Understanding KPIs in Procurement
Performance measurement will always be asked for in procurement as it offers a lot of reassurance to procurement teams when engaging with new suppliers. They want to understand your approach and commitments when it comes to quality and reporting on it. As a result tender questions will be asked and bidders need to be ready for them. In this article, we cover common performance tender questions, as well as guidance for bidders in preparing and responding to these questions.
KPIs will be used to provide clear metrics to assess supplier performance and procurement efficiency.
First, let's briefly look at what some of the key performance terms mean and what you will be expected to cover.
Definition of Key Performance Indicators (KPIs)
KPIs are measurable values that show how well an organisation achieves its procurement objectives.
They track specific targets and goals within purchasing processes.
Your procurement KPIs should be SMART:
- Specific to procurement activities
- Measurable with clear data
- Achievable for your team
- Relevant to your goals
- Time-bound with deadlines
These metrics help you measure both financial and operational aspects of procurement.
You can track cost savings, quality standards, and supplier performance.
Importance of KPIs for Contracting Authorities
KPIs allow you to make data-driven decisions about your procurement processes.
They highlight areas that need improvement and show where you're meeting targets.
Regular KPI monitoring helps you:
- Identify potential risks early
- Ensure supplier compliance
- Track value for money
- Measure quality standards
- Monitor health and safety compliance
This helps build trust with stakeholders and suppliers. As a supplier if you do not monitor and report on KPIs now - if you are starting to tender for more formal, longer term contracts, it is advisable to voluntarily start using these metrics on your existing contracts. This will create highly specific evidence to support your claims in future bids!
Types of KPIs Relevant to Public Sector Contracts
Public sector procurement requires specific KPIs to ensure accountability and efficiency.
Essential KPIs include:
- Cost reduction percentage
- Supplier response times
- Contract compliance rates
- Purchase order cycle times
- Quality control metrics
Procurement teams focus on both financial and non-financial KPIs. This creates a balanced view of performance across all areas.
Tracking delivery performance through:
- On-time delivery rates
- Order accuracy
- Quality standards met
- Service level agreements
Legislative Framework
The Procurement Act 2023 creates strict rules about measuring and reporting supplier performance on public contracts.
Public authorities must now track key performance indicators and publish regular assessments. This has of course happened already for many contracts - but it is now a specific requirement so will be an increasing requirement for the public sector suppliers.
Overview of the Procurement Act 2023
The Act introduces mandatory KPI requirements for public contracts worth over £5 million.
These rules aim to improve transparency and accountability in public procurement.
You must follow specific KPI measurement guidelines set out in the Act.
These cover both financial and non-financial performance metrics.
The legislation requires regular performance assessments against agreed KPIs. This helps track if suppliers meet their contractual obligations.
Responsibilities of Contracting Authorities
Your contracting authority must set clear KPIs at the start of each eligible contract.
These need to align with the contract's core objectives.
You are required to assess supplier performance against the KPIs throughout the contract period.
This includes collecting data and measuring progress regularly.
You must publish performance information as specified under Section 95 of the Act.
This makes supplier performance visible to other public bodies and the public.
Role of the Cabinet Office in Monitoring Compliance
The Cabinet Office oversees implementation of the KPI framework across public sector organisations.
They provide guidance on setting appropriate performance measures.
They monitor if contracting authorities follow proper reporting procedures.
This includes checking the quality and timing of published KPI data.
The Cabinet Office can investigate cases where authorities fail to meet their reporting duties.
They work to ensure consistent application of the rules across the public sector.
Need help with a tender?
Contact usSetting Target Performance Benchmarks
In procurement or tendering exercises, public sector buyers will either set challenging targets for suppliers, as part of wider service level agreements (SLAs). Or they will request for your performance and KPI proposals.
Benchmarks should be:
- Measurable with clear data points
- Tied to contract objectives
- Comparable across similar contracts
Specific and quantifiable metrics are the key, such as:
- Defect rates under 2%
- On-time delivery above 95%
- Cost variance within 5%
- Issue resolution within agreed timeframes
Make targets specific to your sector and contract type. Use historical data to establish baseline performance levels where possible.
Performance Measurement and Reporting
KPIs therefore serve as essential tools to track supplier performance and ensure contractual obligations are met.
Regular monitoring and reporting help identify issues early and maintain high standards of service delivery.
Public Availability of Contract Performance Notices
Contract Performance Notices must now be published on the government's public procurement platform. This promotes transparency and accountability.
Key information will include:
- Supplier name and contract reference
- Performance metrics and targets
- Actual performance against KPIs
- Remedial actions taken
Buyers should redact sensitive commercial information before publication.
