KPI (Key Performance Indicator)
Measurable targets used to monitor contract performance, typically specified at award and tracked monthly or quarterly.
Definition
A Key Performance Indicator (KPI) is a measurable target used to monitor contract performance throughout delivery. Public sector contracts typically specify KPIs at the outset, expressed as targets the supplier must meet (response times, resolution times, availability, quality scores, satisfaction ratings, social value commitments). KPIs are usually tracked monthly or quarterly with a contract review meeting at each cadence, and failure to meet KPIs can trigger performance penalties, service credits, or in extreme cases contract termination.
How it works in practice
KPIs sit alongside Service Level Agreements (SLAs) in most public sector contracts; in practice the terms overlap heavily and many contracts use them interchangeably. The contract specification will list each KPI with: the metric definition, the measurement method, the target value, the reporting cadence, and the consequence of underperformance (service credit, performance improvement plan, or escalation to termination). Common KPIs in service contracts include response time to incidents (95 percent within 4 hours), resolution time (90 percent within 24 hours), service availability (99.5 percent monthly), call abandonment rate (under 5 percent), and customer satisfaction (CSAT score over 80 percent). For social value, KPIs increasingly track TOMs commitments quantitatively (jobs created, training hours delivered, local spend percentage). The Procurement Act 2023 introduces a public KPI reporting regime: contracting authorities must publish supplier performance data including KPI outcomes for above-threshold contracts, with poor performance contributing to a public "supplier conduct" record. Suppliers should treat the bid-stage KPI commitments as the contract being signed: missing them later is an exposure both to penalties and to reputational damage on the public conduct record.
Common questions
How many KPIs should a public sector contract have?
Typically 5 to 15 for a mid-sized service contract; more for complex outsourcing. Too few and the buyer cannot evidence supplier performance; too many and reporting overhead consumes more value than it generates. Strong contracts focus on a small number of meaningful KPIs (response time, availability, satisfaction) and supplement with periodic reporting on operational metrics.
What happens if I miss a KPI?
The contract states the consequence. Common mechanisms are service credits (a discount on the next invoice), performance improvement plans (a written plan to restore performance within a defined period), and ultimately termination for sustained failure. The Procurement Act 2023 also requires authorities to publish KPI outcomes, with sustained underperformance contributing to a public supplier conduct record.
Are KPIs the same as SLAs?
In practice the terms overlap heavily and many contracts use them interchangeably. Technically an SLA is the formal service-level commitment (the contractual promise) and a KPI is the measurable indicator used to track delivery against that promise. Many contracts conflate the two and provide a single table of metrics-and-targets without distinguishing.