This document summarizes some of the institutional challenges for implementing payments for ecosystem services (PES) in the Sasumua watershed in Kenya. Land use changes have negatively impacted watershed services like reduced dry season flows and increased sediment loads. Scientific evidence shows agroforestry and other practices can improve watershed functions. However, accessing funds and implementing projects on privately owned land is difficult under the current catchment management structure. For PES to work, the roles of potential payers like the Nairobi Water Company and receivers like upland communities need to be clearly defined, and the facilitation and funding roles of government agencies also need adjustment through policy changes.