Performance management has been adopted both by public and private sectors as a strategic response to competition and market demand, especially to employees in improving service delivery. Performance contract is a broader sector reform intended to improve efficiency and effectiveness thus reducing costs; it entails a range of tools used to define responsibilities and expectations between parties to achieve agreed results on mutual ground. The introduction of performance contract by City Council of Nairobi experienced many challenges most managers were not willing to sign the contract owing to the fact that they did not understand what it entailed, this affected effective delivery of service to the public. The primary objective of this study was to establish management's perception on performance contract and factors influencing performance contract at the City Council of Nairobi the study was a cross-sectional survey design, primary sources were used to collect data, these data was collected using a semi-structured questionnaire. Descriptive statistics and factor analysis was employed in analysis of the data and the findings showed that the managers perception on PC is not really a uni-dimensional construct, rather it has two elements namely; procedural and organizational aspects, their perception is also influenced by engagement, work environment and management commitment