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Abstract Performance Contracting is a branch of management science referred to as Management Control Systems and is a contractual agreement to execute a service

according to agreed-upon terms, within an established time period, and with a stipulated use of resources and performance standards. Performance contracting is one element of broader public sector reform aimed at improving efficiency and effectiveness, while reducing total costs (Domberger, 1998). The concept of performance contracting was first introduced in Kenya in the management of State Corporation in 1989 and so far 163 Government Parastatals have been put on performance contracting besides other government bodies such as local authorities. The purpose of this study is to to find out the challenges of adoption/implementation of performance contracting strategy in the Kenyan public institutions with focus on University of Nairobi. The study will mainly focus on the following variables as they may apply to UON through Leadership style, Stakeholder involvement, Resistance to change and financial stability. This research will adopt an exploratory research design carried out as a case study of University of Nairobi with the staffs as the population of the study; sampled through stratification method. Data will be collected by use of structured and unstructured questionnaires as well as face to face interviews where an individual may require clarification. The study findings and recommendations aims at assisting the management in identifying the key challenges the implementation has faced and thereby define ways to resolve them. The findings will also be of interest to the government in order to establish whether the reform initiative has successfully been implemented in the public institutions and whether the strategies have been accepted or embraced by all the employees and various institutions. Future researchers and scholars may use it as a source of baseline information on the impact of PC on performance as well as a source for further research on areas not covered by the study.