Template contracts to reduce disputes in insurance and retail sectors

Template contracts to reduce disputes in insurance and retail sectors

In order to cultivate a culture of contracting parties adopting written commercial agreements and facilitate compliance with the Act, the Authority has developed model contracts for use by buyers and suppliers in the retail and insurance sectors.

The template contracts, which were developed with the input of sector players, detail the minimum requirements that should be contained in a contract entered between a supplier and a buyer, thereby serving as a reference point for such parties.

It is expected that the template contracts, if applied by undertakings, will minimize conflicts currently experienced between contracting parties in the retail and insurance industries, and which have invited the Authority’s intervention.

High incidences of abuse of buyer power disputes in the two sectors, as evidenced by the complaints lodged with the Authority, has occasioned regulatory intervention through both soft and hard enforcement.

“During the course of investigating alleged ABP complaints lodged with the Authority in the two sectors, it became clear that most parties did not have recorded agreements,” said Priscilla Njako, Manager, Buyer Power.

“Whereas the law permits verbal contracts, written contracts explicitly spell out the rights and obligations of the parties which can easily be referenced whenever a dispute arises, including during investigations by the Authority.”

The Act was amended in December 2019, expanding section 31 and enabling the Authority to monitor the activities of sectors and undertakings where there is ongoing or likelihood of ABP and, where necessary, impose reporting and prudential requirements to ensure compliance. 

Additionally, the Authority may require industries and sectors, where instances of ABP are likely to occur, to develop and publish a binding code of practice.

The Act now sets out the basic requirements for inclusion in supply contracts. It is now mandatory for contracts between buyer and supplier undertakings to contain including terms of payment, conditions for termination and variation of contracts, and mechanisms for dispute resolution.

In order to address the ongoing issues in the retail and insurance sectors, the Authority consulted key stakeholders in these two markets and published the model contracts for the supply of goods and services.

The retail sector stakeholders engaged in the process of the development of the contracts included the Association of Kenya Suppliers (AKS), Kenya Association of Manufacturers, and the Retail Trade Association of Kenya (Retrak).

The Kenya Motor Repairers Association (KEMRA), the Association of Kenya Insurers (AKI), the Motor Assessors Association of Kenya (MAAK), and the National Association of Kenya Investigators (NAKI) also submitted their views on behalf of the insurance sector.

The template contracts’ salient features include; parties to the agreements, with provisions clearly identifying the buyer and supplier, the context of the agreement and obligations of both parties, including the duration of payment of suppliers.

The template contracts are aligned to Kenyan laws, and can be customized to fit the circumstances of the parties doing business with each other.

Interested stakeholders can access the template contracts on the Authority’s Website: https://cak.go.ke/mandate/buyer-power/rules 

 

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