Impacts of Contract Management Practices On The Performance of Referral Hospitals: A Case Study of Kenyatta Hospital

IMPACTS OF CONTRACT MANAGEMENT PRACTICES ON THE PERFORMANCE
OF REFERRAL HOSPITALS: A CASE STUDY OF KENYATTA NATIONAL
HOSPITAL
Dullow Stephin Aira

Kimani Ian Gateri
Mike Mutwiri Munene
Ouma Caleb Onyango
Mutinda Daniel Muasya
A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS AND
ENTREPRENEURSHIP IN THE PROCUREMENT AND LOGISTICS DEPARTMENT
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF
DEGREE OF BACHELOR OF SCIENCE IN PROCUREMENT AND CONTRACT
MANAGEMENT AT JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND
TECHNOLOGY
SEPTEMBER 2023
DECLARATION
This project is dedicated to my beloved parents for their continued support throughout this
academic endeavor.
Name Registration Signature Date

Number
Dullow Aira Hde222-1112/2020 ….…………………………… ….……………………………
Kimani Ian Hde222-1091/2020 ….…………………………… ….……………………………
Mike Munene Hde222-1126/2020 ….…………………………… ….……………………………
Ouma Caleb Hde222-1135/2020 ….…………………………… ….……………………………
Mutinda Hde222-1131/2020 ….…………………………… ….……………………………
Daniel
This Research Project has been submitted for examination with my approval as the university
supervisor
Annpiera Njururi
Sign Date
….…………………………………. ….………………………………….
Supervisor, Jomo Kenyatta University of Agriculture and Technology
ii
DEDICATION
This work will be dedicated to our families, friends, and all those who have shown such a great
interest in all we've done.
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ACKNOWLEDGEMENT
God deserves all the praise because He is merciful. We want to gratefully thank Annpiera
Njururi who has patiently and consistently examined our work, given me guidance throughout
our proposal, and provided valuable criticism that has improved this project. We also want to
express our gratitude to the Jomo Kenyatta University of Agriculture and Technology fraternity
for giving us the chance to pursue a higher education and for creating a supportive learning
environment for us. In addition, we want to thank our families as well as friends for their help.
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Table of Contents
DEDICATION................................................................................................................................ii
ACKNOWLEDGEMENT..............................................................................................................iii
LIST OF TABLES...........................................................................................................................v
LIST OF FIGURES........................................................................................................................vi
LIST OF APPENDICES...............................................................................................................vii
Appendix I: Letter of Introduction.............................................................................................vii
Appendix II: Questionnaire.......................................................................................................vii
LIST OF ABBREVIATIONS......................................................................................................viii
DEFINITION OF TERMS.............................................................................................................ix
ABSTRACT....................................................................................................................................x
CHAPTER ONE..............................................................................................................................1
INTRODUCTION...........................................................................................................................1
1.0Introduction.............................................................................................................................1
1.1 Background of the Study........................................................................................................1
1.1.1 Global Perspectives of the Study.....................................................................................2
1.1.2 Regional Perspective of the Study...................................................................................4
1.1.3 Local Perspective of the Study........................................................................................5
1.1.4 Kenyatta National Hospital.............................................................................................7
1.2 Statement of the Problem.......................................................................................................8
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1.3 Objectives of the Study........................................................................................................10
1.3.1 General Objective..........................................................................................................10
1.3.2 Specific Objectives........................................................................................................10
1.4 Research Questions..............................................................................................................10
1.5 Justification of the Study......................................................................................................10
1.5.1 Ministry of Health.........................................................................................................10
1.5.2 Kenyatta National Hospital...........................................................................................11
1.5.3 Government and Policy Makers....................................................................................11
1.5.4 Practitioners...................................................................................................................11
1.5.5 Scholars and Researchers..............................................................................................11
1.5.6 Researchers....................................................................................................................11
1.6 Scope of the Study...............................................................................................................12
1.7 Limitations of the Study.......................................................................................................12
CHAPTER TWO...........................................................................................................................14
LITERATURE REVIEW..............................................................................................................14
2.1 Introduction..........................................................................................................................14
2.2 Theoretical framework.........................................................................................................14
2.2.1 Principle Agent Theory.................................................................................................14
2.2.2Transaction Cost Economies Theory.............................................................................15
2.2.3 Resource Dependency Theory.......................................................................................16
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2.3 Conceptual Framework........................................................................................................17
....................................................................................................................................................19
....................................................................................................................................................19
2.4 Literature Review of Study Variables..................................................................................20
2.4.1 Contract Automation.....................................................................................................20
2.4.2 Contract Negotiation.....................................................................................................21
2.4.3 Contract Evaluation.......................................................................................................22
2.4.5 Performance of Referral Hospitals................................................................................23
2.5 Empirical Review.................................................................................................................25
2.6 Critique of Existing Literature Relevant to the Study..........................................................27
2.7 Research Gaps......................................................................................................................28
2.8 Summary..............................................................................................................................29
CHAPTER THREE.......................................................................................................................30
RESEARCH METHODOLOGY..................................................................................................30
3.1 Introduction..........................................................................................................................30
3.2 Research design....................................................................................................................30
3.3 Target population.................................................................................................................31
3.4 Sampling frame....................................................................................................................32
3.5 Sample Size and Sampling Technique.................................................................................32
3.6 Research instrument.............................................................................................................32
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3.7 Data Collection Procedure...................................................................................................32
3.8 Pilot Test..............................................................................................................................33
3.8.1 Reliability of Data Collection Instrument.....................................................................34
3.8.2 Validity of Data Collection Instruments.......................................................................34
3.9 Data Processing, Analysis and Presentation........................................................................34
CHAPTER FOUR.........................................................................................................................36
RESEARCH FINDINGS AND DISCUSSIONS..........................................................................36
4.1 Introduction..........................................................................................................................36
4.2 Pilot Study Results...............................................................................................................36
4.2.1 Reliability Results.........................................................................................................36
4.3 Response Rate......................................................................................................................37
4.4 Demographic Information of the respondents.....................................................................38
4.4.1 Department....................................................................................................................38
4.4.2 Level of Education........................................................................................................39
4.4.3 Work experience............................................................................................................40
4.5 Descriptive Results of Study Variables...............................................................................40
4.5.1 Performance of Kenyatta National Hospital.................................................................41
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CHAPTER FIVE...........................................................................................................................49
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS........................49
5.1 Introduction..........................................................................................................................49
5.2 Summary of the Findings.....................................................................................................49
5.2.1 Performance of KNH.....................................................................................................49
5.3 Conclusion...........................................................................................................................53
5.4 Recommendations................................................................................................................54
5.5 Suggestions for Further Research........................................................................................55
References......................................................................................................................................56
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LIST OF TABLES
Table 3.1: Distribution of target population of KNH……………………………………………………31
Table 4.1: Reliability...…………………………………………………………………………..37
Table 4.2: Analysis on Response Rate…………………………………………………………...38
Table 4.3: Department of the Respondents………………………………………………………38
Table 4.4: Level of Education……………………………………………………………………39
Table 4.5: Work Experience……………………………………………………………..………40
Table 4.6: Performance of KNH…………………………………………………………………41
Table 4.7: Contract Automation……………………………………………………...………….43
Table 4.8: Contract Negotiation…………………………………………………………………45
Table 4.9: Contract Evaluation………………………………………………………………….46
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LIST OF FIGURES
Figure 2.1: conceptual framework ………………………………………………………. 19
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LIST OF APPENDICES
Appendix I: Letter of Introduction…………………………………………………………………61
Appendix II: Questionnaire…………………………………………………………………………63
xii
LIST OF ABBREVIATIONS
B2B Business-to-business
BATNA Best Alternative To Negotiated Agreement
CLM Contract Lifecycle Management
CPAR County Procurement Assessment Report
KEMSA Kenya Medical Supply Authority
KIPPRA Kenya Institute for Public Policy Research and Analysis
KNH Kenyatta National Hospital
MoH Ministry of Health
OGC Office of the Government of Commerce
TCE Transaction Cost Economics
TOC Theory Of Constraints
UK United Kingdom
USA United States of America
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DEFINITION OF TERMS
Performance The minimum standards defining the actions and terms to be implemented or
completed to achieve compliance with a participant contract (Taouab, O., &
Issor, Z. 2019).
Contract Automation It describes the use of software to generate contract and eliminate routine
contract administration (Schmidt-Kessen, M. J., Eenmaa, H., & Mitre, M.
2022).
Contract Negotiation It involves the process of coming to an agreement on a set of legally binding
terms (Scoca, V., Uriarte, R. B., & De Nicola, R. 2017)
Contract Evaluation This basically comprises all processes of evaluating and reviewing contracts
in order to determine their validity and effectiveness (Senthil, S.,
Srirangacharyulu, B., & Ramesh, A. 2014).
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ABSTRACT
Contract management is crucial for both public and private organizations. It aims at ensuring that
contracts are handled effectively to achieve value for money and to minimize risks. It also aims
at achieving set timelines, compliance with new rules and regulations, and globalization. It helps
in the realization of positive outcomes, identification of risks and how to mitigate them,
discovery of critical success factors, alternatives available and adhering to set work plans.
Effective contract management must include all stakeholders and should not exclude the final
consumers of the product or service. This leads to improvement in financial and procurement
performance. Measurement of procurement performance is essential to both public and private
entities. Successful contract management improves procurement performance of an organization
by providing for timely service delivery, achieving value for money, ensuring supplier
responsiveness, cooperation and efficiency. Successful contract management aids in reducing
uncertainties by instilling monitoring and evaluation techniques. Generally, the study sought to
examine what influence contract management has on procurement performance in of referral
hospitals in Kenya. It Specifically sought to: determine what influence contract automation has
on procurement performance in referral hospitals in Kenya; establish what influence contract
negotiation has on procurement performance in referral hospitals in Kenya; examine what
influence contract evaluation has on procurement performance in referral hospitals in Kenya;
assess what influence contract administration has on procurement performance in referral
hospitals in Kenya. A number of theories have been looked into under literature review in
relation to contract management and procurement performance, specifically concerning devolved
governments. The investigation applied descriptive study design. The investigation employed
both qualitative and quantitative skills to collect data from the procurement and sourcing
department of Kenyatta National Hospital. The target population is 80 with a sample size of
10%. The study used stratified random sampling with the aim of having every division
represented. Hence, it can be concluded that the contract automation, contract management team,
contact administration and contract risk management must be effectively implemented to
improve procurement performance within referral hospitals in Kenya. A sample size taken gave a
base of 40 respondents. The research design used was descriptive and data collection procedure
involved administering of close-end questionnaires to KNH staff and filled by respondents at
their own convenient afterwards, editing was done to detect errors and presentation was done in
tables. The questionnaire tested for both reliability and validity. There was the use of qualitative
technique to analyze data with also the assistance of Statistical Package of Social Sciences
(SPSS). Consequently, this study recommends Comparative Analysis of KNH's contract
management practices with similar healthcare institutions or hospitals .
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CHAPTER ONE
INTRODUCTION
1.0 Introduction
This chapter presents an introduction to the study. The main areas covered include background
of the study, problem of the statement, research objectives both general and specific, research
questions and significance.
1.1 Background of the Study

