If there’s one exceedingly lucrative job to pursue in a developing country, it’s construction contracting. There are always lots of opportunities for construction companies in Kenya, particularly building contractors and road contractors.
Opportunities for construction companies in Kenya
Data from the Kenya National Bureau of Statistics suggests that the annual value of Kenya’s construction industry is well over Kshs 1.7 trillion.
Every year, banks advance more than Kshs 520 billion in real estate investment financing, private developers put up new construction projects in the tens of thousands, while the government itself spends upwards of Ksh 25 billion on housing and Kshs 207 billion on road construction.
In Nairobi City County alone, the planning department is approving building plans worth Kshs 100 – 240 billion per year, and construction companies are completing building works worth Kshs 100 billion.
Here’s the thing, though. These positive indicators don’t trickle down to all construction companies in Kenya.
The problem facing construction companies in Kenya
Only a handful of the 30,000 registered contractors can say that business is booming, while the rest are struggling to maneuver the many stumbling blocks in Kenya’s construction industry.
It’s because of those difficulties that we’ve drafted this guide. Think of it as the cheat sheet that’ll help your construction company optimize opportunities, maximize profit, and minimize risks.
What To Learn From The Best Construction Companies In Kenya
Now, just for context – some of Integrum’s clients happen to be building contractors and road contractors. They consult us for cost analysis, tender review, feasibility analysis, procurement planning, contract administration, technical appraisals, schedule planning, site supervision, cost tracking, and payment management – basically the whole project management package.
While at it, we’ve managed to pick up various success tips from some of the top construction companies. Here’s a summary of the core strategies they’ve been using to set themselves apart from other contractors in the construction industry.
1. Pursue construction jobs governed by the standard forms of contract
As a building or road contractor, it’s high time you stopped approaching opportunities like a small-time ‘fundi’ or ‘mtu wa mkono’.
What we mean is, don’t let yourself be driven by a scarcity mindset to the point of randomly taking up any available job.
Consider this – in 2020, developers in Nairobi county alone put up 16,248 buildings, up from 11,902 in 2017. If you added the tallies from the rest of the counties, you’d understand that Kenya will always have enough jobs for all its 30,000 registered local and foreign contractors.
As such, you can afford to be selective when pursuing construction jobs. Instead of desperately seeking any available contract, you might want to take a cue from the top construction companies and start focusing exclusively on low-risk opportunities.
The best contractors in Kenya will, in particular, advise you to select jobs based on their contract terms.
Low-risk projects are the ones that are regulated by the standard forms of contract – such as the JBCC Standard Forms of Contract, FIDIC Forms of Contract, PPRA Forms of Contract for Building Works, etc.
These are the most preferred types of building contracts because their terms have been agreed upon by bodies representing all the principal stakeholders in the construction industry. Each of the contracts, as you’ll notice, lays out the rules of engagement in an impartial and objective manner, thus minimizing the risks for both developers and construction companies.
2. Understand your contractual rights as a contractor/subcontractor
Construction contracting is as demanding legally as it is technically. The outcome of any job depends not only on your technical capabilities, but also on your contract administration framework.
That’s why the top construction companies in Kenya always have dedicated contract administrators in their project teams. They are the ones who review all the contract documents, negotiate the terms of engagement with employers, as well as advise the contractor and subcontractors on their contractual obligations and rights.
When it comes to public construction tenders, for instance, you ought to consult a contract administrator who is well-versed with both the Public Procurement and Asset Disposal Act and the General Conditions of Contract (under the latest version of the Standard Tender Document For Procurement Of Works (Buildings and Associated Civil Engineering Works).
They’ll advise you on all your contractual rights so you know:
- When and how to apply for your contractor payment certificates.
- How to prompt the employer to make the payments in due time.
- The penalties you’re allowed to charge for defaults during and after the project.
- When and how to suspend the works or terminate the contract from your end.
- All the circumstances that would warrant a review of the contract price.
- How to handle any arising disputes.
…and so forth.
In the post-covid inflation period, for example, Integrum showed various construction companies how they could negotiate a post-contract signing pay rise. The standard forms of contract already have guidelines and parameters for handling fluctuations before, during, and after the practical completion of building works. It’s up to you to know when and how to take advantage of them.
3. The lowest bid doesn’t guarantee you the job
While being the lowest bidder might get you small construction jobs, the same doesn’t always apply to mainstream projects.
If you hope to win a decent construction contract, you have to priortize a little more than just your bidding rates. You’ll find that most corporations, real estate companies, and government bodies tend to assess their bidders based on three sets of tender evaluation criteria:
- Pre-qualification criteria: These are the mandatory requirements that you must meet for your construction tender to even be reviewed. For example, they’ll ask you to provide a copy of your NCA registration certificate, tax compliance certificate, etc.
