Grapevine

How performance contracting improves management in public institutions

Since 2003, the Government of Kenya has committed to executing a performance-based approach to managing the public sector, introducing a series of reforms to better use resources for lasting socio-economic development. At the heart of this effort is performance contracting, which helps connect key areas of planning, budgeting, implementation, and the delivery of results that benefit citizens.

Through performance contracting, Ministries, State Departments, State Corporations, and other public sector institutions identify their key priorities as outlined in their Strategic Plans, which align with the Government's policy frameworks, including the Fourth Medium Term Plan (MTP) 2023-2027, the Bottom-Up Economic Transformation Agenda (BETA), and relevant Sessional Papers and Sector Strategies. These priorities are also reflected in the Annual Work Plans and are connected to the budget allocations for Government Ministries, Departments, and Agencies (MDAs).

The Government continues to leverage Performance Contracting to improve financial accountability and ensure the prudent use of resources in MDAs. This is achieved through results-based commitments, as well as monitoring, reporting, and evaluating financial performance across six key indicators: Absorption of Allocated Funds, Absorption of Externally Mobilized Funds, Appropriation-in-Aid (A-in-A), Pending Bills Ratio, Project Completion Rate, and Revenue Collection.

The Absorption of Allocated Funds indicator requires all MDAs to fully utilize 100 per cent of their budgeted and approved funds - whether from the Government of Kenya or generated by the MDA - on the programs, projects, and activities approved by parliament and planned at the organizational level. This ensures a clear connection between planning, budgeting, and performance. MDAs that score poorly on this indicator, indicating ineffective use of financial resources, must explain their performance and demonstrate their capacity to utilize funds in the following financial year, or risk forfeiting those resources for other programs. By mandating that MDAs use all allocated financial resources, performance contracting helps minimize waste and enables the reallocation of unspent funds to other critical areas.

Externally mobilized funds, often referred to as donor funds, play a crucial role in complementing government resources and supporting specific bilateral programs aligned with the government’s national development agenda. Effectively utilizing these funds is essential for achieving program objectives, especially since some are provided as loans that accrue interest. The performance contracting indicator for the absorption of externally mobilized funds mandates that MDAs use 100 per cent of approved funds (both loans and grants) from development partners for the programs, projects, and activities they were designated for.