According to Lysons & Farrington (2016) procurement is generally defined as the process of
obtaining goods or services in any ways borrowing, leasing or even force or pillage. Ogembo &
Muturi (2019) in their study found out that contract management, a key aspect in procurement, is
vital in the public sector in our case public referral hospitals. It ensures that contracts are handled
effectively and efficiently to achieve value for money and to minimize risks. Contract
management also aims at achieving set timeframes, compliance with new procurement rules and
regulations and globalization. Procurement Contract management is a fundamental practice that
has implications on the operations of an organization together with being an activity which cuts
across all the departments in the organization. Mitigation is hereby made possible through the
easy realization of positive outcomes and risk identification.
According to Cho & Pucick (2015) contract management improves an organization’s operational
performance as indicated by various measures such as, quality, flexibility, speed, efficiency and
supplier relationship. Nguyen (2013) defines contract management as the process that ensures
both parties to a contract fully meet their respective obligations as efficiently and influence as
possible, in order to deliver the business and operational objectives required from the contract
and in particular to provide value for money. As a result, developing and managing contracts is a
skill required by almost all public sector entities. Rendon (2010) affirms that the perfect example
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of contract management evolves around proper planning, award, administration of contracts and
the monitoring of providers’ performance. Once this is deficient, it increases the risk of
endangering value for money.
Cropper (2016) in his study concluded that corruption has turned out to be one of the most
challenging phenomena of our time that can easily make the process of contract management
unsuccessful. Enquist, Johnson & Camen (2013) explain that contract management entails efforts
by the immediate parties to a transaction to align incentives and craft governance structures that
are better attuned to their exchange needs and due allowance being made for the mitigation of
contractual hazards. Out of awareness that workers are not passive contractual agents, naïve
efforts which focus entirely on intended influences was supplanted by more sophisticated
mechanisms where provision is made for consequences of both kinds. Smith (2014) in his study
concludes that the awareness that organizations have the life of their own serves to uncover a
variety of behavioral regularities for which stakeholders should be alerted and thereafter factored
into organizational design.
1.1.1 Global Perspectives of the Study

A sound contract management system covers the success for the procurement as it ensures the
performance of contractor as per the defined schedule, time, and specification, defined in the
contract. Ian Bryce (2019) in a study of telegraph media group shows major challenges the
organization faces related to contract management. They include lack of strategies across the
procurement team to save costs across the whole vendor set, financial and regulatory risks
couldn’t be calculated accurately or mitigated effectively and auto renewal of contracts every
year without oversight. With agreements being stored in multiple locations across email accounts
and other internal systems it made it difficult for procurement teams to fulfil their primary roles
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of controlling costs and minimizing business risks. The company has many live contracts at any
one time which made it difficult to manage renewals effectively which often resulted in missed
renewals or auto renewal of agreements that were not necessary. Hapoos & Siedel (2017) in a
study in Indonesia found out that proper contract management can significantly lower the factor
of risk and uncertainty for an organization.
Kim (2015) affirms that The United States has the best contract management and oversight.
Local-level scandals, on the other hand, have resulted in renewed interest in reducing
opportunistic contractor behavior and ensuring accountability throughout the contracting process.
According to European public contracts directive (2014) many European countries have adopted
European Union reforms in the contract management process. Ogembo and Muturi (2019) stated
that some countries like UK, US and Canada have been adopting contract management in
procurement and logistics. They recognized the Department of Defence (DOD) of the
aforementioned countries for minimizing procuring costs through reducing lead time in the
overall management and employing contract management practices. As well the Office of the
Government of commerce (OGC) in the United Kingdom released year to year updates regarding
to accepted practices in the Public service. Contract Management’s impacts on procurement
performance is significant evidenced by the adoption of the practice by the United States, United
Kingdom and Canadian governments.
In the global adoption of contract management, Sacklen (2018) emphasizes that an effective
contract management process entails, contract cycle, contract relationship, contract
implementation and contract monitoring through legal support training and utilization of
possibilities in procurement and supply chain systems.
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1.1.2 Regional Perspective of the Study
Ochola and Kitheka (2019) explain that most organizations in Africa still face challenges in
effectively managing contracts which leads to underperformance. In today's high speed as stated
by Meredith and Mantel (2018) multicultural business environment in both the public and private
sectors, the contract management process is growing in importance as outsourcing continues to
increase and contractors become virtual extensions of an organization’s competence and
capabilities. Nashikkar (2016) emphasizes that it is vital that the employer internally identifies
and clearly assigns responsibilities for the contract management. These tasks should be assigned
in the light of the skills required to perform such functions.
Liu and Wang (2014) stated the need for good quality professional staff to compile bid and
tender documents. Odeh and Battainhenm (2016) have also recommended well trained personnel
and transparent bid award procedures to avoid delays in contract management in Ghana, Africa.
Nashikkar (2016) leans his study towards contract administration and how it is an important and
integral part of contract management, and it encompasses various activities that need to be
completed on a daily basis. Good contract administration will ensure that customers are being
satisfied by the good or service being obtained under the contract. Customer satisfaction surveys,
for example, help improve contract performance because the feedback can be used to notify the
contractor when specified aspects of the contract are not being met.
MC Fombad (2015) explained that a growing perception of the need to automate, improve,
upgrade the contractual processes, and satisfy increasing compliance and analytical requirements
have resulted in adoption of a more orderly and structured contract management procedures.
Oluka and Basheka (2014) noted in their study on determinants and constraints to effective
procurement contract management in Uganda, that despite the emphasis and regulatory
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framework on contract management, Uganda Public Procurement Compliance Reports
sanctioned by the Public Procurement and Disposal of Public Assets Authority have
continuously shown contract management as one of the areas where performance of public
entities is poor; there were significant variances between the actual and indicative time frames in
the processing of procurements from the stage of approval of procurement to the award and
signing of contracts. Some of the major finding from this study include; weak procurement rules
which lead to awarding road projects to incompetent contractors; contractor monitoring being
handled by unqualified, incompetent and inexperienced professionals; lack of contractors and
contract supervisors’ appraisal system and delay of contractors’ payments which affects
timelines in services delivery.
1.1.3 Local Perspective of the Study

In Kenya, the healthcare system is structured and carried out through a pyramidal network of
facilities. Dispensaries and health clinics/posts are at the bottom of the network, followed by
health centers, sub-district hospitals, district hospitals at levels 4, provincial general hospitals at
levels 5, and the Kenyatta National Hospital at the top. The primary funder and supplier of
healthcare services in Kenya is the Ministry of Health (MoH). The MoH oversees and manages
around 52% of all health institutions in the nation; the remaining 48% are handled by the private
sector, mission groups, and the Ministry of Local Government. About 79% of health facilities
and 92% of sub-health centers are under the administration of the public sector. The Country
Procurement Assessment Report (CPAR), created by a team of government representatives,
personnel from the World Bank and donors, and national consultants, uncovers significant
inefficiency in public procurement and comes to the conclusion that the "value for money"
criterion is not upheld.
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Over the years, Kenya has not been able to adequately guarantee the residents' access to high-
quality healthcare through the Ministry of Health. According to Kenya Health Policy (2014) the
majority of public hospitals are in poor shape, with outdated infrastructure, inadequate
pharmaceuticals, outdated medical equipment, and few available beds in the wards. Patients are
in pain as a result of the poor care provided by medical staff, who also complain about their
unfavorable working conditions, such as inadequate medical equipment and low compensation.
MOH Survey (2015) found out that the aforementioned elements are related to the purchasing
procedures used at the corresponding public health facilities in question. This shows that these
public facilities no longer provide high-quality healthcare. According to Kenya Anti-Corruption
Commission (2010) the administration of these organizations should look for more effective
means of raising the quality of service delivery.
Nyaga, J. N., & Kihara, D. (2017), conducted a study on factors influencing implementation of
procurement plans in public hospitals in Kenya: a case of Kenyatta National Hospital. The
implementation of procurement plans in public hospitals in Kenya is influenced by varying
factors. Research by the Price Water House Cooper found that as much as 37% of the potential
value of a procurement plan in public hospital in Kenya is lost during Implementation. Public
Hospital procurement accounts for 25% of the annual government procurement expenditure.
Many public hospitals in Kenya are able to generate innovative procurement plans, but few are
able to successfully implement these plans. Lack of proper implementation in procurement
planning culminates into diverse implications in the organization that may deter its progress.
Public
hospital in Kenya has been facing challenges of procurement plan implementation. This study
sought to establish the factors influencing implementation of procurement plans in public
6
hospitals in Kenya, with special focus on Kenyatta National Hospital. The study found that
information technology affected the implementation of procurement plans at Kenyatta National
Hospital. The employees were not equipped with the right knowledge on information systems
neither did they attended trainings to acquire IT skills. Some hardware was out dated as well.
The study further found that procurement expertise affected the implementation of procurement
plans at Kenyatta National Hospital. Employees in the hospital had little technical skills on
procurement and lack experiences on application of various ICT technologies in procurement as
well.
1.1.4 Kenyatta National Hospital

The Kenyatta National Hospital (KNH) was established in 1901 making it the oldest hospital in
Kenya. The hospital is located Upper Hill area of Nairobi City, Kenya. KNH serves as a
landmark in Nairobi about 3.5kilometres from the Central Business District. The hospital
complex measures 45.7 acres. It was originally called the Native Civil Hospital & had a bed
capacity of 40. The first expansion process was completed in 1939, a wing with 300 beds. More
extensions were made in 1951 and 1953 with the completion of Ismail Rahimtulla Wing to
accommodate patients from the Asian Community, increasing bed capacity to 600.
In 1952, Kenyatta National Hospital was renamed from the Native Civil Hospital to the King
George VI Hospital. This followed the death of King George VI on the 6th of February 1952 and
his daughter, Queen Elizabeth (25), was in Kenya on a royal tour. After independence in 1963,
King George VI Hospital was again renamed Kenyatta National Hospital (KNH). KNH was a
name after the first president of the Republic of Kenya. It was therefore declared a national
teaching hospital. KNH was mandated three major functions of, serving as the National Referral
Hospital, providing facilities for teaching and providing facilities for research.
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An expansion program was carried out in three phases which included the main hospital, the
clinical science blocks, the medical students’ hostels and the hospital service blocks. KNH has
50 wards, 22 out-patient clinics, 24 theaters (16 specialized) and Accident & Emergency
Department with over 6000 staff members. Out of the total bed capacity of 1800, 209 beds are
for the Private Wing. KNH became a State Corporation in 1987 and as of 2022, it is the biggest
referral hospital in East & Central Africa with over 6000 staff members and over 1800 bed
capacity.
1.2 Statement of the Problem

