supply of goods on repeated or continuous terms, rather than completing a single isolated transaction governed only by a purchase order.

A Supply Agreement is needed when a manufacturer, wholesaler, or importer agrees to supply a retailer, distributor, or corporate buyer with goods on a recurring schedule — for example, monthly deliveries of raw materials, fast-moving consumer goods, or office supplies. The Supply Agreement sets the framework within which each purchase order is placed, confirming consistent pricing, delivery standards, and quality specifications without the need to renegotiate terms each time.

A Supply Agreement is required when the supplier extends trade credit to the buyer — for example, net 30, net 45, or net 60 payment terms. The agreement must set out the credit limit, payment schedule, consequences of late payment including interest under the Law of Contract Act (Cap. 23), and the supplier's right to suspend deliveries or terminate the agreement upon default.

A Supply Agreement is needed when the buyer requires the supplier to meet specific product standards prescribed by the Kenya Bureau of Standards (KEBS) under the Standards Act (Cap. 496), or where the goods are subject to import controls administered by the Kenya Revenue Authority (KRA) or sector-specific regulators such as the Pharmacy and Poisons Board for pharmaceutical products or the Pest Control Products Board for agricultural inputs.

A Supply Agreement is required for government procurement contracts awarded under the Public Procurement and Asset Disposal Act No. 33 of 2015, where the procuring entity is a State organ, county government, or public body and the supply arrangement extends beyond a single transaction. Such agreements must comply with the regulations of the Public Procurement Regulatory Authority (PPRA).

A Supply Agreement is needed when the parties wish to allocate risk clearly in relation to title and risk of loss during transit, delivery obligations under Incoterms (as published by the International Chamber of Commerce), insurance requirements, and liability for defective or non-conforming goods under the Sale of Goods Act (Cap. 31). Without a written Supply Agreement, the statutory default rules of the Sale of Goods Act will apply, which may not reflect the commercial expectations of either party.

A valid and enforceable Supply Agreement in Kenya under the Law of Contract Act (Cap. 23) and the Sale of Goods Act (Cap. 31) must contain the following key elements.

Parties and Registration Details: Full legal names and addresses of the supplier and the buyer, together with their respective Business Registration Service (BRS) registration numbers issued under the Business Registration Service Act No. 15 of 2015. Where either party is a foreign company operating in Kenya, their certificate of registration with the Registrar of Companies under the Companies Act No. 17 of 2015 should be stated.

Description of Goods: A precise description of the goods to be supplied, including specifications, grade, model numbers, brand names, or technical standards. The Sale of Goods Act (Cap. 31) Section 13 implies a condition that goods supplied by description must correspond with that description — any discrepancy entitles the buyer to reject the goods and claim damages. Reference to applicable Kenya Bureau of Standards (KEBS) product standards strengthens the quality assurance framework.

Price and VAT: The unit price or pricing formula, clearly stated in Kenya Shillings (KES) or agreed foreign currency, and whether the price is inclusive or exclusive of VAT at 16% under the Value Added Tax Act No. 35 of 2013. The agreement should address price revision mechanisms — for example, annual price adjustments indexed to the Kenya National Bureau of Statistics (KNBS) consumer price index — to protect both parties against inflation over the contract period.

Payment Terms: The payment schedule, credit period (e.g. Net 30 days from invoice date), accepted payment methods (bank transfer, M-Pesa Business, cheque), and the rate of interest on overdue invoices. Section 26 of the Law of Contract Act (Cap. 23) permits the parties to agree a pre-determined interest rate on late payments. All payments must be processed through the Kenya Revenue Authority's electronic invoice system (eTIMS) for VAT-registered suppliers.

Delivery Terms: The delivery point, risk transfer point, and applicable Incoterms (e.g. EXW, DDP, CIF). The Sale of Goods Act (Cap. 31) Section 20 provides that risk passes with property unless the parties agree otherwise. A clear delivery clause prevents disputes about who bears the cost of loss or damage during transit.

Warranties and Quality Standards: Supplier warranties that the goods conform to the agreed specifications, are free from defects, comply with KEBS standards under the Standards Act (Cap. 496), and are fit for the buyer's stated purpose under Section 14(3) of the Sale of Goods Act. The agreement should specify the warranty period, the procedure for raising defect claims, and the remedies available — repair, replacement, or refund.

Title and Retention of Title: A clause specifying when ownership of the goods passes from the supplier to the buyer. A retention of title (Romalpa) clause — providing that title does not pass until full payment is received — is commonly used in Kenyan commercial supply agreements and is enforceable under the Law of Contract Act (Cap. 23), though it should be registered as a charge over goods where applicable.

Term, Renewal, and Termination: The commencement date, the contract period, and the renewal mechanism (automatic or by written agreement). Either party's right to terminate for convenience on specified notice, and the right to terminate immediately upon material breach or insolvency, should be clearly stated. The Insolvency Act No. 18 of 2015 governs insolvency proceedings in Kenya and affects the enforcement of supply agreements where one party enters administration or liquidation.

Dispute Resolution: Most Kenyan commercial supply agreements provide for disputes to be referred to arbitration under the Arbitration Act No. 4 of 1995, with the Nairobi Centre for International Arbitration (NCIA) as the administering institution, before any party may approach the High Court of Kenya. Forms-legal.com provides this Kenya Supply Agreement template as a practical foundation for businesses establishing ongoing supply relationships under Kenyan law.