ABSTRACT Kenya has experienced a rapid expansion of the educatIonal system partly due to the high Government expenditure on education. Despite high level of expenditure on education, primary school enrolment has been on the decline sInce early 1990s and until 2003 when gross primary school enrolment increased to 104 percent after Introduction of FPE. However with an estimated net primary enrolment rate of 77 percent, the country is far from achieving universal primary education(UPE).The worrying scenario is that the allocation of resources within the education sector seems to be in effective as the Increasing expendIture on education goes to recurrent expenditure (to pay teachers salarles).Kenya’s Poverty Reduction Strategy Paper (PRSP) and the Economic Recovery Strategy for wealth and Employment creation(ERS) outlines the educational targets of reaching (UPE) by 2015.The Government is faced with budget constraints and therefore the available resources need to be allocated efficiently In order to realize the education targets. The paper uses Budget Negotiation Frame work (BNF) to analyze the cost effective ways of resource allocation In the primary education sector to achieve UPE and other education targets. Budget Negotiation Frame work is a tool that aims at achieving equity and efficiency in resource allocation. A survey was done across four provinces basing on population and economic activities. In each province, four districts were sampled and ten primary schools from each district selected. Interviews were conducted to assess the impact of FPE. General findings from the analysis showed that Universal primary education by the year 2015 was feasible for Kenya. The results also showed that with a more cost effective spending of education resources, increased traIned teachers, enhanced text book supplies and subsidies targeting the poor, the country could realize higher enrolment rates than what has been achieved with free primary education.53