Performance contracting as a performance management tool in the public sector in Kenya

The public sector performance contracting process in Kenya

The performance contracting process in Kenya is currently administered by the Performance Contracting Department (PCD) of the Government of Kenya (GOK). The literature on performance contracting in Kenya suggests that the concept was first introduced in the country in the late 1980s (Kobia and Mohammed, 2006). In 1989, Kenya Railways was subjected to PCs and in 1990 the National Cereal and Produce Board also signed PCs. In 2003, the GOK re-introduced performance contracting – in its Economic Recovery Strategy for Wealth and Employment Creation 2003–2007 – for adoption as a tool in the management of public resources and as a key element of the civil service reform strategy (Republic of Kenya, 2003). Consequently, a Performance Contracts Steering Committee (PCSC) was also established by the GOK in August 2003 and in 2004 PCs were piloted in 16 state-owned commercial enterprises that were selected based on representation of a wide cross-section of sectors and the existence of their Strategic Plans (OPM/PCD, 2011; Obong’o, 2009).

Subsequently, and in a gradual manner, the implementation of performance contracting was expanded and by 2006 almost the entire Kenyan public service on the executive side was participating in PCs (Trivedi, nd). That meant that almost all ministries, state corporations, and local authorities had become engaged in performance contracting. That group, by 2011, included 46 ministries and departments, 178 state-owned enterprises (SOEs), 69 tertiary institutions, and 175 local authorities (municipalities, local, county, and urban councils; OPM/PCD, 2012). For ministries and departments, the performance contract is signed between the Cabinet Secretary (principal) and the relevant Permanent Secretary (agent). For SOEs, the performance contract is signed between the Permanent Secretary of the administrative ministry responsible for supervising that SOE (principal) and the Board of Directors of said SOE (agent). For local authorities, the performance contract is signed between the Permanent Secretary of the Ministry of Local Government (principal) and the Council of the local authority (agent). Each performance contract is then also countersigned by the relevant Cabinet Minister to ensure that it receives full recognition and support from the political leadership and government (OPM/PCD, 2010).

Furthermore, there are two entities that have been put in place by the GOK to assist with the design, implementation, and evaluation of the PCs. The first is the previously mentioned PCSC and the other is the Ad Hoc Negotiation/Evaluation Task Forces, more commonly referred to as The Ad Hoc Task Forces (AHTFs). The PCSC is responsible for the overall administration and coordination of PCs in the public service including developing policy frameworks, providing technical support to the performance contracting parties, and advising the government on the enabling legal and institutional framework for smooth implementation of the performance contracting process. The PCSC is assisted by AHTFs in the process of implementing the PCs (OPM/PCD, 2010, 2011).

The AHTFs consist of experts drawn from professional associations, academia, the business community, and retired public servants. They are to be a completely neutral third party for ensuring the quality and integrity of the PCs. These AHTFs are responsible for negotiating the PCs and evaluating and moderating the performance of ministries and departments on behalf of Permanent Secretaries, and the Cabinet Secretary and Head of the Public Service. The AHTFs also evaluate and moderate the performance of SOEs, local authorities, and tertiary institutions (OPM/PCD, 2010, 2011).

In Kenya, performance contracting is a part of the on-going broader public sector reforms that are aimed at improving efficiency and effectiveness in the management of the public service. The country’s public sector PCs are therefore seen and regarded as embracing the national management accountability framework ‘premised on the need to build the country’s competitive advantage around the performance of the public service’ (Odinga, 2010a: v). ‘The system redefined public sector “performance” to mean focusing on outputs and outcomes, not on inputs, processes, or preoccupation with activities’ (Odinga, 2010a: v).

PCs in Kenya are freely negotiated agreements between the government and the management of a public entity. It is a freely negotiated performance agreement between the government, acting as the owner of a public agency, and the management of the agency. The performance contract specifies the mutual performance obligations, intentions and responsibilities of the two parties. Each performance contract quite clearly specifies the intentions and obligations, as well as responsibilities and powers of the contracting parties (OPM/PCD, 2010). It also addresses economic, social and other tasks to be undertaken for economic or other desired gain. ‘It is therefore a [performance] management tool for ensuring accountability for results by public officials, because it measures the extent to which they achieve targeted results’ (OPM/PSRPC, nd[a]: 1) and, as the maxim says, ‘if you cannot measure, you cannot control, if you cannot control, you cannot manage, if you cannot manage, you cannot deliver’.

