Reporting on Contract Performance: Procurement Act 2023

Suppliers will find themselves subject to further scrutiny when new contract performance measures are introduced under the Procurement Act 2023 later this year.

New requirements (which apply principally to contracts valued at over £5m over their term) mean that all public sector authorities must publish annual reporting of performance against mandatory KPIs, holding suppliers accountable for how they conduct themselves for the duration of the contract.

Contract Performance Notices

It will be mandatory to include at least 3 KPIs in all contracts valued at more than £5m.  Authorities must then publish a Contract Performance Notice at least once every 12 months for each of those contracts, rating the supplier’s performance against the KPIs.

Notices should set out details of the contract, the name of the supplier, and a rating for the performance of that supplier against the KPIs using the following categories:

Mandatory Rating Descriptors for Contract Performance Notices

These categories will not be new to authorities who have used any of the Cabinet Office Playbooks to assist with their contracting practices. They will also be familiar to Central Government departments.

More detailed requirements about the content of Contract Performance Notices are set out in the draft Procurement Regulations 2024, laid before Parliament in early April. We are likely to see guidance from the Cabinet Office in the future to assist authorities in setting KPIs and managing contractor performance against them.  

Mandatory KPIs

When setting KPIs, authorities will need to consider how those KPIs will operate including:

• Are the KPIs measurable?
• Over what time period will the KPIs be measured?
• Are the KPIs achievable and fair?
• Will the KPIs be negotiated or proposed by suppliers during the tender process?
• What will the impact be of not achieving the KPIs (consider links to service credits, refunds and termination rights)?
• Who will monitor and report on the KPIs? Will monitoring be carried out by the supplier, with spot checks and/or monitoring permitted by the authority?
• Will the authority be required to dedicate extensive resources to monitoring performance?

Authorities may want to have a “standard” set of KPIs for their high-value contracts. However, it’s not a case of one size fits all – KPIs will probably need to be different depending on whether the contract is for works, services or supply of goods.  

When are KPIs not required?

Under the Act, a contracting authority will be required to set and publish at least three key performance indicators (KPIs) in each of their procured contracts unless:

• The contract value is less than £5m.
• The contracting authority cannot appropriately assess performance by reference to KPIs.
• If one of a small number of exceptions applies (such as where the contract is a framework or a light touch contract, among others).

What does this mean for procurement teams?

This requirement places a new burden on procurement teams to maintain their involvement in contracts throughout their lifetime and not simply at the initial procurement stages. This will inevitably require more resources and will likely involve much more interaction between contract managers or “owners” and procurement teams throughout a contract’s term.    

Suppliers will also feel the impact of this. Collaboration between suppliers and authorities to ensure KPIs are correct at the outset of a contract will be key. If not, it could lead to suppliers skewing their prices to ensure they can perform well against the KPIs.

We are likely to see suppliers taking time to scrutinise proposed KPIs carefully to assess the risk to their overall business before entering into a contract. We could also see suppliers negotiating KPIs, where permitted, during a procurement process.

If the KPIs are not drafted in a fair and balanced manner, then this could lead to pushback from bidders during the clarification stage of the procurement process. It could also lead to an increase in non-compliant bids if the acceptance of contract terms is a pass/ fail requirement.  

Public “naming and shaming” of poor-performing suppliers is unlikely to go down well with the market but is a clear incentive for good contract performance, which the public sector is keen to encourage.

What could go wrong?

It should be noted that the Procurement Act 2023 (the Act) does not provide any mechanism for “inadequate” prior performance of public contracts to be taken into account in a tender process.  

Imagine an authority whose evaluators in a procurement process are aware that one of the bidders has frequently been rated as “Requires Improvement” or “Inadequate” in published Contract Performance Notices by other authorities.  Those evaluators cannot consider this in their own evaluation, which may be very difficult to do in practice and almost impossible to prove or disprove.  

Unless the poor performance has led to circumstances such as termination or award of damages, for example, which would allow an authority to treat the supplier as “excludable” as a result of the discretionary exclusion ground (Schedule 7 of the Act), then this cannot be used as a reason not to award the contract to that supplier.

Are you ready for the Procurement Act 2023? We are here to help. Our procurement team has a range of seminars and training workshops available on the practical implications of the new Act. To discuss how you can prepare, please contact Alison Walton on 0191 211 7850 or email [email protected].