Contract management is a valuable step in public procurement as it ensures that service or
products delivery is undertaken as per the contractual terms and conditions. The principle of
contract management as a whole includes actions that result in competent and practical
management of the design, enactment, and exploration of contracts in order to fully capitalize on
financial and performance benefits of procurement while minimizing risks. The aspect of overall
procurement performance is essential to ensuring that an organization's regular strategic
objectives are completed as efficiently and effectively as possible. According to a report from the
Public Procurement Oversight Authority from 2015, most of the goods and services offered in
referral hospitals come with a markup of up to 60% profit. Additionally, it describes how
contract automation improves administrative processes, how public funds are handled and
reported, how contracts are monitored and evaluated, how business is conducted more quickly,
how electronic tendering is promoted in referral hospitals, and more (Fredrick & Willy, 2019).
Odhiambo & Gichure (2017) according to health sector performance report 2016 & 2017 health
institutions are ailing from shortage of drugs or holding on expired drugs. Muturi (2015) stated
that Health Centres and dispensaries are hardly stocked with the recommended medicines. This
8
indicates that high rate of expired drugs in dispensaries and other public hospitals can be
attributed to poor procurement contract management thus affecting efficient delivery of quality
services. The procurement procedures in hospitals has greatly changed unlike the previous
system whereby KEMSA supplied drugs, under the current system, health facilities are free to
source for medical facilities from any other source. This has sometimes contributed to delay in
delivery of drugs or in worst case scenario, compromise of the quality of drugs supplied.
Problems continue to exist at KNH with procurement contract management and control because
some managers and staff have resisted change and others have lacked the skill to handle
computerized systems. Ochola (2019) emphasizes that effective contract management must
include all stakeholders and should not exclude the consumers of the product or service.
Consequently, improvement in financial and procurement performance to be achieved.
Various studies have been conducted on procurement contract management. Kariuki (2019) did a
study on the influence of contract management practices on procurement performance of county
government in Kenya. In 2018, Samson conducted a study on factors affecting implementation
of procurement procedures in public hospitals. Ogembo and Muturi (2019) carried out a study on
the influence of contract management on procurement performance in devolved governments of
Kenya. However, most of these studies focused on the impact of contract management on
procurement performance of devolved government and other public organizations. Therefore,
this study will focus on impact of contract management on procurement performance referral
hospitals in Kenya.
Inclusively, the study sought to determine what impact contract management has on procurement
performance in referral hospitals of Kenya. It precisely, sought to: examine what impact contract
administration has on procurement performance in referral hospitals of Kenya: what impact
9
contract automation has on procurement performance in referral hospitals of Kenya: establish
what impact contract negotiation has on procurement performance in referral hospitals of Kenya:
assess what impact contract evaluation has on procurement performance in referral hospitals of
Kenya.
1.3 Objectives of the Study

1.3.1 General Objective
To assess the impacts of contract management on the procurement performance of referral
hospitals in Kenya: A case study of Kenyatta National Hospital.
1.3.2 Specific Objectives

i. To determine the impact of contract automation on procurement performance of KNH.
ii. To evaluate the influence of strategic contract management on procurement performance
of KNH.
iii. To assess the impact of contract risk management on procurement performance of KNH.
1.4 Research Questions

i. What is the impact of contract automation on procurement performance of KNH?
ii. What is the influence of strategic contract management on procurement performance of
KNH?
iii. What is the impact of contract risk management on procurement performance of KNH?
1.5 Justification of the Study

This study sought to present the key benefits that might be as a result of the study. Beneficiaries
of the findings of this study are presented such as the Referral hospitals, the organization focused
on by the study that is; Kenyatta National Hospital, Government and policy makers,
practitioners, academicians and researchers.
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1.5.1 Ministry of Health
The findings of this study might enable the stakeholders in the Ministry of Health to identify
issues around contract management and devise mechanisms, techniques and strategies to ensure
effective contract management for the referral hospitals in Kenya.
1.5.2 Kenyatta National Hospital

The study might enhance service delivery and guide in formulation of policies that advocate for
effective procurement procedures. It might help procurement department to know the right
methods of rating and choosing supplies in order to avoid delayed service delivery.
1.5.3 Government and Policy Makers

The study might guide the government and policy makers in developing policies and procedures
that guide in health sector development. The findings might provide proper guiding framework
for the development of infrastructures that ensures quality service delivery to patients and clients
in public hospitals.
1.5.4 Practitioners
Through this study, procurement officers might improve procurement performance by polishing
contract management practices
1.5.5 Scholars and Researchers

The findings of this study might increase their understanding and improve the existing academic
knowledge regarding factors affecting contract management procedures in the public sector. The
scholars may benefit from the result of the study as it may serve as a reference point to help
identify areas for further study. The findings may also benefit future researchers because it may
have formed a basis on which they can use to do further study on the same area
1.5.6 Researchers
This study equips the researcher with knowledge on the ways of attaining effectiveness in
procurement. The researcher may be able to learn how to identify and deal with problems in
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future as well as apply the knowledge and skills learnt in class in their career to the field. It also
provides an opportunity to the researcher to use and improve their skills for communication.
Above all, the study may enable me in the award of a degree in Jomo Kenyatta University of
Agriculture and Technology.
1.6 Scope of the Study

Kenyatta National hospital(KNH) is the oldest hospital in Kenya. It is a public, tertiary, referral
hospital for the Ministry of Health. It is also the teaching hospital of the University of Nairobi
College of Health Sciences. It is located in the area immediate west of Upper Hill in Nairobi, the
capital and largest city of Kenya. Its located 3.5 kilometers west of the Central Business District.
KNH is hardly stocked with the recommended medicines. The high rate of expired drugs in
dispensaries and other public hospitals can be attributed to poor procurement contract
management thus affecting efficient delivery of quality services. Therefore, there’s a need to
carry out this study to establish the impact of contract management practices on procurement
performance of referral hospitals.
The main purpose of this study was be to establish the impacts of contract management on the
performance of referral hospitals in Kenya. The specific areas of study will be: Contract risk
management, contract monitoring, contract automation and contract management team on
organization performance in referral hospitals in Kenya. The study majorly focus on the under
performing referral hospitals. Due to the complexity of the research concerning contract
management practices on procurement performance, we expect the study to take a duration of 4
months.
1.7 Limitations of the Study

The study encountered numerous limitations, including hospital management's apathy in
authorizing data collection in their institutions and employees' reluctance to fill out
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questionnaires. The hospital administrators were hesitant to authorize data collection, which
we addressed by assuring the administration of minimal interference with the organization's
operational aspects. In the context of potential respondents' apathy toward filling out
questionnaires, the researcher addressed this apathy in a variety of ways, including obtaining an
official letter from the university outlining the data collection purposes as academic in nature.
The respondents were also given a consent form outlining their voluntary participation in the
study.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter provides an overview of related literature and studies after an in depth search done
by the researchers. It starts with the review of the relevant framework under the study. There are
four theories relevant to the study that provide a link between the theory and the study variables.
The chapter has a conceptual framework which is a diagrammatic representation of the
relationship between the study variables. The empirical review focuses on studies done on
locally and internationally and the key finding related to the study. The chapter ends by
identifying a research gap and a summary of the entire chapter.
2.2 Theoretical framework

The theoretical framework is the structure that can hold or support a theory of a research study.
The theoretical framework introduces and describes the theory that explains why the research
problem under the study exists (Abend, 2008). Theoretical framework strengthens the study as it
connects the researcher to existing knowledge guided by a relevant theory, you are given a basis
for your hypothesis and choice of research methods. Am explicit statement of theoretical
assumptions permits the reader to evaluate them critically.
2.2.1 Principle Agent Theory

The theory was developed in 1970s by Michael Jensen of Harvard Business School and William
Meckling of the University of Rochester. According to Cheung & Suen (2002) an agency
14
relationship is defined as one in which one or more persons (the principal) engage another person
(the agent) to perform some service on their behalf which involves delegating some decision-
making authority to the agent. The theory assumes that agents are self- interested, bounded
rationality and different from principals in their goals and risk taking preferences- that a problem
occurs when one party employs another to make decisions and act in their stead. Principle Agent
Theory is thought to relevant for this study in understanding how dispute resolution has effect on
organizational performance in the telecommunication sector, hence it gives a theoretical
background for this study. This study therefore adopts the view that it is prudent to monitor and
control the critical factors of project performance (as defined in the Success Factors Model)
within a contracting arrangement (as defined in the Agency Theory) to ensure the success of
outsourced projects in the organization.
The principal- agent theory can be applied to this study with Airtel company as a principal and
project suppliers as agents. According to Fink (2006) the underlying principle of the contract
theory is that there should be a clear understanding of the needs of the principal and ability of the
agent to meet these needs competently. The theory becomes significant to the study as it
highlights the need for strategic planning in project contract management. When a project
contract is well defined and planned, the principal and agents will find it easy to meet needs of
each other in an efficient way resulting into timely execution of the projects in predetermined
service level. According to the principal-agent theory, the relationship between the two parties
also involves self-interest of each party. According to Douglas (2003) it is commonly assumed
that all participants in the project will work together in order to achieve the same goal).
However, there is a potential conflict of interests between the participants because they all have
15
their self-interests too. Therefore, agency theory was used to investigate the role contract
management on organization performance at Kenyatta National Hospital.
2.2.2Transaction Cost Economies Theory

According to Ross (1973) Transaction Cost theory might be one of the most important
organization theories because of the studies that have been encouraged through it and is one of
the main perspectives in organizational studies. The vital commitment of Transaction cost
economics to organization theory, resulted in a wide range of empirical contributions, using
transaction cost economics, for instance as a make or buy decision help, or verification of the
right contract mode. Transaction Cost Economics (TCE) inspects how business partners who
collaborate with each other shield one another from harmful subsidiary with differing
relationships.
Opportunism, one of the behavioral assumptions of transaction cost theory mainly invoices
behaviors displayed by economic actors concerned for their own interest. William (1985, p.47)
argues that opportunism is basically a series of personal actions based on deliberate preferences
which involves telling lies, stealing, deceiving as well as abstaining from providing complete and
accurate information in economic transactions such as contracts. Another assumption is bounded
rationality. This assumption argues that individuals tend to be rational merely in the intent rather
than being rational in the absolute sense due to the imperfections inherent in human’s creation.
Transaction Cost Economies Theory is thought to relevant for this study in understanding how
contract evaluation has effect on organizational performance in the telecommunications sector
hence it gives a theoretical background for this study. The two primary drivers of TCE are
uncertainty caused by the external environmental and costs,
16
2.2.3 Resource Dependency Theory
The Resource Dependence Theory was devised by Pfeffer and Salancik (1978) that explains how
organizations behavior is affected by the external resources they possess. Resource dependency
theory is based on the principle that an organization such as a business firm must engage in
transactions with other actors and organizations in its environment in order to acquire resources.
Although such transactions may be advantageous they may also create dependencies that are not.
To avoid such dependencies, organizations develop strategies designed to enhance their
bargaining position in resource-related transactions. Such strategies include taking political
action, increasing the organizations’ scale of production, diversifying and developing links to
other organizations. Strategy such as diversifying product lines may lessen a firm’s dependence
on other businesses and improve its power and leverage.
One of the assumptions of resource dependency theory is that uncertainty clouds an
organization’s control of resources and makes its choice of dependence-lessening strategies
imperative. As uncertainty and dependencies increase the need for links to other organizations
also increases. The key for any organization to survive is the ability to acquire and maintain the
resources that are available in the environment. Pfeffer and Salancik in their book, the external
control of organization.
2.3 Conceptual Framework