The expected outcomes of the use of PCs in Kenya include: (1) improved efficiency in service delivery to the public by ensuring that holders of public office are held accountable for results; (2) improvement in performance and efficiency in resource utilization and ensuring that public resources are focused on attainment of the key national policy priorities; (3) institutionalization of a performance-oriented culture in the public service; (4) ability to measure and evaluate performance; (5) ability to link reward for work to measurable performance; (6) instilling accountability for results at all levels in the government; (7) ensuring that the culture of accountability pervades all levels of government; (8) reduction or elimination of reliance on Exchequer funding by public agencies; (9) ability to strategize the management of public resources; and (10) recreating a culture of results-oriented management in the public service (OPM/PCD, 2011, 2012).

One significant aspect of PCs in Kenya is the involvement of citizens in the process through the use of Citizen Service Delivery Charters (CSDCs). The CSDCs are key performance indicators in the PCs of the public institutions. These charters are written statements that indicate the nature, quality, and quantity of service that citizens should expect from a respective institution. They provide information on (1) what services are provided; (2) the standard of the services to be provided; (3) the time frame within which services will be provided; (4) any user charges; and (5) the manner in which clients (users) may seek redress if they are not satisfied with services received or if they are of the view that an institution is not living up to the commitments in its charter (Trivedi, nd; OPM/PSRPC, nd[b]).

Each performance contract is subjected to evaluation based on a set of indicators (measures by which the performance of an institution is assessed). These indicators and their associated weights are updated and published regularly by the PCD in the guidelines which it issues to provide guidance on the process of implementing performance contracts in the public service. Institutions are expected to select, as much as possible, indicators from the Sector Performance Standards (the composite set of sector performance benchmarks, including performance levels, based on international best practices) that have also been issued by the PCD. Also, institutions are to ensure that each performance target (the desired level of performance for a performance indicator) progressively approaches and/or exceeds the levels set out in the Sector Performance Standards (OPM/PCD, nd). The assessment measurement of the extent to which public agencies achieve negotiated performance targets are to be established using the following equation (OPM/PCD, nd):

Managerial Performance = Agency Performance ± Exogenous Factors ^a

^a Where exogenous factors refer to those events that cannot reasonably be planned for, controlled or predicted by the manager.

Evaluation of the performance of public agencies entails the rating of actual achievements against performance targets negotiated and agreed upon at the beginning of the fiscal year. The resultant differences are resolved into raw and weighted scores, and ultimately denominated into composite scores. The performance rating of the institutions is based on the following achievement or criteria, and each performance rating is accordingly translated into a composite score and graded, as shown in Table 1:

Excellent: achievement between 30 per cent and 100 per cent above target

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Table 1.

Performance and composite score.

	Composite score
Performance grade	upper	lower
Excellent	1.00	1.49
Very good	1.50	2.49
Good	2.50	3.49
Fair	3.50	3.59
Poor	3.60	5.00

Source: OPM/PCD (2011).

Currently, the process for evaluating how Kenya’s public entities have performed is undertaken in three stages (OPM/PCD, 2010). First, there is a self-evaluation by each institution, utilizing the evaluation methodology in the performance contracting guidelines. The second stage is the primary evaluation where a group of experts undertake what is supposed to be an exhaustive assessment of institutional performance in the performance contract year, and then assign a composite score that indicates the overall performance of the institution. This score is adjusted for factors beyond the control of the manager during the performance contract year to determine the performance of the manager. The final stage is the quality control or moderation stage, wherein a team of independent experts attempt to ensure that the evaluations have been completed within the guidelines and that all relevant tools and instruments have been uniformly applied. Any contentious issues are also considered at this stage, the institutions are then ranked based on their performance, and the final evaluation report is prepared (OPM/PCD, 2010). A full explanation of the performance evaluation and computation methodology can be found in several PCD publications (see, for example, OPM/PCD, 2011, 2012).

Performance contracting as a performance management tool in Kenya: analytical assessment

Among the key elements of good public sector performance are: the existence of a public sector that is responsive to the needs of the citizenry (its clients); a public sector that creates an enabling environment for the private sector to sustainably be the engine of growth for the economy; a public sector that conducts its business with transparency and accountability as fundamental principles of its functioning in support of its delivery of public goods and services; a public sector that subscribes to the values of integrity and ethics; a public sector that demonstrates a total and complete intolerance for corruption and financial mismanagement; and a public sector that is goal-driven in support of the national vision and socioeconomic and political development priorities. In Kenya, many of these characteristics of the public sector are envisaged in the Public Sector Transformation Strategy: From Reform to Transformation 2010–14 (PSTS) that was released in early 2010 (OPM/PSTD, 2010).

