Contracting authorities will have seen that there is a range of obligations relating to key performance indicators (KPIs) under the Procurement Act 2023 (PA 23). 

Broadly, where a public contract exceeds £5 million (inclusive of VAT):

1. Contracting authorities are required to set a minimum of three KPIs.
2. When publishing the contract details notice, contracting authorities must publish a description of the three KPIs most material to the performance of the contract obligations (assessed at the time of publishing the contract details notice).
3. Contracting authorities must publish a contract performance notice at least once a year and on termination of the contract setting out a description of the three KPIs most material to the performance of the contract obligations (assessed at the time of publishing the contract performance notice) and an assessment of the supplier’s performance against those KPIs using the ratings provided for in the Procurement Regulations 2024.
4. Where a contract is terminated for poor performance, contracting authorities must publish information in the contract termination notice about supplier performance against KPIs, including an explanation of the impact or consequences of the breach or failure to perform and steps taken by the contracting authority (or supplier) to mitigate the impact or consequences. 

The obligation to set a minimum of three KPIs does not apply where:

• The value of the public contract does not exceed £5 million (inclusive of VAT);
• The contracting authority considers that the supplier’s performance could not appropriately be assessed by reference to KPIs (for example, where the contract is for a one-off delivery or for off-the-shelf goods); 
• The public contract is a:
  • framework (although the obligation does apply to call-off contracts under frameworks where these exceed £5 million (inclusive of VAT));
  • a utilities contract awarded by a private utility;
  • a concession contract; or
  • a light-touch contract.

Note, this is the first time an obligation to set and publish KPIs has been legislated for in UK public procurement legislation. However, most contracting authorities will already be well-versed in setting KPIs and should continue to consider if it is appropriate to set KPIs to monitor contract performance even where the contract value does not exceed £5 million (inclusive of VAT).

Procurement planning stage

Contracting authorities will need to give upfront thought to setting KPIs in the procurement planning stage, specifically what KPIs will be most material to the performance of contract obligations and therefore will need to be published. 

Contracting authorities may want to consider reviewing their existing contracts to get an idea of how effective their KPIs regime is currently and to identify what areas of improvement are required.

Further, if not done so already, contracting authorities may want to consider aligning how KPIs are measured currently with the KPI ratings required under the Procurement Regulations 2024. This will be essential in ensuring both parties understand the standards for performance and will mitigate disputes arising from a discrepancy between the internal measures and the ratings that need to be published.

For ease, the ratings are:

Contract management 

Contracting authorities will need to be mindful that the three KPIs most material to the performance of the contract obligations could change over the life of the contract. Therefore, when preparing the contract performance notice, thought should be given as to whether the three KPIs most material to the performance of the contract obligations have changed since publishing the contract details notice (or the preceding contract performance notice), and if so, those must be published instead.

In addition, contracting authorities will need to ensure that the relevant steps under the PA 23 are complied with, such as giving a supplier an opportunity to improve performance prior to publishing a contract performance notice.

Implications of publishing KPI information

Ultimately, there will be a public record of supplier performance and the implications of such for suppliers could be termination of contracts, damage to reputation and the potential exclusion from future procurement opportunities. Suppliers will therefore have a vested interest in ensuring that any such information published relating to performance is accurate and fair. Managing expectations during contract management meetings and alike will be imperative.

Key takeaways

In summary, the KPI requirements under the PA 23 are essential to driving accountability and performance under public contracts. KPIs are no longer just a contract tool to measure performance but also a mechanism to hold suppliers publicly accountable. 

Engaging with suppliers during the procurement planning stage and pro-actively managing performance through the life of the contract will ensure suppliers have a clear understanding of what is expected of them, ultimately ensuring they can meet the requirements for performance under the contract. 

If you would like to discuss any of the above, contact Chanel Quigley or Sophie McFie-Hyland.