Isaiah (2018) claims that a conceptual framework is a flexible analytical tool that can be used in
various professions where a thorough understanding is required. It serves to systematize ideas
and categorize concepts (Riggan, 2015), and is associated with the research objective, providing
a set of guidelines for data collection and analysis. Conceptual frameworks can encompass both
broad and narrow theories and situations, and their explicit meaning and utilization can change
over time (Colander, 2018).
17
In essence, a conceptual framework is the researcher's synthesis of the body of work related to a
particular phenomenon. It outlines the steps to be taken during the course of the inquiry, based
on the researcher's prior knowledge of other scholars' perspectives and observations of the
research issue (Jerry, 2015). It is the researcher's understanding of the relationships between the
specific variables in their study, and thus identifies the necessary components for the research
investigation. Researchers follow the roadmap of the investigation as they proceed (Yoav, 2014).
As per McGaghie (2017), the conceptual framework establishes the context for the presentation
of the research question that guides the inquiry reported based on the problem statement. The
overarching goal of a conceptual framework is to clarify the direction of research and ground it
firmly in theoretical concepts, thereby increasing the generalizability and significance of research
findings in the relevant field (Maxwell, 2018). It fosters research by providing both direction and
momentum, while ensuring the expansion of knowledge (Bickman, 2016). The presence of a
conceptual framework makes it easy for readers to understand the academic perspective and
underlying reasons for the researcher's assertions (McGraw, 2017).
18
CONTRACT AUTOMATION
 Efficiency
 Productivity
 Security
CONTRACT NEGOTIATION PERFORMANCE OF KNH

 Accommodation  Customer Satisfaction
 Competing  Deliverable of services
 Avoidance  Agility and cycle time
CONTRACT EVALUATION
 Technical bid evaluation
 Business/commercial bid
evaluation
 Vendor/supplier evaluation
Independent Variable Dependent Variable
Fig 2.1 Conceptual framework
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2.4 Literature Review of Study Variables
2.4.1 Contract Automation
According to Grimm (2019) contract automation is the use of technology to streamline the entire
contract lifecycle, form drafting and negotiating to signing and archiving. ECLIPSE Legal Systems
(2020) describe contract automation as the process of using technology to automate the creation,
management, and execution of contracts. It involves the use of software tools that streamline the
entire contract lifecycle, from drafting and negotiating to signing and archiving. Further,
Contract automation involves drafting and template management, Workflow and approval
management, Electronic signature and document management, Contract tracking and reporting,
Compliance monitoring and risk management. According to Atkinson and Waelde (2016),
contract automation enables organizations to manage contracts more effectively and efficiently
by reducing manual processes and streamlining workflows. Morse & Adams (2020) automation
can also help to ensure compliance with legal requirements and minimize the risk of errors and
disputes.
Ogembo and Muturi (2019) in their study established that the vital contract automation practice
is not embraced in the public sector. In their study on the devolved governments, contract
management results to delayed procurement performance which can be traced back to un-
renewed contracts. Referral hospitals deal with numerous contracts that need to be automated to
ensure systematic flow of procurement processes and avoid delayed performance by supplies due
to un-updated contract terms. However, most of the referral hospitals including KNH do not have
an established system for contract automation. According to a report by Gartner, Agenda
Overview for Legal (2021) by 2025, more than 50% of legal departments in large enterprises will
use contract life cycle management (CLM) automation tools, up from less than 20% today, to
support contract drafting, negotiation, management and analysis. Another study by Forrester
20
Consulting (2020) found that contract automation can result in a 36% reduction in time spent on
contract creation and negotiation, as well as a 28% reduction in time spent on contract
management tasks.
2.4.2 Contract Negotiation

According to Chepng’etich (2022), negotiation is when two or more groups come together to talk
about their common and conflicting interests in order to come up with a deal that both sides will
be happy with. A negotiator balances things so he can get what he wants and get it in the best
possible way. This means that the government of a Devolved system should set clear goals
before they start talking to people. According to Lysons and Farrington (2016), the referral
hospitals needs to be aware of a lot of different things when it comes to negotiations. Through
negotiations, the referral hospitals would find out what the item would cost, how long it would
take to get it, how it would be packaged and transported. They would also figure out how often
they would get progress reports, what kind of tests they would do, and how often they would
inspect the item. They would also figure out how often they would get bonuses, discounts, or
other incentives. Before beginning to negotiate, the referral hospitals, for instance KNH should
determine the Best Alternative to a Negotiation Agreement (BATNA). This is because
commercial conversations are continuously shifting, giving the impression that something is
always going on. The negotiation flow is influenced by a number of elements. Metty et al.,
(2005) stated that time, atmosphere, personalities, knowledge, personal difficulties, and
hierarchy are the most common aspects that influence how a negotiation plays out. According to
Chepng’etich (2022) businesses should use one of two negotiating tactics to achieve their goals.
These methods to negotiating are competitive and cooperative. In a competitive negotiation, both
people are trying to get the best deal for themselves, which usually means that the other person's
goals don't play a role in the deal. They should use this approach when their interests and the
21
other parties are very clear, the other party wants to take a win-lose approach, they don't need a
longterm relationship, and the KNH is strong enough to win. There is less 25 conflict in co-
operative negotiations. The goal is to come up with a solution where everyone is happy. This
usually leads to the best results because there is a lot more communication between the parties.
Bui et al 2001 stated that negotiating strategies should take into account a variety of factors and
be capable of maximizing both buyer and supplier interests. In this regard, Warkentin et al.
(2001) emphasized the importance of structured discussions in enterprise (B2B) exchanges, and
tried to suggest that mobile payments should facilitate discussions between customer and
supplier. Buyer-supplier discussions normally include examining, planning, and analyzing
contract development methods in order to reach acceptable terms of the contract in the form of
settlements or agreements. An organization may devise alternate scenarios in order to engage in
successful negotiating methods with diverse suppliers, resulting in increased efficiency and
performance.
2.4.3 Contract Evaluation

Degen, Thiemann and Wehr (2018) described Contract Evaluation as the process of reviewing a
contract provided by a potential contracting partner to determine whether the terms of the
contract meet whatever criteria have been established and whether the terms of the contract are
acceptable, or will need to be changed to be deemed acceptable. Venkatraman & Ramanujam
(2010) stated that in order to improve overall contract management, it is highly helpful to
evaluate how the contract is operating and the result of the contract. However, most
telecommunication firms face a problem of poor contract evaluation as a result of insufficient
technical bid evaluation, incomplete business/commercial bid evaluation and poor vendor
evaluation.
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In managing contracts, technical bid evaluation is an integral part of contract evaluation where
the evaluation assesses the technical capability along with the quality, compliance with codes,
standards and specifications, experience operating cost and performance penalties to meet the
project-specific requirement as well as the execution capability of the supplier. Hong Yan (2011)
Technical evaluation should be undertaken by some personnel either well versed in procurement
of particular item or a member of the user department. Prosidian (2014) suggested that it is best
practice to do a vendor/supplier evaluation before the contract expires when switching from one
contract to another in order to identify any issues that have arisen with certain areas of the
contractual arrangement and, where necessary, make improvements in the future contractual
arrangements.
Talluri and Narasimhan (2017) described Vendor/supplier evaluation as an evaluation and
approval process that businesses can use to determine if prospective vendors and suppliers can
meet their organizational standards and obligations once under contract. In contract management,
another essential element of contract evaluation is Business/Commercial bid evaluation where
firms analyze which decisions to make and which to forgo. Mishan and Quah (2020) stated that
the procuring entity can conduct the evaluation in-house, or a third party can be engaged to do
so. According to Smith, peter, Damien and Peter (2014) in-house bid evaluation should be
commonly used where possible as procurement teams are made up of employees of the
organization, especially those of the user department thus can be able to accurately describe and
provide specifications required to be met by the product.
2.4.5 Performance of Referral Hospitals

The performance of an organization is a measurement of what the organization will achieve upon
accomplishing their set goals and objectives. According to Market Business news (2018),
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organizational performance involves analyzing a company’s performance against its objectives
and goals. Richard et al. (2014) further clarified that organizational performance comprises of
three specific areas of companies output namely customer satisfaction, deliverables of services
and agility and cycle time. Customer satisfaction is a measurement that determines how well an
organization products or services meet customer expectations (MaminiainaAimee, 2019). It is
one of the most important indicators of purchase intentions and customer loyalty. As such, it
helps predict business growth and revenue. Organization performance is measured on the basis
of return on asset, flexibility of the product or service, reduction in costs, return on equity,
reduction of risks and increase in sales to evaluate the financial standards of the organization
whether it’s making profits or losses.
Agility can be described as a company's ability to quickly adjust tactics and manage operations
within the supply chain. Agility is manifested through an organization ability to quickly detect
changes, opportunities, and threats; quickly access relevant data; make resolute decisions about
how to act, quickly implement those decisions; and modify its range of supply chain tactics and
operations to the extent needed to implement its strategy (flexibility). An agile supply chain
enables an organization to consistently meet customer demand fast, cost-effective shipping,
despite variation of orders (MaminiainaAimee, 2019). Thus, there is need for proper planning
and execution of supply chain activities in order to meet the varying customer demands.
Journal of Hospital Administration (2020) analyzed the performance of referral hospitals in
China and found that these hospitals had higher patient volumes, longer lengths of stay, and
higher costs compared to non-referral hospitals. However, referral hospitals also had better
clinical outcomes and higher patient satisfaction. Journal of Health Economics (2021) examined
the performance of referral hospitals in the United States and found that these hospitals had
24
higher readmission rates and higher costs of care compared to non-referral hospitals. The
performance of referral hospitals depends on various factors such as the healthcare system,
funding mechanisms, and patient demographics. Further research is needed to better understand
the performance of referral hospitals and to identify strategies for improving their effectiveness
and efficiency in providing specialized medical care.
Kilonzo (2014) discusses procurement best practices and organizational performance in the
context of Cadbury Kenya Limited. Strategic procurement planning, performance measurement,
performance metrics, use of cooperative contracts, transparency, risk management, ethical
procurement, procurement policy manual, performance management, and performance based
contracting are among the best procurement practices, according to his research. The studies
done in the developed countries show that referral hospital are most preferred by the public.
Performance of these referral hospitals relay on smooth and efficient procurement practices. The
procurement flow of an entity affects it performance. Contract management is the initial part of
an effective procurement performance. According to Chepng’etich and Waiganjo (2020) ideal
procurement system should always focus on effectiveness, where procuring entities should meet
the commercial, regulatory and socio-economic goals of government in a manner that is
appropriate to the procurement requirement . In addition, a leading consulting firm reported that
companies use strategies to reduce transaction costs, purchase price, purchase order processing
cycle times, and to speed up the time-to-market cycles. Thus, this study will adopt lowest
purchase price, high quality products/services, simplified procurement processes, procurement
order processing cycle times and reduction transaction costs to measure performance of referral
hospitals.
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2.5 Empirical Review
A contract is the foundation for proper and effective management. Every contract should
establish basic principles, have a clear scope, define execution terms, and define procedures
necessary for effective communication between the contractor and contracting authority. It
should also implement changes, evaluate contractor performance, accept or reject deliverables
from the contractor, identify and manage risks, handle problems, resolve disputes, approve
payments, and finally close the contract process.
The procurement procedure includes contract management as a vital part and is concerned with
acquiring goods and services from reliable sources in order to ensure that the organization meets
its strategic goals in an efficient, effective, and cost-effective manner. On procurement practice,
the Chartered Institute of Procurement and Supply and the Institute for Public Procurement
believe that firms must develop comprehensive policy procedures and directions that clearly
define authority, responsibility, and lay out the guidelines for procurement professionals and
associated parties to follow in carrying out their roles. Monczka (2014) noted that a good
procurement procedure has the following effects: an effect on quality, cost savings, and a
contribution to technological advancement. According to Singhal (2011), disruptions in the
procurement procedure within the global scope wreak havoc on organizational performance.
Christopher 2018 study indicated that the size of the firm and the fact that all of the practices are
linked, these practices can be used interchangeably. As a result, the practices implemented must
be a projection of the company's long-term state. In light of these considerations, the research
focuses on supplier partnerships, information technology use, lean procurement, and contract
monitoring and control.
26
Salim (2013) on his research on the role of procurement contract management practices on
project management effectiveness at MIC-Tanzania. As the objectives, he focused on the need
for contractors to comply with contract terms and conditions, technical capability, and contract
monitoring. The study methodology was descriptive in nature, with a purposive non-probabilistic
sampling technique used to collect data via interview and questionnaire. Based on the findings,
the author concluded that inadequacy of staff, disputes caused by late delivery by suppliers, poor
quality of works/services, vague specifications, and supplier technical incapability reduce project
management effectiveness. He suggested that the company implement an automated contract
management system. According to Agere (2016), an ideal procurement system should also
prioritize effectiveness, with procuring entities meeting the government's commercial,
regulatory, and socioeconomic goals in a manner appropriate to the procurement requirement. A
good procurement practice should also include: efficiency, which requires that procurement
processes be carried out as cost effectively as possible; fair-dealing, which requires that suppliers
be treated fairly, without discrimination or prejudice, including the protection of commercial
confidentiality where necessary. According to Sanghera (2018), an organization can determine if
it is engaging in effective contract management by making appropriate strategic decisions and
drafting appropriate contracts.
2.6 Critique of Existing Literature Relevant to the Study