Performance contracting, as a tool of performance management, is also crucial for achieving the objectives of the Kenya Vision 2030 through the First Medium Term Plan (MTP) 2008–2012 (MTP 2008–2012) and its updates (Republic of Kenya, 2007, 2008, 2011), complemented by the PSTS. The Kenya Vision 2030 is the country’s development blueprint, covering the period 2008 to 2030, with the objective ‘to create a globally competitive and prosperous country with a high quality of life by 2030. It aims to transform Kenya into a newly industrializing, middle-income country providing a high quality of life to all its citizens in a clean and secure environment’ (Republic of Kenya, 2007: vii). An efficient, motivated and well-trained public service is one of the major foundations of that vision, with public service reforms further enhancing, among other things, performance contracting (Republic of Kenya, 2007). It is being implemented in successive 5-year medium-term plans, with one of the targets of the first medium-term plan having been the establishment of a Kenya School of Government (KSOG) to build capacity and inculcate public service values and ethics for national transformation (Republic of Kenya, 2008, 2010). The PSTS outcomes, and consequently those of the Kenya Vision 2030, are ultimately about improving public sector performance in Kenya. As the then Prime Minister Raila Odinga (2010b: 4) noted in his Foreword to the PSTS:

The Public Sector exists to translate the priorities and directions of the Government into tangible benefits and results for Kenyans. Today it is more important than ever that the Public Sector carry out its mandate as effectively as possible and adhere to the highest standards of public [performance] management so that it justifies the confidence of the Government and the thrust of Kenyans. The Public Sector is the face of the Government and each citizen will judge how well the Government represents their interests by the manner in which the Public Sector serves them.

The former Prime Minister further observed that ‘the overarching goal of transformation must be to create a Public Sector that is trusted, goal driven and responsive to the needs of Kenyans’ (Odinga, 2010b: 4) and that ‘public sector transformation affords an existing opportunity to make a dramatic leap toward our shared goal of a just, equitable, and prosperous Kenya’ (Odinga, 2010b: 4). Through performance contracting, the performance of public sector institutions can be better managed, monitored, and measured – the three M’s of performance contracting – in a transparent manner for the benefit of the citizenry. PCs are tools of performance management that are intended to commit public officials to, and hold them accountable for, specified results. The desired outcome is to improve the efficiency of public service delivery while creating transparency in the management and use of public resources. In this regard, the use of CSDCs contributes to the strengthening of performance by involving and empowering the public to demand transparency and accountability from public servants and the holders of political office. So, whether by accident previously, or by design as espoused by the former Prime Minister Odinga, performance contracting in Kenya is a primary tool in the performance management arsenal.

Nonetheless, whether public sector performance is seen from the perspective of improving public sector management and performance, or simply as strengthening government capacity to perform essential functions and deliver goods and services to the citizenry, the use of PCs as a performance management tool to get there can materially provide at least the following three benefits: (1) greater transparency; (2) improved public accountability; and (3) strengthened capacity (Fryer, Antony, and Ogden, 2009).

Performance contracting outcomes

It was generally agreed in the literature that performance contracting had been showing some success in Kenya (see, for example, Hope, 2012b; Obong’o, 2009; Kobia and Mohammed, 2006; Trivedi, nd; LOG Associates, 2010). Indicators of that success included:

Evidence on improved accountability

However, recently there has been some debate and criticism, both inside and outside of government, on the measurement of performance in the public sector institutions and the consequent rankings of those institutions based on that performance in the context of their PCs. Public sentiment has indicated that the rankings of some public sector institutions are not consistent with their performance as the public perceives it. That is to say, that some questions have been raised on how some public sector institutions got such high rankings when the public perception (and perhaps the reality) reveals that those entities have not performed to those standards. Similarly, for instance, some Ministries that had been perceived by the citizens to have performed well were lowly ranked.

The debate on the perception (both inside and outside of government) of performance in public sector institutions versus the official performance rankings of those institutions was aptly captured by Kimani (2010: 5):

Over the past three weeks since the 2008/2009 performance evaluation results for Government agencies were released, tens of institutions have raised queries over the ranking.… Several Government institutions.… Were questioning the results, as it emerged some of them were marked down during the final stage of the three-level evaluation process without explanation.… The development comes at a time when concerns are piling that the tool is far from achieving its main goal – perfecting management of public affairs.

