Procurement in a Nutshell: Procurement Act 2023 Guidance on KPIs

The guidance is available here. The Procurement Act 2023 is now expected to come into force on 24^th February 2025.

The Act will, in particular, revoke the following:

• Public Contracts Regulations 2015 (PCR)
• Concession Contracts Regulations 2016
• Utilities Contracts Regulations 2016

Key terms

A KPI is defined in the Act as a factor or measure against which a supplier’s performance of a contract can be assessed during the life-cycle of the contract (Section 52(1)).

Setting and publishing KPIs

Before entering into a public contract with an estimated value of more than £5 million, section 52(1) generally requires that a contracting authority must set at least three KPIs in respect of the contract.

The guidance notes that this obligation does not apply if 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 of goods.

Where more than three KPIs are set, section 52(3) requires that all KPIs be published. As set out in the guidance, this obligation will often be satisfied by the fact that, under section 53(3), contracting authorities must publish a copy of any contract with an estimated value of more than £5 million.

A contracting authority must also publish, in the Contract Details Notice, a description of the three KPIs which the contracting authority regards as most material to the performance of the contractual obligations.

Contract Performance Notice under Section 71

Under Section 71, contracting authorities must publish a Contract Performance Notice in the following circumstances:

1. Where a contracting authority has set KPIs in accordance with Section 52, Section 71(2) requires that it must assess and publish the supplier’s performance against those KPIs.
2. Section 71(3) states that where a supplier has breached a public contract and that breach has resulted in:
   • Termination (or partial termination) of the contract
   • The award of damages, or
   • A settlement agreement between the supplier and the contracting authority. The contracting authority must publish a Contract Performance Notice under Section 71(5).

3. Section 71(4) also allows contracting authorities to publish a Contact Performance Notice under Section 71(5) if the authority considers that a supplier is not performing a public contract to its satisfaction and the supplier has been given proper opportunity to improve performance but failed to do so.

Section 71(2)

As previously mentioned, Section 71(2) requires an authority to assess and publish the supplier’s performance against those KPIs set under Section 52.  This assessment must be made at least once in every twelve month period during the lifetime of the contract and on termination. However, contracting authorities may choose to assess performance (and publish information) more frequently if it chooses to do so.

The KPIs included in the Contract Performance Notice must be assessed in accordance with the ratings set out in regulation 39(5), and include the time period to which the assessment applies. While the guidance states that a contracting authority may continue to use its own internal rating system, it must use the ratings set out in regulation 39 (and shown below) when completing the Contract Performance Notice.

What does this mean?

As noted by the guidance, the Procurement Act is the first to place the use of KPIs on statutory footing in procurement legislation.

Section 52 and Section 71(2) could be useful commercial tools to contracting authorities as supplier performance will be exposed in the public domain, providing an incentive to comply and satisfy the KPIs to a ‘good’ standard.

We would advise that moving forward, contracting authorities incorporate the ratings set out in regulation 39(5), along with a methodology for assessing those ratings, in the contract itself so that it is clear to the supplier from the outset.  This may avoid disputes, although we anticipate that during tenders, bidders may wish to comment on and push back on any KPIs and assessment methodologies that could increase their risk of having poor performance exposed in public.

For further information please contact Melanie Pears or Tim Care in our Public Sector Team