Procurement in a Nutshell: Procurement Act 2023 – KPIs and Performance Management
20th May, 2024
This Nutshell examines the new obligations for contracting authorities regarding contract performance monitoring, with a particular focus on Key Performance Indicators (KPIs). We will identify and explain the key changes from previous procurement legislation, ensuring contracting authorities are up-to-date on their compliance requirements.
On 26th October 2023 the Procurement Bill received Royal Assent and is now expected to come into force on 28th October 2024.
The Act will, in particular, revoke the following:
- Public Contracts Regulations 2015 (PCR)
- Concession Contracts Regulations 2016
- Utilities Contracts Regulations 2016
Key Performance Indicators (KPIs) (s.52)
- Section 52 states that before entering into a public contract with an estimated value of more than £5 million, a contracting authority must set and publish at least three key performance indicators in respect of the contract. These KPIs will be set out in the Contract Details Notice and are then used to assess contract performance under section 71 (see below).
- Contracting authorities should note that Section 52 will not apply if they consider that the supplier’s performance under the contract could not appropriately be assessed by reference to KPIs.
- Section 52 also does not apply to light touch contracts and frameworks.
Assessment of Contract Performance (s.71(2) and (5))
- Section 71(2) states that an assessment of contract performance must be published at least once every 12 months during a contract and on termination of the contract. This notice is used to assess the performance of a supplier against the relevant KPIs (set in accordance with section 52) and must be rated either good, approaching target, requires improvement, inadequate or ‘other’.
- Regulation 39(5) of the Procurement Regulations 2024 outlines how each rating set out in Section 52 should be applied:
- Section 71(5) states that if there is a breach of contract which has resulted in termination, the award of damages or a settlement agreement, then within 30 days the contracting authority must publish information setting out the circumstances which give rise to the application of section 71.
- The publication requirements under Section 71(5) also apply if a contracting authority considers that a supplier is not performing a public contract to its satisfaction, has been given proper opportunity to remedy the breach or improve performance and has failed to do so.
- Regulation 39(7) of the Procurement Regulations 2024 provides an extensive list as to what contracting authorities must include when publishing a notice under Section 71(5) for both a breach of a public contract, and when a supplier is not performing the contract to an authorities satisfaction. The following publication requirements are of particular importance:
- (i) – where the supplier is not performing the public contract to the contracting authority’s satisfaction, the date when the contracting authority considered that the supplier had failed to improve its performance
- (j) – an explanation of the nature of the contractual obligation which has been breached or is not being performed to the contracting authority’s satisfaction
- (k) – an explanation of the nature of the breach or failure to perform including:
- an explanation of the impact or consequences of the breach or failure to perform;
- the duration of the breach or failure to perform and whether it is ongoing;
- an explanation of any steps taken by the supplier to mitigate the impact or consequences of the breach or failure to perform;
- any steps that the contracting authority has taken to notify the supplier of the breach or failure to perform and encourage them to improve the situation;
- what steps, if any, were taken by the supplier to improve the situation and why these were not sufficient
- (m) – where there has been an award of damages following the breach or failure to perform the amount of damages awarded and where there is a recorded decision of a court or tribunal finding that there was a breach, a copy of the decision.
What’s changed?
A significant change under the Procurement Act is the requirement to publish an assessment of a supplier’s contract performance. As noted in a previous Nutshell, this could be useful to contracting authorities as a supplier who fails to meet their contractual requirements will be exposed in the public domain, providing an incentive to comply with contract requirements and, where KPIs are set, to satisfy the KPIs to a ‘good’ standard.
What does this mean?
The new requirements in relation to contract performance, while advantageous in enforcing a supplier’s contractual obligations, must be given significant thought by contracting authorities. We advise that a contracting authority’s confidentiality clauses be updated to expressly permit disclosure under Section 71 in order to avoid disputes. Where possible, contracts should also include specific mechanisms for measuring performance that then link directly to these transparency requirements.
For further information please contact Melanie Pears or Tim Care in our Public Sector Team.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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