In response to this state of affairs, then Prime Minister Odinga appointed a panel of experts in May 2010 to review the performance contracting system, ‘amid rising disquiet among State institutions that the measurement tool is flawed’ (Kimani, 2010: 5). He noted that ‘the performance contracting process is facing several challenges, prompting the need to refine the system’ and that ‘the urgent issue is to ensure that it captures and reports on results that affect the lives of ordinary Kenyans’ (Kimani, 2010: 5). The panel submitted its report in November 2010 (see OPM, 2010).

PCs generally have inherent difficulties. There is the classic principal-agent information asymmetry and moral hazard problem. Managers enjoy an information advantage over owners and can negotiate targets that are difficult for outsiders to evaluate and/or are very easy to achieve. Some managers tend to operate as opportunistic agents who exploit the inherent asymmetries in information – by knowing more about what they are doing, and what they may or may not be accomplishing, than their bosses, they put self-interest above the public interest (Schick, 2003). In fact, in this case of Kenya, one consultancy report noted that ‘some institutions have developed methods where they deliberately set low targets for themselves. Such institutions therefore are able to score highly without “stretching” so high. This has been one of the biggest challenges to the performance contracting system as currently implemented’ (LOG Associates, 2010: vi). In addition, in some PCs, the incentives and penalties may not be credible or sufficient. And, political owners may not always be committed to performance management or improved efficiencies in a consistent manner.

However, having said that, and as suggested by Greiling (2006) more generally, there is a need to build on international experience and best practice in designing these contracts, and then to be able to evaluate performance more effectively for increasing the efficiency of public service delivery. The Performance Contracting Department needs to deal purposefully with the challenges of information asymmetry, smart incentives, and credible commitments, for instance.

As the foregoing demonstrates, performance contracting can and should be used as a powerful tool for strengthening public sector performance in Kenya. The country, now suffering from major governance deficits – as measured by such indices as corruption (real and perceived), public financial mismanagement, state weakness, and centralization of power, for example – needs to utilize performance contracting, as a performance management tool, in a much more robust way as part of its arsenal for improving institutional performance – particularly in the context of the Kenya Vision 2030 and the PSTS (Hope, 2012a, 2012b). A significant element of such an approach would, however, require a much more credible measurement and evaluation of public sector performance in relationship to the PCs.

In 2011, a Policy Steering Committee on Performance Management was established by the government and given overall responsibility for the management and coordination of performance management in the three arms of government, including oversight of the implementation of reforms in the performance contracting system. Those reforms will also entail implementation of the recommendations made by the panel of experts referred to above (OPM, 2010).

Lessons learned

The performance contracting experience, as a performance management tool in Kenya, has yielded, for the most part, the desired results as originally intended. When some of the evaluations indicated that some performance results were at odds with the views of the public, it provided the opportunity and the space to engage in a thorough review of the PC process, conducted by a panel of experts appointed by the then Prime Minister, as discussed above.

The lessons learned, among other things, allowed the Kenyan government to determine how skills and knowledge are transmitted and acquired within the public sector through the PC process, as well as for the application of the change principles, as explored in Hope (1997) – for example, in the modification and update of that process. More particularly, the lessons learned, and reflected in the report of the panel of experts, are being applied by the Policy Steering Committee on Performance Management that was established by the government. The key lessons learned included the following:

The need for adequate linkages between the Vision 2030 and its Medium-Term Plans and PC targets

Conclusion

PCs represent a state-of-the-art tool for improving public sector performance. They are being used as a performance management tool in Kenya to help public sector executives and policy makers to define responsibilities and expectations between contracting parties to achieve common, mutually agreed goals for better service delivery. In fact, they are now considered an important tool for enhancing transparency, accountability, and strengthened capacity for results in the public sector. Kenya’s public sector performance contracting process had been somewhat successful and provided some of the desired outcomes related to improved institutional performance. However, some recent results of the evaluation of the performance of some public agencies were not consistent with the perception (both inside and outside of government) of the performance of those agencies and that brought to the surface that there are some flaws in the administration and evaluation of performance through PCs. These flaws have now been rectified through the lessons learned from the implementation and administration of that process.

Based on the analysis and findings of this work, it is fair to also conclude that the long-term success of Kenya’s performance contracting regime appears to rest on the three key underpinnings identified by the OECD (1999) in its synthesis study that evaluated lessons from performance contracting case studies as a framework for successful public sector performance contracting:

An environment that maintains and supports a trust-based relationship that includes a balance between the formal and informal, on-going dialogue, information sharing, negotiation, and clarity of purpose. Performance contracting requires good faith efforts from all sides of the contractual relationship. It must have continued strong support at the highest political and managerial levels on both sides of the agreement. It is also suggested that performance contracting requires a mature and well established public service culture and a stable political and policy environment.