Despite the existence of studies in contract management in Kenya, only few studies conducted a
study on the impact of contract management practices on the performance of referral hospitals.
Ogembo and Muturi (2019) did a study on influence of contract management on procurement
performance in devolved governments of Kenya: a case of Kisii County. The study focused on
contract automation, contract risk management, contract management team and strategic contract
management as their variables. However, all these variables generalized the impact of the afore
27
mentioned variables on the performance of county governments in Kenya. Referral Hospitals are
part of the county government but the study does illuminate the impact of the said variables on
the performance of the referral hospitals. Ondigi (2015) did a study on the factors affecting
public procurement of hospital supplies in public health institutions in Kenya. The study focused
on the influence of information communication technology, ethics, accountability procedures and
operating procedures as factors that influence procurement thus supplies in public health
institutions. However, the study does not include contract management constituents which also
influence procurement of public hospital supplies.
Samson (2018) did a study on factors affecting implementation of procurement procedure of
public hospitals: A Case Study of The Rift Valley General Hospital. The study addressed the
impacts of technology, procurement and staff skills, organization structure and legal and
regulatory framework on procurement procedures. However, the study does not address contract
management practices as factors the affects procurement procedures. Most procurement
procedures rely on contracts formed between firms and suppliers. Public institutions conduct
procurement based on well stated contracts. Therefore, the contract management practices are
vital components that affect procurement procedures but the study does not cover that.
2.7 Research Gaps

A research carried out on the state of service delivery in health and education facilities in Kenya
by Africare International (2014) revealed that 80% of public health facilities have inadequate
essential supplies. A study by KIPPRA 2017 also found that the public preferred private
hospitals to public hospitals due to the perception that private hospitals have a ready supply of
drugs and essential supplies despite the high costs of services. Locally, Abdifatah (2017) did a
study on contract management and concluded that they have direct positive impact on the
28
performance of humanitarian organizations in delivery of relief and emergency services.
According to Kyriacou and Roca-Sagale (2011) and Wei-qing and Shi (2010), the majority of
previous empirical studies on contract management practices have been conducted in developed
or developing Asian and Latin American countries.
There is a modest corpus of work that aims to analyze the evidence of contract management
techniques in Sub-Saharan Africa in a systematic manner. Consequently, the link between
contract management practices and the procurement performance of referral hospitals in the
context of Sub-Saharan Africa is scarcely explored.
2.8 Summary
This chapter investigates the pertinent literature as well as the extensive debate on strategic
procurement techniques. To conceptualize the links among variables in the research and to
explain the relationship diagrammatically, a conceptual framework has been given. Several of
the variables used in the study are considered to be the most evaluated in the literature which
include contract administration; contract automation, contract evaluation and contract negotiation
as independent variables. The study, on the other hand, used the performance of referral hospitals
as a dependent variable. Procurement acts and regulations were also included in the study as a
moderating variable, which mediates the relationship between the independent and dependent
variables. Similarly, the study reviewed literature on independent variables and how they
influence referral hospital performance. In terms of public procurement acts and regulations, the
reviewed literature revealed that public procurement is carried out in accordance with these acts
and regulations. Public procurement acts and regulations provide guideline on how procurement
is executed in public entities. For instance, public procurement acts and regulations set out the
procurement procedure when undertaking procurement of goods, services and works in public
29
entities. Hence, public procurement acts and regulations moderate the relationships between
contract management and performance of referral hospital in Kenya since they are public
institutions.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter discussed the research methodology used in this study. It was discussed under the
following subtopics; research design, population in consideration, the sampling frame, the
sample and the sampling technique considered, the research instrument in place, data collection
procedure after a pilot test was carried out to look at the reliability and the validity of the data
collection instrument that was used to conclude the chapter with the data processing analysis and
presentation.
3.2 Research design

According to Trochim, (2015), research design refers to the overall strategy that you choose to
integrate the different components of the study in a coherent and logical way, thereby, ensuring
you will effectively address the research problem; it constitutes the blueprint for the collection,
measurement, and analysis of data (Barbara, 2015). The study used a descriptive research design
which was a case study. It put into consideration the variables whereby the independent variables
30
included; contract automation, contract negotiation and contract evaluation while the dependent
variable was performance of referral hospitals.
Case study research design involves a detailed and intensive analysis of a particular event,
situation, organization, and typically a case has a defined space and time frame (Gerring, 2017)
and in terms of scope a case study is an in-depth investigation of a contemporary phenomenon
within its real-life context. Case study design offers benefits in terms of process and outcome,
the case study research design will help focus the research within the confines of space and time
on a specific case. It also gives an opportunity to collect different kinds of data such as
interviews, observations about the cases and provides the chance to get an in-depth look at an
organization and the inner workings and interactions of that organization.
3.3 Target population

Population refers to a group of individuals that have the same characteristics, this can also refer
to a large collection of individuals or objects that is the main focus of a scientific query and have
similar characteristics (Agarwal, 2018). The population of the study was the health industry.
Target population refers to the entire group of individuals or objects to which researchers are
interested in generalizing the conclusions (McLeod, 2019). The target population was eighty (80)
respondents who were employees within the KNH.
Table 3.1: Distribution of Target Population in Kenyatta National Hospital
Population Description Target Population
Procurement department 5
Finance department 8
Store department 40
31
Human Resource department 25
Quality Assurance department 2
Total 80
Source: Human Resource Department
3.4 Sampling frame

A sample frame refers to a list from which items of a study will be picked from (Ngechu, 2014).
The sampling frame consisted of procurement, finance, store, human resource department and
quality assurance department in KNH. This information was obtained from human resource
department.
3.5 Sample Size and Sampling Technique

A sample size refers to the number of participants or observations included in a study (Bineham,
2016). A sampling technique is a method of selecting individual members of the population to
make statistical influences from them and estimate characteristics of the whole population (Gall
and Borg, 2014). Convenience sampling was used in our study. This is because every member of
the population was readily approachable to be part of the sample. It is incredibly prompt,
uncomplicated and economical.
3.6 Research instrument

Research instrument refers to any tool that is used by scientist to obtain, measure, and analyze
data. These are tools used to collect data on a topic of interest from research subjects. There are
different tools that help you conduct quantitative, qualitative and mixed studies (Collins, 2021).
32
The specific data collected was primary data. The research instruments utilized in this research
study were questionnaires. The questionnaire was used because it’s the most common type of
instrument and used when respondents are within reach (Sobrepena, 2018).
3.7 Data Collection Procedure

Data collection is the process of gathering and measuring information on variables of interest in
an established systematic fashion that enables one to answer stated research questions, test
hypotheses, and evaluate outcomes (Barton,2018). To achieve greater generalization of the
results, standardized protocols for data collection and validation are necessary (Mausa, Grbac
and Basic ,2016). Suitable, usable and adequate data for the study was collected through
administering questionnaires. The questionnaires were delivered to KNH management and staff
physically, and filled by respondents at their own convenient time. The respondents were given a
week to fill in the questionnaires.
Most questions and statements in the questionnaire were close end design such as expecting
standard response that could be analyzed statistically. Adequate questionnaire construction is
critical to the success of a survey (Roopa and Rani, 2012). Secondary data analysis is commonly
defined as the use of datasets, which were not collected for the purpose of the scientific
hypothesis being tested (Trinh, 2018) The secondary data used for this study was obtained from
the documented files in the departments of finance, production and procurement of KNH.
3.8 Pilot Test

A pilot test experiment is a small-scale preliminary study conducted in order to evaluate
feasibility, duration, cost, adverse events, and improve upon the study design prior to
performance of a full-scale research project (Sandra, Lancaster, 2016). A pilot test is one of the
procedures that need to be mastered by a researcher in collecting qualitative data as it may assist
33
in the improvisation to the actual research (Gani, Imtiaz, Radhakrishnan and Krishnasamy,
2020). For this study a pilot test was done at KNH due to its proximity, accessibility.
The reliability of the instrument was measured using the simple structured English used so that
all respondents get clear understanding (Gallhofer, 2014). It was necessary to carry out a pre-test
for the questionnaire in order to check whether the items are relevant to the study, wordings are
clear for the respondents, and whether the information is sufficient (Eldridge, 2016). The
questionnaire, the most widely used as suggested by (Robinson, 2018), was administered twice
during its pre-test, the second one a fortnight after the first one. This measured consistency
(Revilla, 2015).
3.8.1 Reliability of Data Collection Instrument

Reliability of a research instrument refers to the consistency and accuracy of the instrument in
collecting and analyzing data in a research methodology (Taherdoost, 2016). Reliability
estimates evaluate the stability of measures, consistency of measurement instruments and
interrater reliability of instruments scores. The more variability that you observe, the less reliable
is the measure (Kenneth and Bordens, 2010). Creswell (2013), suggests that reliability may be
influenced by random errors including ambiguity and inaccuracy. The reliability of the scale
indicates how free it is from random error. The specific method used was internal consistency,
it’s the measure on the correlations between different items on the same test.
3.8.2 Validity of Data Collection Instruments

Validity refers to the degree to which an instrument accurately measures what it intends to
measure (Arnab, 2017). The concept of validity has been a central component in critical
appraisal exercises evaluating the methodological quality of quantitative studies (Hannes,
Lockwood and Pearson, 2010). Validity is the extent to which the interpretations of the results of
a test are warranted which depends on the particular use the test is intended to serve.
34
The process of developing and validating an instrument is in large part focused on reducing error
in the measurement process. Content validity is a validity test to which the sample of the test
represents the content that the test is designed to measure (Petty, 2018). The content validity test
was preferred because it is easy to do, has no math in it and also provides more information. The
researchers used subject matter specialists like university supervisors to evaluate validity.
3.9 Data Processing, Analysis and Presentation

