The Procurement Bill: Key performance indicators and monitoring reforms explained

This is the third instalment in our series looking at some of the key changes proposed by the Procurement Bill (the Bill).  This article explores some of the proposed reforms that will impact contract performance, including changes to key performance indicators, monitoring and reporting requirements, both of which represent a marked difference to the current regime.

Current status of the Bill

On 13 June 2023, the Bill completed the report stage and third reading in the House of Commons. The Bill, and the limited amendments to it that have been proposed by the House of Commons, are now back with the House of Lords for consideration. This will be the final stage of the parliamentary process before the Bill receives Royal Assent, and all seems to be on track for the Bill to come into force at some time in 2024 (possibly in successive phases).

Key performance indicators (KPIs)

Before entering into a public contract with an estimated value of more than £5 million, a contracting authority must set and publish at least 3 KPIs in respect of the contract.  However, this requirement does not apply in relation to certain types of public contracts, including:

• Frameworks
• Utilities contracts awarded by private utilities
• Concession contracts
• Light touch contracts

Also excluded from the obligation are contracts where a supplier's performance under the contract cannot appropriately be assessed by reference to KPIs.

The Bill defines a KPI as a "factor or measure against which a supplier's performance of a contract can be assessed during the life-cycle of the contract". Whilst there is little further guidance currently available as to how KPIs should be set, we expect that contracting authorities will want to ensure that they align as far as possible with the 'Procurement Objectives' also set out in the Bill, which include, amongst other things, a requirement on the part of the authority to deliver value for money and maximise public benefit.

In our view, the requirement for a contracting authority to set and publish KPIs is attractive to the extent that, like any commercial contract, it helps the parties to assess and improve contract performance, and helps reinforce good behaviour, all of which will ultimately be of benefit to the public and the public purse. 

However, we anticipate that this is the sort of area where there will need to be very close alignment and co-operation between the individuals within the contracting authority who are tasked with designing and running the procurement process, and, if different, those tasked with drafting the KPIs and then monitoring contract performance once the contract has been entered into. Unless sufficient thought and attention is given to the setting of KPIs, bidders may be reluctant to agree to measures which they are concerned may not be realistic or achievable. This could lead to challenges and delays within the procurement process.

Furthermore, there is also a risk that, down the line when the contract is underway, poorly thought out KPIs will turn out to be unworkable or insufficiently robust, ultimately leading to disputes between the parties. Therefore, it will be very important for both contracting authorities and bidders to ensure that they have carefully considered the KPIs before entering into the contract and are satisfied that they reflect appropriate factors or measures against which performance can be measured.

Reporting and monitoring requirements

As well as the introduction of the obligation to set and publish KPIs, the Bill also imposes new reporting and monitoring requirements on contracting authorities (aside from private utilities) to ensure that the KPIs are being met.

In particular, the Bill provides that, at least once in every period of twelve months during the life cycle of the contract and on termination of the contract, the contracting authority must assess performance against the KPIs and publish information (to be specified in regulations) in relation to that assessment.

Although it is presently unclear exactly what information is required to be published in this regard, the imposition of this obligation on the part of a contracting authority is likely to prove relatively onerous from an administrative point of view, taking into account, at the very least, the additional resources that will be required to evaluate and publish the required information.

Furthermore, and save in respect of light touch contracts, there are additional publication requirements (again, the specifics of which are to be set out in regulations) where either:

• A supplier has breached a public contract and the breach results in full/partial termination of the contract, damages or settlement.
• A contracting authority considers that a supplier is not performing a public contract to the authority’s satisfaction, has been given proper opportunity to improve performance, and has failed to do so.

Again, contracting authorities will need to ensure that they have the resources in place to fulfil these obligations, given the risk of claims if incorrect or sensitive information is inadvertently published. 

For contractors, these requirements will clearly be very concerning from a reputation management perspective, as they potentially open them up to a significantly enhanced level of public scrutiny. Bidders may become more cautious about deciding whether or not to bid for contracts where they are at all concerned about their ability to service such contracts, given that poor performance or breach may lead not only to termination of the contract but also have an impact on their reputation in the market and therefore their ability to win future procurements.

Additionally, during the course of a contract, contractors will be very cautious about any suggestions from the contracting authority that they are under performing and we could see an increase in disputes where contractors feel that they cannot allow a perceived criticism from the contracting authority to be published.

Our thoughts

In our view, the provisions in the Bill regarding KPIs and reporting and monitoring requirements are fertile ground for disputes, at least in the short term. In the longer term, the increased emphasis on monitoring contract performance via KPIs and reporting may ultimately lead to an overall improvement in contract performance. Time will tell.

In our next article in this series, we will look at supplier debarment, which is another fundamental reform proposed by the Bill. Keep an eye on our website and social media channels for this article in the next few weeks. In the meantime, please get in touch with our procurement experts below if you require any further information or help.