KPC–Zakhem dispute puts megaproject contract management under scrutiny

Last Updated 1 day ago by Kenya Engineer

A dispute over the construction of Kenya’s replacement Mombasa–Nairobi petroleum pipeline has returned to the High Court, eight years after the infrastructure was completed.

Kenya Pipeline Company (KPC) wants the court to dismiss a claim of approximately Sh10.8 billion filed by Zakhem International Construction, the contractor engaged to deliver the Line 1 Replacement Project.

The claim comprises about $19 million attributed to extension-of-time costs and approximately $65 million in interest on allegedly delayed payments. Zakhem’s position is that delays for which KPC was responsible prolonged the contract and generated additional costs that have not been fully settled.

KPC disputes that account. It argues that the claims were dealt with through earlier litigation, negotiations and a consent judgment recorded in September 2023. The company has reportedly raised preliminary objections based on limitation of time, res judicata—the principle that a conclusively determined matter should not be litigated again—and abuse of the court process.

The High Court has not determined the latest claim. At this stage, both the contractor’s demand and KPC’s objections remain allegations for judicial consideration. Business Daily reported the current proceedings on 9 August 2026.

A pipeline and a long contractual tail

KPC awarded the project to Zakhem in 2014 under a contract valued at about $484.5 million. The new pipeline was intended to replace the ageing line transporting refined petroleum products between Mombasa and Nairobi, while providing greater capacity for Kenya and regional markets.

Construction began in 2015 and the pipeline was completed in 2018 after delays. Zakhem has attributed the prolongation to matters including late approvals, delayed construction drawings, changes to designs, work suspensions and physical or third-party obstructions. KPC’s response is that these issues were considered during earlier claims and the subsequent settlement process.

The original dispute reached court in 2019, when Zakhem sought more than $126 million. A partial judgment and further negotiations eventually produced a consent settlement reportedly worth about $69.7 million.

Yet the legal relationship did not end with the consent. Subsequent proceedings have included attempts to enforce payments and attach KPC bank accounts, with the parties disagreeing over whether particular balances, taxes, exchange-rate adjustments and interest obligations survived the settlement. Previous decisions documenting parts of this history are available through the Kenya Law case database.

The engineering lesson sits behind the legal arguments

Although the case will be decided on contractual and legal evidence, its origins are familiar to engineers working on large public projects.

An 18-month construction programme can be transformed by late access to sites, revised drawings, interface failures, approval delays and changes in scope. When that happens, the quality of the project records becomes almost as important as the physical work.

Contractors must demonstrate which event affected which activity on the critical path, the period of delay attributable to it and the measures taken to mitigate its effect. Employers, meanwhile, need disciplined systems for responding to notices, approving variations, certifying work and recording why instructions were issued.

General claims that a project was delayed are rarely sufficient. The evidence normally lies in updated programmes, site instructions, daily records, correspondence, design registers, payment certificates and contemporaneous cost data.

The KPC case also illustrates the importance of an unambiguous close-out. A settlement intended to be final should state precisely which claims are discharged, which amounts remain payable, how tax and foreign-exchange issues will be treated and whether interest continues to run.

Kenya’s infrastructure programme increasingly depends on contracts that involve multiple currencies, imported equipment and international contractors. The longer the contractual tail remains unresolved, the greater the risk that a completed asset will continue generating financial and governance uncertainty.