Data processing refers to the process of transforming raw data into meaningful output. It
involves questionnaire checking to check if they were accepted or not, editing of the data to
detect errors and omissions and correct where possible, coding of the data so that the responses
can be put into limited number of classes and categories. Classification, tabulation to arrange
data in columns and rows, graphical representation to help understand the data easily, data
cleaning to check for consistencies and treatment of missing value and lastly data adjusting
which is not all necessary but it may improve the quality analysis at times.
Data analysis is defined as the ordering and organizing of raw data to extract useful information
from it (Creswell, 2018). According to Pernecky (2016), data analysis procedure includes the act
of packaging the collected information putting in order and structuring its main components in a
way that can be easily and effectively communicated. Descriptive statistics was used so as to
meaningfully describe the distribution of scores or measurements using a low index of statistics.
Analyzing of the qualitative data involved the use of frequency distribution, mean, standard
deviation and percentages in describing and explaining the information from views, ideas, and
opinions.
The analysis aimed at answering our research questions and generating ideas and themes for each
variable so as to guide on the nature of integration needed for both qualitative data. These
35
statistics were generated with the aid of the computer software, Statistical Package for Social
Sciences (SPSS). Woolthuis (2016) observed that SPSS can handle large amounts of data given
its wide spectrum of statistical procedures purposefully designed for social sciences.
Data presentation refers to the organization of data into tables, graphs or charts, so that logical
and statistical conclusions can be derived from the collected measurements (Mudgett, 2019). The
results of data analysis were presented in table form. Presentation of findings was carried out
using statistical software including SPSS (Statistical Package for Social Sciences). This software
aided the generation of suitable tables which were used in presentation of the research finding
CHAPTER FOUR
RESEARCH FINDINGS AND DISCUSSIONS

4.1 Introduction
This chapter provides the study’s findings that were obtained from the data collection exercise.
The researcher set out to determine the impact of supplier of contract management in referral
hospitals in Kenya, a case study of Kenyatta National Hospital. This is in reference to contract
automation, contract negotiation and contract evaluation. It captures data analysis that was done
using SPSS computer software, data presentation of the findings in form of frequency tables and
interpretation of the findings based on the research objectives.
4.2 Pilot Study Results

Prior to the day of data collection, a pilot study was conducted in order to test for the validity and
reliability of the research instrument to be used. 50 percent of the main population participated in
the preliminary research which represented 40 respondents who were not involved in the main
study. To determine the reliability of the questionnaire, Cronbach alpha correlation coefficient
was computed (Mugenda , 2009).Cronbach's alpha correlation coefficient was found to be 0.877,
36
which meant that the study questionnaire had a stable internal consistency 87.7% as shown in the
table below.
4.2.1 Reliability Results

Reliability of the data collection instrument was evaluated through Cronbach Alpha which
measures the internal constituency. Cronbach Alpha value is widely used to verify the reliability
of the construct. All variables depicted that the value of Cronbach’s Alpha are above value of 0.7
thus the study was reliable (Casttillio, 2009). This represented high level of reliability and on this
basis it supposed that the scale used in this study are reliable to capture the variables. This is in
line with the findings of Damatew, Ebinger and Beshah, (2018), they observed that the study
benchmarked its reliability test against the alpha values for all the variables under this study. The
findings are also in line with the findings of Osoro et al., (2015).
Table 4.1: Reliability
Variable No of items Reliability Value
Performance 9 0.795
Contract Automation 9 0.856
Contract Negotiation 9 0.794
Contract Evaluation 9 0.917
4.2.2 Validity Results
On Validity, the researchers established content validity by seeking expert judgment of the
supervisor and revising the questionnaires accordingly to ensure that the questionnaire covers all
the main areas of the study. Covering all the themes and variables of the study enhanced internal
37
validity. Operationalization of the variables was aligned with the theoretical arguments
embedded in the study’s conceptual framework, and construct validity was the common thread
running through them.
4.3 Response Rate

A total of 45 questionnaires were given out to the respondents out of which 40 questionnaires
were successfully returned. This represents a response rate of 87.7% that is considered adequate
to be used for data analysis. This was in tandem with Cooper, (2016), who asserted that a
response rate of 50% is adequate for analysis and reporting; that of 60% is good and a response
rate of 70% and over is excellent. The study response rate is thus considered very good to
analyse and publish research findings. This is further echoed by the findings, (Ogachi , 2016).
Table 4. 2 Analysis on response rate
Category Issued Returned Percentage
Respondents 45 40 87.7%
Total 45 40 87.7%
4.4 Demographic Information of the respondents

This section includes the general information. Respondents were asked about their department,
level of education and duration of work experience.
4.4.1 Department
The researcher sought to know the department of the respondents. The findings are as shown in
table 4.3
Table 4. 3 Department of the respondents
Department Frequency Percent
38
Procurement 15 37.5
Human resource 10 25
Quality Assurance 5 12.5
Finance 5 12.5
Store 5 12.5
Total 40 100
The research found that 37.5% of participants were from Procurement Department, 25% were
from human resource, quality assurance, finance and store are 12.5% respectively. These implies
that all targeted departments under the study were well represented to make the study conclusive,
with a combination of staff that is responsible for driving the company's mission to its intended
destination which include deliverable of services.
4.4.2 Level of Education

Findings on the highest level of education among respondents are shown in Table 4.4
Table 4. 4 Level of Education
Level of education Frequency Percent
Diploma 16 40.0
Bachelor's degree 17 42.5
Masters' degree 7 17.5
Total 40 100.0
39
Findings in Table 4.4 show that majority 42.5% of respondents obtained bachelor’s degree,
followed closely by 40% who had obtained Diploma/certificate and postgraduate was
represented by 17.5% of the respondents. These findings imply that the respondents are well
educated and therefore the information obtained from them can be relied on for the purpose of
this study. Information can therefore be relied on for decision making in this topic. This finding
is in line with the findings of Wabuti and Kioko (2016), therefore the biasness caused by
education level were eliminated in the study.
4.4.3 Work experience

The study sought to know the period respondents worked at Kenyatta National Hospital. The
findings are as shown in table 4.5 below.
Table 4. 5 Work experience
Work experience Frequency Percent
Below 5 Years 12 30.0

5-10 years 17 42.5
11-15 years 9 22.5
Over 15 years 2 5.0
Total 40 100.0
Majority (42.5%) of the respondents revealed that they worked in the institution for a period
between 5 and 10 years, 30% have worked for a period 0 and 5 years. The findings also show
that 22% have worked for 15 to 20 years and 5% worked over 15 years. The findings show that
majority of respondents have worked for at least 5 years long enough to understand how the
institutions operate, therefore, they had enough information for this study (Weiss, Klein and
Grauennhorst, 2014). This further means that the company has policies that are conducive to the
personnel that could include employee motivation, such that the turnover is low.
40
4.5 Descriptive Results of Study Variables
The purpose of descriptive statistics is to enable the researcher, to meaningfully describe a
distribution of scores or measurements using indices or statistics. A mean below 2 depicts that
most of people disagreed with the statements ,from 3.0 to 3.5 shows neutral, 3.5 to 4 shows that
most people agreed with the statement and 4.0 to 5.0 shows strongly agree.In general 3.5 and
above shows a positive response that can be used in research.( Castillio,2009 ).While as for
standard deviation ,according to (Cooper ,2016) the Alpha value threshold results at 0.7 and
above is good.Alpha values greater than 0.9 is excellent ,while those greater or equal to 0.7 and
below 0.9 is good, 0.6 and less than 0.7 is considered acceptable,while greater and equal to 0.5
and less than than 0.6 is considered poor,while less than 0.5 are considered unacceptable.
4.5.1 Performance of Kenyatta National Hospital

The study sought to know the extent the respondents agree or disagree with the statements that
relate to the performance of KNH. The findings are presented in table 4.6 below. Where A=
strongly agree, B= agree, C= neutral, D= disagree, E= strongly disagree. Where by
Table 4. 6 Performance of KNH
Statement Mean SD
Customer satisfaction in the context of 30% 57.5% 5% 7.5% 0%
4.1000 .81019
hospital involves measuring the satisfaction
and experience of patients and the families
with the services provided.
To assess customer satisfaction, hospitals 27.5% 60% 7.5% 5% 0%
4.1000 .74421
often use surveys feedback mechanisms to
gather information direct from parties.
Satisfaction can vary based on individual 20% 57.5% 17.5% 5% 0%
3.9250 .776418
41
experiences and expectations.
Consulting services provide presentation or 20% 62.5% 10% 7.5% 0% 3.9500 .78283
workshops to educate and train clients.
Software development services provide 27.5% 60% 5% 7.5% 0%
4.0750 .79703
custom-built software application.
Marketing services provided marketing 27.5% 52.5% 15% 0% 5% 3.9750 .94699
strategies and campaigns.
Agile organization often strive to reduce cycle time 30% 57.5% 5.0% 7.5% 0% 4.1000 .81019
by adopting iterative development approaches.
By reducing cycle time, organization can enhance 15% 65% 15% 5% 0% 3.9000 .70892
their agility.
They respond swiftly to market changes and 15% 72.5% 2.5% 10% 0% 3.9250 .76418
customer needs
Table 4.6 shows the findings in form of percentage, mean and standard deviation for the
response with regard to performance measure. The mean is 4.1000, 4.100, 3.9250, 3.9500,
4.0750, 3.9750, 4.1000, 3.9000 and 3.9250 respectively. The standard deviation
is .81019, .74421, .76418, .78283, .79703, .94699, .81019, .70892 and .76418. The average
mean is 4.0056 and the average standard deviation is 0.79208 respectively. Customer satisfaction
in the context of hospital involves measuring the satisfaction and experience of patients and the
families with the services provided. To assess customer satisfaction, hospitals often use surveys
feedback mechanisms to gather information direct from parties. The respondents agreed that
Satisfaction can vary based on individual experiences and expectations. Consulting services
provide presentation or workshops to educate and train clients.
The respondents strongly agreed that Software development services provide custom-built
software application. Marketing services provided marketing strategies and campaigns. Agile
42
organization often strive to reduce cycle time by adopting iterative development approaches. By
reducing cycle time, organization can enhance their agility. They respond swiftly to market
changes and customer needs.

The study sought to know the extent at which respondent agreed or disagreed on the how
contract automation affects the performance of KNH. The finds are as shown in table below,
where A= strongly agree, B= agree, C= neutral, D= disagree, E= strongly disagree.
Table 4. 7 Contract automation
MEAN SD
Automation tools can generate contracts based on predefined

templates and data inputs. 3.7500 .83972
Automation allows for the creation of standardized contract
templates that can be easily customized for specific use case. 3.8750 .79057
Automation tools facilitate collaboration among stakeholders
by providing a centralized platform for discussion, document
sharing and version control. 3.9250 .65584
Contract automation platforms provide reporting and analytics
capabilities, offering insights into contact performance, key matrices
and trends. 4.1000 .74421
Contract automation streamlines workflow by automating tasks such as
contract routing, approvals and notifications. 4.1250 .72280
Automated contract management system provides a centralized
43
repository for sharing and organizing contracts. 4.0500 .63851
Choose a reliable and secure hosting environment for contract automation
system. 3.3750 1 .44449
If you are using a contract automation platform provided by a third-party
vendor, evaluate their security practices and measures. 3.9250 .57233
Management regularly assess and address potential vulnerability in
the contract automation system. 3.9250 .76418
Average 8.944 0.7969
response with regard to contract automation. The are 7500, 3.8750, 3.9250, 4.1000, 4.1250,
4.0500, 3.3750, 3.9250 and 3.9250. The average mean is 8.944. The standard deviation
is .83972, .79057, .65584, .74421, .72280, .63851, 1.44449, .57233 and .76418. The average
standard deviation is 0.7969. The respondents agreed that Automation tools can generate
contracts based on predefined templates and data inputs. Automation allows for the creation of
standardized contract templates that can be easily customized for specific use case. Automation
tools facilitate collaboration among stakeholders by providing a centralized platform for
discussion, document sharing and version control. Contract automation platforms provide
reporting and analytics capabilities, offering insights into contact performance, key matrices and
trends. The respondents strongly agreed that Contract automation streamlines workflow by
automating tasks such as contract routing, approvals and notifications. Automated contract
management system provides a centralized repository for sharing and organizing contracts.
Choose a reliable and secure hosting environment for contract automation system. If you are
using a contract automation platform provided by a third-party-vendor, evaluate their security
44
practices and measures. Management regularly assess and address potential vulnerability in the
contract automation system.