- Technical criteria: If you pass the pre-qualification criteria, your bid will be taken through technical analysis. This is the point where they consider the credentials of your technical directors, the experience of your construction company, the equipment that you own, your financial capacity, etc.
- Financial criteria: At the last stage of tender evaluation is where they examine your bidding rates.
The standard practice is to perform a weighted assessment of all the bidders, after which the contract is ultimately awarded to the construction company that scores the highest combined points for technical and financial evaluations.
For more on that, check out our Guide to Choosing the Best Contractors in Kenya. It provides an in-depth overview of the entire tender evaluation process.
4. Insure your construction works accordingly
By now, you’ve certainly heard of the many cases in Kenya of buildings under construction collapsing.
Some of these affected sites are, in fact, even generous enough to extend their misfortune to neighboring properties.
A good example would be the 2019 Ruaka incident, in which a residential building’s parking lot caved in due to construction works in the adjacent plot. Multiple cars were damaged along with the building, and the NCA had to direct the tenants to vacate.
Road construction projects haven’t been spared either. Take, for instance, the Nyayo Stadium footbridge that collapsed recently while under construction. This happened barely months after the same fate had befallen part of the Kangemi flyover., which collapsed and injured several people.
When such unfortunate incidents occur, much of the blame is typically directed at the contractor – which only adds to their burden of monetary losses.
To protect themselves from such risks, the top construction companies in Kenya work under what is known as the Contractors’ All Risk Insurance.
And make no mistake about it. Contractors are not the ones who foot the cost of the insurance policy. FIDIC, PPRA, and JBCC standard forms of contract all require developers to reimburse their contractors for insurance premiums paid.
At least with that covered, you can proceed to take on-site Precautions to Prevent Building Collapse.
5. Engage via written correspondence
Need a specific set of working drawings from the architect? Relay the request through written correspondence.
Seeking payments from the developer? Write an email to them and copy the architect, quantity surveyor, and project manager.
Or maybe the architect just made changes to the design? Ask them via email to confirm their instructions.
When disputes arise in construction – which is pretty frequently, to be honest – the final settlement comes down to the contract terms and the records of correspondence between the stakeholders. One email alone could be the difference between your case getting dismissed and receiving millions of shillings in compensation.
Architects and engineers themselves are required by the standard forms of contract to confirm their oral instructions in writing within seven days. Employers, on the other hand, cannot issue direct instructions to their contractors – they should, instead, request their project manager to pass on a written notice to the contractor.
6. Set up a strategic procurement plan
In some of the building projects that Integrum has managed, we’ve seen contractors treating the purchase of building materials as a last-minute consideration. They only work out the acquisition details when the project reaches the point at which the materials are required.
Now, if we’re being honest, you’ll admit this approach often leads to multiple setbacks at various stages of the project. Many contractors find themselves desperately rushing to find material suppliers – which then forces them to contend with non-competitive rates and compromised quality.
You’ll notice, for instance, that some types of roofing materials and timber might have a lead time of several weeks if you choose to source directly from the original manufacturer/supplier. Secondary vendors, on the other hand, sell readily available stocks of the same to desperate contractors at a steeper price.
These are problems that you can avoid by planning and making the arrangements way ahead of time. More specifically, you might want to use a procurement plan to streamline all the logistics of building materials acquisition.
The best construction companies in Kenya typically draw up their procurement plans ahead of project commencement. They get project managers to break down the contract bills of quantity (BQs) into detailed material schedules that outline:
- What to buy.
- When to buy.
- How much to buy.
- Whom to buy from.
- How much to spend.
This makes it easier to source materials at the appropriate time, from the best suppliers, and at competitive building rates. Hence, they get to complete their projects in due time, as well as maximize their profit margins.
Key Takeaway: The Devil Is In The Details
Put simply, the difference between a successful contractor and a struggling one is not capital. Rather, it’s the attention they pay to detail.
Look at the foreign contractors, for example. They continue to dominate Kenya’s building industry because they don’t leave anything to chance. In addition to builders, they have:
- Bid writers for analyzing prospective jobs and tendering competitive rates.
- Quantity surveyors for managing procurement.
- Contract administrators for legal advice, analysis, and negotiations.
- Project managers for planning, coordinating, and monitoring everything.
Thankfully, you don’t need to hire and retain all these professionals in-house. The cheaper and more strategic option would be engaging an all-inclusive project management firm like Integrum.
We offer guidance to some of the best construction companies in Kenya from tendering through execution to project closeout. Our job is to protect your interests and get you paid while you focus on running the business.
Featured image by Freepik.