Addressing Non-Compliance and Performance Issues
Both sides will need to take prompt action when KPIs fall below acceptable levels. Contacting authorities will start with a formal warning letter outlining specific concerns. However, if responding to performance tender questions, you will need to show how you avoid this situation, as well as your approach if it does not and how you quickly and practically remedy it. Including real granular detail in terms of who would be involved, who they report to, how it deemed as fixed and lessens learned, for example.
Buyers will typically follow this escalation process:
- Issue improvement notice
- Hold performance review meetings
- Apply financial penalties if specified in contract
- Consider contract termination for serious breaches
All communication and actions taken will be documented, including improvement plans.
They will also now consider debarment from future contracts in serious or repeated non-compliance.
Commonly Asked Performance, Quality Reporting & KPI Tender Procurement Questions
- How will you monitor and report performance against the key performance indicators (KPIs) outlined in the specification?
- What systems or processes do you have in place to provide regular performance reports to the buyer?
- How will you manage and rectify any instances of non-compliance or underperformance?
- Can you provide details of your approach to service delivery monitoring, including response times and issue resolution?
- How do you ensure continuous improvement in the quality of service delivered under this contract?
- What mechanisms do you use to track and manage supplier and subcontractor performance?
- Can you outline your experience in meeting SLAs and how you have ensured high levels of contract compliance in previous contracts?
- What measures do you have in place to assess customer satisfaction and how do you act on feedback?
- How will you manage data collection and reporting requirements, ensuring accuracy and timely submission of reports?
- How do you approach contract performance reviews and what actions do you take based on performance insights?
- Can you outline how you will integrate social value and carbon reduction reporting within your contract management approach?
- What tools or software solutions do you use for performance management and reporting?
- How will you manage communication and escalation processes to ensure transparency and proactive problem resolution?
- What approach do you take to training and upskilling staff to maintain high service standards?
- How do you incorporate sustainability and environmental performance tracking into your reporting framework?
This is a great list to help you prepare your reporting and tender responses. At Thornton & Lowe we have Tender Library which is our bid management software. This includes AI bid writing and a vast library of tender questions and answers to get you started!
Overview of Performance, Quality Reporting & KPI Monitoring in Procurement
Effective performance management in procurement contracts requires a structured approach to monitoring, reporting, and continuous improvement. This includes clear processes for tracking KPIs related to service delivery, compliance, and efficiency. Suppliers must have robust systems to collect and report performance data, ensuring transparency and accountability. Regular reporting should provide insights into response times, issue resolution, and customer satisfaction levels, enabling proactive improvements.
Beyond quality assurance, modern tenders increasingly focus on additional performance areas such as social value contributions, environmental sustainability, and carbon reduction initiatives, as we detail below. Suppliers must demonstrate how they monitor and report on these areas, ensuring alignment with buyers’ broader objectives. Strong contract performance management not only ensures compliance but also drives value for both the buyer and supplier by identifying opportunities for efficiency and innovation.
Ensuring Social Value and Ethical Standards
Public sector contracts require careful attention to social impact and safety standards.
Modern procurement practices emphasise measuring both financial and non-financial benefits to communities.
Integrating Social Value into KPIs
The UK Government's Social Value Model focuses on five key themes: COVID-19 recovery, economic inequality, climate change, equal opportunity, and wellbeing.
You must incorporate these themes into your tender responses.
Your KPIs should track specific, measurable outcomes that benefit local communities.
This might include the number of apprenticeships created or the percentage of spend with local suppliers.
Consider creating a social value measurement framework that includes:
- Job creation metrics
- Environmental impact figures
- Community engagement levels
- Local economic growth indicators
Assessing Health and Safety Performance
Your health and safety KPIs need to demonstrate a robust commitment to workplace safety.
Track and report on key metrics like accident frequency rates and near-miss incidents.
Regular safety audits help identify potential risks before they become problems.
Document your safety training programmes and their completion rates.
Essential health and safety measures to monitor:
- Time lost due to accidents
- Safety training completion rates
- Risk assessment frequencies
- Equipment maintenance schedules
Promoting Ethical Practices in Public Contracts
Your tender responses must show clear ethical guidelines and anti-corruption measures.
Include details about your supply chain transparency and fair labour practices.
Set up monitoring systems for:
- Supplier code of conduct compliance
- Fair wage policies
- Modern slavery prevention
- Whistleblowing procedures
Document your ethical procurement policies and how you verify compliance throughout your supply chain.
Regular supplier audits help maintain high ethical standards.
You may also like - Tender Questions & Answers, which cover more frequent procurement requirements.