The study sought to know the effect of contract negotiation on organization performance.
Respondents were asked to indicate to what extent they agree or disagree with the statements that
relate to the effect of early supplier involvement on the performance of KNH. The findings are
presented below. where A= strongly agree, B= agree, C= neutral D= disagree, E= strongly
disagree.
Table 4. 8 Contract Negotiation
Mean SD
Once accommodations have agreed upon, it is important to

document them in writing as part of the contract. 3.7750 .91952
Effective communication is essential throughout the negotiation

process. 3.6250 1.00480
Understanding the underlying needs and interests of each party is
crucial for finding areas where accommodation may be possible. 3.7250 .81610
Instead of getting stuck in a rigid position, explore alternative
options and be open to creative solutions. 3.7750 .83166
Collect evidence and data to support your position. 3.6750 .76418
45
Define your goals and priorities for the negotiation. 3.8500 .76962
Certain topics may be sensitive or controversial, potentially leading to
emotional responses or conflicts. 3.8750 .85297
Negotiations often have time limitations and parties may choose to
focus on key issues and avoid lengthy discussion on minor or
non-essential matters to expedite the process. 3.7500 .83972
Some issues in a contract negotiation can be highly complex or
technical and parties may prefer to avoid delving into those intricacies
to prevent confusion or disagreement. 3.9750 .73336
Average 3.7806 0.83688
response with regard to contract negotiation. The average mean and standard deviation is 3.7806
and 0.83688 respectively. Most of the respondents agreed that Once accommodations have
agreed upon, it is important to document them in writing as part of the contract. Effective
communication is essentials throughout the negotiation process. Understanding the underlying
needs and interests of each party is crucial for finding areas where accommodation may be
possible. Instead of getting stuck in a rigid position, explore alternative options and be open to
creative solutions.
In contract negotiation, Collect evidence and data to support your position and also Define your
goals and priorities for the negotiation. Certain topics may be sensitive or controversial,
potentially leading to emotional responses or conflicts. The respondents strongly agreed that
Negotiations often have time limitations and parties may choose to focus on key issues and avoid
lengthy discussion on minor or non-essential matters to expedite the process. Some issues in a
46
contract negotiation can be highly complex or technical and parties may prefer to avoid delving
into those intricacies to prevent confusion or disagreement.

The study sought to know the effect of contract evaluation on organization performance.
Respondents were asked to indicate to what extent they agree or disagree with the statements that
relate to the effect of contract evaluation on the performance of KNH. The findings are presented
below where A= strongly agree, B= agree, C= neutral, D= disagree, E= strongly disagree.
Table 4. 9 Contract Evaluation
Mean SD
Vendors or contractors submit their bids or proposal in response to
a request for proposal or invitation to tender. 3.9500 .84580
The bids are screened to ensure they meet the minimum eligibility
criteria specified in RFP. 3.7250 .90547
The remaining bids undergo a comprehensive technical evaluation. 3.6500 1.02657
The technical evaluation assesses the bidders’ ability to meet the
project or service requirements. 3.7500 .83972
Once the technical evaluation is complete; the commercial evaluation
phase begins. 3.9500 .74936
Once the bid is awarded, the contracting organization and the winning
47
bidders enter into a contract. 3.9750 .83166
Assign weights or priorities to the evaluation criteria based on their
relative importance to your contract requirements. 3.7750 .99968
Evaluate the collected information, scores and feedback from the
evaluation team to make an informal decision. 3.9250 .99711
Develop a structured evaluation process to compare and assess
the potential vendor or supplies objectively. 4.0000 .81650
Average 3.8556 0.8902
response with regard to contract evaluation. Most respondents strongly agreed that Vendors or
contractors submit their bids or proposal in response to a request for proposal or invitation to
tender.The bids are screened to ensure they meet the minimum eligibility criteria specified in
RFP.The remaining bids undergo a comprehensive technical evaluation. In KNH The technical
evaluation assesses the bidder’s ability to meet the project or service requirements. Onces the
technical evaluation is complete; the commercial evaluation phase begins. The average mean is
3.8556 while average standard deviation is 0.892. This shows that most respondents strongly
agreed that once the bid is awarded, the contracting organization and the winning bidders enter
into a contract. Assign weights or priorities to the evaluation criteria based on their relative
48
importance to your contract requirements. Evaluate the collected information, scores and
feedback from the evaluation team to make an informal decision. Develop a structured
evaluation process to compare and assess the potential vendor or supplies objectively.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction
This chapter presents the summary of the study results. From the results conclusions were drawn
and recommendations given so as to fill the identified gaps within the subject area. Additionally,
suggestions for further research are given. This study was carried out to establish the impact of
contract management on performance of referral hospitals: a case study of KNH. The study
considered contract automation, contract negotiation and contract evaluation as key variables in
the study.
49
5.2 Summary of the Findings
The study was to elaborate impact of contract management on the performance of referral
hospitals in Kenya: a case study of Kenyatta National Hospital. The study considered contract
automation, contract negotiation and contract evaluation as key variables in the study.
5.2.1 Performance of KNH

According to the findings effective contract management can have a positive impact on customer
satisfaction. When contracts are well-managed, it ensures that the terms and conditions agreed
upon are met, leading to a higher level of customer satisfaction. This includes delivering services
on time, meeting quality standards, and addressing any issues or concerns promptly. Contract
management plays a crucial role in ensuring the successful delivery of services. It involves
monitoring and controlling all aspects of the contract, such as defining deliverables, setting
performance metrics, and tracking progress. Effective contract management can help in
streamlining processes, improving communication, and enhancing coordination between parties
involved, resulting in the timely and efficient delivery of services. Contract management can
contribute to organizational agility by enabling quick responses to changing business needs.
With well-managed contracts, organizations can be more flexible in modifying or renegotiating
terms and conditions to adapt to new requirements or market conditions. This agility allows
organizations to be more responsive and seize opportunities or mitigate risks effectively.
Efficient contract management can reduce cycle time, which refers to the time taken from the
initiation of a contract to its completion. By establishing streamlined contract processes, utilizing
automation tools, and ensuring effective communication, organizations can minimize delays,
avoid bottlenecks, and expedite contract lifecycles. Shorter cycle times contribute to increased
efficiency, cost savings, and improved overall performance.
50
According to the findings, Contract automation can significantly improve the efficiency of
contract management processes. By automating routine tasks such as contract creation, review,
and approval, organizations can save time and resources. This allows staff members to focus on
more strategic activities and reduces the risk of errors or delays associated with manual handling
of contracts. Consequently, contract automation can streamline workflows, shorten cycle times,
and enhance overall productivity. Automating contract management can help ensure accuracy
and compliance with legal and regulatory requirements. Contract automation software can
incorporate templates and pre-approved clauses, reducing the risk of human error and non-
compliance. It can also track key dates, milestones, and obligations, sending automated
reminders and alerts to relevant stakeholders. By maintaining consistency and adherence to
contractual terms, organizations can mitigate risks and avoid penalties or disputes.
Contract automation systems often provide centralized repositories for storing and accessing
contracts. This increases visibility into contract data, making it easier to search, retrieve, and
analyze information. Automated workflows and notifications facilitate collaboration among
different departments or stakeholders involved in contract management. Improved visibility and
collaboration contribute to better decision-making, faster responses to contract-related issues,
and enhanced communication between parties. Contract automation can enhance risk
management by providing better control and oversight of contract-related risks. Automated
systems can include features such as risk assessment templates, contract performance tracking,
and compliance monitoring. These functionalities enable organizations to identify, evaluate, and
mitigate risks more effectively, ensuring that contracts align with strategic objectives and
minimize potential liabilities
51
According to the findings, Effective contract negotiation can lead to cost savings for
organizations. Skilled negotiators can work to secure favorable terms, pricing, and discounts
from suppliers or service providers. By carefully analyzing the contract terms, identifying
potential areas for negotiation, and leveraging their bargaining power, organizations can
optimize their financial outcomes. Successful negotiations can result in reduced costs, improved
value for money, and increased profitability. Contract negotiation plays a crucial role in
identifying and mitigating risks. Skilled negotiators assess contractual terms and conditions to
ensure that risks are appropriately allocated between parties. They work to include provisions
that address potential risks and protect the organization's interests. By negotiating for favorable
risk allocation, organizations can reduce their exposure to liabilities, legal disputes, and other
negative consequences.
Effective contract negotiation can contribute to building strong relationships between parties
involved. Skilled negotiators aim to find mutually beneficial solutions, fostering collaboration
and trust. By actively listening to the concerns and needs of both parties and working towards
win-win outcomes, negotiators can establish a solid foundation for a long-term relationship.
Strong relationships facilitate effective contract management and increase the likelihood of
successful collaborations throughout the contract lifecycle. Contract negotiation enables
organizations to align contract terms with their strategic objectives. Skilled negotiators
understand the organization's goals and negotiate contractual provisions that support and enable
those objectives. By ensuring that the contract aligns with the organization's overall strategy,
negotiators contribute to improved contract management and overall performance.
52
Contract evaluation involves monitoring the performance of contracts to assess whether the
agreed-upon terms and conditions are being met. By conducting regular evaluations,
organizations can track key performance indicators, such as service delivery metrics, quality
standards, and compliance with contractual obligations. This helps identify any deviations or
underperformance, enabling proactive measures to be taken to address issues and ensure contract
performance meets expectations. Contract evaluation plays a crucial role in identifying and
mitigating risks associated with contract performance. Through the evaluation process,
organizations can assess potential risks, such as delays, budget overruns, or non-compliance, and
take appropriate actions to mitigate them. By promptly identifying and addressing risks,
organizations can minimize negative impacts, protect their interests, and maintain the desired
level of contract performance.
Contract evaluation provides an opportunity to assess the working relationship between parties
involved in the contract. It allows organizations to evaluate the communication, collaboration,
and overall satisfaction levels of both parties. Effective contract evaluation can help identify
areas for improvement, address any issues, and foster stronger relationships between the
organization and its contractual partners. Positive relationships contribute to better contract
management and successful collaboration throughout the contract lifecycle. Contract evaluation
provides insights that can be used for continuous improvement in contract management
processes. By analyzing the outcomes, challenges, and successes of past contracts, organizations
can identify lessons learned and implement changes to enhance future contract performance.
This iterative approach to contract management allows organizations to refine their processes,
strengthen their capabilities, and achieve better results over time.
53
5.3 Conclusion
Effective contract management can contribute to improved financial efficiency at KNH. By
ensuring that contracts are properly negotiated, monitored, and enforced, the hospital can
optimize its financial resources, reduce costs, and avoid unnecessary expenses. This can lead to
better financial stability and sustainability, allowing the hospital to allocate resources more
effectively to patient care and other essential areas. Proper contract management can positively
impact the quality of service delivery at KNH. By establishing clear contractual obligations and
performance standards, the hospital can hold contractors accountable for delivering high-quality
services. This includes areas such as medical equipment maintenance, facility management, and
specialized service provision. Effective contract management can help KNH ensure that
contractors meet the agreed-upon service levels, resulting in improved patient care and
satisfaction.
Contract management practices can contribute to risk mitigation and legal compliance at KNH.
Contracts can define the responsibilities and liabilities of both parties, minimizing the potential
for disputes and legal issues. Adequate contract management processes, such as thorough review
and adherence to legal and regulatory requirements, can help KNH avoid non-compliance
penalties, litigation costs, and reputation damage. Effective contract management enables KNH
to allocate resources efficiently. By having clear contractual terms, performance indicators, and
monitoring mechanisms, the hospital can identify areas where resources are underutilized or
misallocated. This allows for reallocation of resources
5.4 Recommendations
Contract management plays a crucial role in the performance of an organization like KNH
(Kenyatta National Hospital). Effective contract management can have a positive impact on
various aspects of KNH's operations and overall performance.
54
The researcher recommends that KNH should ensure that contracts with suppliers, vendors, and
service providers have well-defined objectives that align with KNH's strategic goals. Clear
objectives help in monitoring and evaluating the performance of contracts and ensure that they
contribute to KNH's overall success.
The researcher recommends that KNH should develop and maintain strong relationships with
suppliers and service providers. Effective contract management involves regular communication,
addressing concerns, and managing expectations. Good relationships can lead to better
collaboration, improved service quality, and timely delivery of goods and services.
The researcher recommend that KNH should implement robust monitoring mechanisms to track
and evaluate the performance of suppliers and service providers. This includes establishing key
performance indicators (KPIs) and service level agreements (SLAs) to measure and manage
performance against agreed-upon benchmarks. Regular performance reviews help identify areas
for improvement and address any issues promptly.
The researcher recommend that KNH should Incorporate risk management strategies into
contract management processes. Identify and assess potential risks associated with contracts,
such as non-compliance, delivery delays, or financial risks. Develop contingency plans to
mitigate these risks and ensure business continuity.
5.5 Suggestions for Further Research

Further research on the impact of contract management on the performance of KNH can help
deepen understanding and provide actionable insights for optimizing contract management
practices. Future researchers should Conduct a comparative analysis of KNH's contract
55
management practices with similar healthcare institutions or hospitals. Compare performance
indicators, such as cost savings, service quality, and operational efficiency, to identify best
practices and areas for improvement as well as explore the perception of key stakeholders,
including KNH staff, suppliers, and service providers, regarding contract management. Conduct
surveys or interviews to gather feedback on the effectiveness of contract management processes,
supplier relationships, and overall performance outcomes.
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APPENDICES
Appendix I: Letter of Introduction
61
62
Appendix II: Questionnaire
Part A: General Information
You are kindly requested to tick in the spaces provided and you do not need to indicate your
name. Kindly be honest in your responses, your assistance will be highly appreciated. You are
also allowed to withdraw from the study at any point without any consequences.
1. Indicate your department
a) Procurement
b) Human resource
c) Quality assurance
d) Finance
e) Store
2. Indicate the level of education
a) Diploma
b) Degree
c) Masters
3. Indicate the duration of work experience
a) Below 5 years
b) 5- 10 years
c) 11- 15 years
d) Over 15 years
63
Part B: Performance of Kenyatta National Hospital
4. Indicate to what extent you agree or disagree with the following statements that relate to
the performance of KNH Please tick (√) appropriately, where A= strongly agree, B=
agree, C= neutral, D= disagree, E= strongly disagree.
Statement A B C D E
Customer Satisfaction
Customer satisfaction in the context of hospital involves

measuring the satisfaction and experience of patients and the
families with the services provided.
To assess customer satisfaction, hospitals often use surveys
feedback mechanisms to gather information direct from parties.
Satisfaction can vary based on individual experiences and
expectations.
Deliverable of Services
Consulting services provide presentation or workshops to

educate and train clients.
Software development services provide custom-built software
application.
Marketing services provided marketing strategies and
campaigns.
Agility and Cycle Time
Agile organization often strive to reduce cycle time by adopting

iterative development approaches.
By reducing cycle time, organization can enhance their agility.
They respond swiftly to market changes and customer needs
5. In your view, what does your organization use to measure its performance other than
customer satisfaction, deliverable of services and agility and cycle time?
64
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………..
Part C: Contract Automation
the effect of contract automation on the performance of KNH. Please tick (√)
appropriately, where A= strongly agree, B= agree, C= neutral, D= disagree, E= strongly
disagree.
Statement A B C D E
Efficiency
Automation tools can generate contracts based on predefined

templates and data inputs.
Automation allows for the creation of standardized contract
templates that can be easily customized for specific use case.
Automation tools facilitate collaboration among stakeholders
by providing a centralized platform for discussion, document
sharing and version control.
Productivity
Contract automation platforms provide reporting and analytics

capabilities, offering insights into contact performance, key
matrices and trends.
Contract automation streamlines workflow by automating tasks
such as contract routing, approvals and notifications.
Automated contract management system provide a centralized

repository for sharing and organizing contracts.
Security
Choose a reliable and secure hosting environment for contract

automation system.
65
If you are using a contract automation platform provided by a
third-party-vendor, evaluate their security practices and
measures.
Management regularly assess and address potential
vulnerability in the contract automation system.
7. In your view, what would recommend to be improved in relation to contract automation
in relation to Sky KNH?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………….
Part D: Contract Negotiation
the effect of contract negotiation on the performance of KNH. Please tick (√)
appropriately, where A= strongly agree, B= agree, C= uncertain, D= disagree, E=
strongly disagree.
Statement A B C D E
Accommodation
Once accommodations have agreed upon, it is

important to document them in writing as part of the
contract.
Effective communication is essential throughout the
negotiation process.
Understanding the underlying needs and interests of
each party is crucial for finding areas where
accommodation may be possible.
Competing
Instead of getting stuck in a rigid position, explore

alternative options and be open to creative solutions.
66
Collect evidence and data to support your position.
Define your goals and priorities for the negotiation.
Avoidance
Certain topics may be sensitive or controversial,

potentially leading to emotional responses or
conflicts.
Negotiations often have time limitations and parties
may choose to focus on key issues and avoid lengthy
discussion on minor or non-essential matters to
expedite the process.
Some issues in a contract negotiation can be highly
complex or technical and parties may prefer to avoid
delving into those intricacies to prevent confusion or
disagreement.
9. In your view, what other type of contract negotiation does the organization engage in?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………….
Part E: Contract Evaluation
the effect of contract evaluation on the performance of KNH. Please tick (√)
appropriately, where A= strongly agree, B= agree, C= neutral, D= disagree, E= strongly
disagree
Statement A B C D E
Technical bid evaluation
Vendors or contractors submit their bids or proposal in

response to a request for proposal or invitation to tender.
67
The bids are screened to ensure they meet the minimum
eligibility criteria specified in RFP.
The remaining bids undergo a comprehensive technical
evaluation.
Business or commercial bid evaluation
The technical evaluation assesses the bidders ability to

meet the project or service requirements.
Once the technical evaluation is complete, the commercial
evaluation phase begins.
Once the bid is awarded, the contracting organization and
the winning bidders enter into a contract.
Vendor or supplier evaluation
Assign weights or priorities to the evaluation criteria based

on their relative importance to your contract requirements.
Evaluate the collected information, scores and feedback
from the evaluation team to make an informal decision.
Develop a structured evaluation process to compare and
assess the potential vendor or supplies objectively.
11. In your view, what other contract evaluation do you recommend to measure performance
of KNH?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………
THANK YOU!
68

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IMPACTS OF CONTRACT MANAGEMENT PRACTICES ON THE PERFORMANCE

OF REFERRAL HOSPITALS: A CASE STUDY OF KENYATTA NATIONAL

Dullow Stephin Aira

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS AND

ENTREPRENEURSHIP IN THE PROCUREMENT AND LOGISTICS DEPARTMENT

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF

DEGREE OF BACHELOR OF SCIENCE IN PROCUREMENT AND CONTRACT

MANAGEMENT AT JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND

Name Registration Signature Date

Supervisor, Jomo Kenyatta University of Agriculture and Technology

interest in all we've done.

Appendix I: Letter of Introduction.............................................................................................vii

Appendix II: Questionnaire.......................................................................................................vii

1.1 Background of the Study........................................................................................................1

1.1.1 Global Perspectives of the Study.....................................................................................2

1.1.2 Regional Perspective of the Study...................................................................................4

1.1.3 Local Perspective of the Study........................................................................................5

1.1.4 Kenyatta National Hospital.............................................................................................7

1.2 Statement of the Problem.......................................................................................................8

1.3.1 General Objective..........................................................................................................10

1.3.2 Specific Objectives........................................................................................................10

1.4 Research Questions..............................................................................................................10

1.5 Justification of the Study......................................................................................................10

1.5.1 Ministry of Health.........................................................................................................10

1.5.2 Kenyatta National Hospital...........................................................................................11

1.5.3 Government and Policy Makers....................................................................................11

1.5.5 Scholars and Researchers..............................................................................................11

1.6 Scope of the Study...............................................................................................................12

1.7 Limitations of the Study.......................................................................................................12

2.2 Theoretical framework.........................................................................................................14

2.2.1 Principle Agent Theory.................................................................................................14

2.2.2Transaction Cost Economies Theory.............................................................................15

2.2.3 Resource Dependency Theory.......................................................................................16

2.4 Literature Review of Study Variables..................................................................................20

2.4.1 Contract Automation.....................................................................................................20

2.4.2 Contract Negotiation.....................................................................................................21

2.4.3 Contract Evaluation.......................................................................................................22

2.4.5 Performance of Referral Hospitals................................................................................23

2.5 Empirical Review.................................................................................................................25

2.6 Critique of Existing Literature Relevant to the Study..........................................................27

2.7 Research Gaps......................................................................................................................28

3.2 Research design....................................................................................................................30

3.3 Target population.................................................................................................................31

3.4 Sampling frame....................................................................................................................32

3.5 Sample Size and Sampling Technique.................................................................................32

3.6 Research instrument.............................................................................................................32

3.8 Pilot Test..............................................................................................................................33

3.8.1 Reliability of Data Collection Instrument.....................................................................34

3.8.2 Validity of Data Collection Instruments.......................................................................34

3.9 Data Processing, Analysis and Presentation........................................................................34

RESEARCH FINDINGS AND DISCUSSIONS..........................................................................36

4.2 Pilot Study Results...............................................................................................................36

4.2.1 Reliability Results.........................................................................................................36

4.3 Response Rate......................................................................................................................37

4.4 Demographic Information of the respondents.....................................................................38

4.4.2 Level of Education........................................................................................................39

4.4.3 Work experience............................................................................................................40

4.5 Descriptive Results of Study Variables...............................................................................40