Contract Performance under the Procurement Act 2023: A New Era of Accountability

Co-authored with Ewan West KC of Monckton Chambers

Introduction

The Procurement Act 2023 marks a significant shift in how contract performance will be managed and assessed for publicly procured contracts. Traditionally, procurement regulations have focused primarily on the awarding of contracts, with less emphasis on the performance and delivery stages. However, the new Act introduces detailed provisions aimed at ensuring that suppliers meet their contractual obligations effectively and transparently.

Key Changes and Their Implications

1. Key Performance Indicators (KPIs)

One of the most notable changes introduced by the Act is the requirement for contracting authorities to set and publish a minimum of three key performance indicators (KPIs) for contracts valued over £5 million. These KPIs must be established before entering into the contract and are intended to provide measurable benchmarks against which a supplier's performance can be assessed throughout the contract's lifecycle. This move aims to enhance transparency and accountability, ensuring that suppliers are held to clear and consistent standards.

Note, however, the exception to this requirement, which provides that contracting authorities are not required to set KPIs in instances where they cannot appropriately assess performance by reference to KPIs (discussed further below). 

2. Assessment and Reporting

Contracting authorities are now required to assess and report on supplier performance against the established KPIs at least once every twelve months and upon contract termination. This assessment must be published, providing a public record of the supplier's performance. If a supplier breaches the contract or fails to meet performance standards, this information must be disclosed within 30 days, detailing the circumstances and outcomes of such breaches. This provision seeks to address past concerns about the lack of transparency and data regarding supplier performance.

3. Exclusion and Debarment for Poor Performance

The Act introduces updated discretionary exclusion grounds for certain types of poor performance. Suppliers who have breached contracts in certain, specified, serious ways, failed to improve performance after being given the opportunity, or have had performance-related issues published by contracting authorities may face exclusion from future contracts. This measure is designed to prevent repeat offenders from continuing to secure public contracts, thereby promoting higher standards and reliability among suppliers. Please see our previous blog discussing the new exclusion and debarment grounds in more detail: The Procurement Act 2023: a new regime for exclusion and debarment, Kate Gough, Olivia Valner, Elizabeth Forster

Challenges and Opportunities

While these changes represent a significant step forward, they also present challenges. Contracting authorities may face difficulties in setting appropriate and measurable KPIs, and the reporting obligations could be burdensome for already overstretched resources. Additionally, the effectiveness of these measures will largely depend on the quality and accuracy of the data collected and reported.

However, the new provisions also offer opportunities for improved contract management and supplier accountability. By creating a more transparent and data-driven approach to contract performance, the Act aims to foster a culture of continuous improvement and higher standards in public procurement.

These provisions of the Act also create new opportunities for third parties to challenge the actions of contracting authorities in terms of how an existing public contract is being performed.

Under the existing regime, the ability to challenge a contracting authority’s actions and/or omissions in respect of how it manages a contract is limited.  Under the current regulations, seeking to challenge the failure of a contracting authority to exclude a bidder at selection phase for prior poor performance involves overcoming a high threshold because of the discretionary nature of the power.  It is also difficult for a third party to challenge performance of a public contract during its term:  there is no explicit provision in the existing regulations under which third parties are empowered to bring a claim, and the lack of privity of contract would otherwise present an obvious hurdle.  Normally, the only viable target is likely to be in circumstances where the contracting authority undertakes the modification of a contract in order to address contract performance, for example by varying the contractual obligations to which the contractor is bound. 

The situation is different under the new Act, although it remains to be seen how far the Court will have an appetite to intervene in matters of contract performance.  Furthermore, until there is greater clarity on the issue of what standard of review applies in challenges under the Act, it is difficult to determine whether claimants will have a realistic prospect of success when issuing proceedings against a contracting authority for its failure to meet its obligations in relation to contract performance.

In principle, it would seem that any of the following might constitute a target for challenge:

• Failure to set KPIs – sections 52(1) and (2)
• Setting inappropriate KPIs – sections 52(2) and(4)
• Failure to publish KPIs – section 52(3)
• Failure to assess against KPIs – section 71(2)(a)
• Failure to publish information on performance against KPIs – section 71(2)(b)
• Failure to publish information concerning breach of a public contract – section 71(5)
• Failure to take appropriate action in relation to any failure to meet KPIs or where contract has been breached

An obvious motivation for a third party (such as supplier who had unsuccessfully bid for the contract at the award stage) bringing such a challenge would be to seek to force the contracting authority to terminate the contract so as to provide an opportunity for the award of a new contract in which the challenger could participate.  The core allegation in such a challenge would  therefore most  likely to be that by failing to address poor contract performance, the contract authority has avoided having to offer the opportunity back to the market.

However, there are two key challenges that third parties may face when bringing such a claim. 

Firstly, in order for such a challenge to have any prospect it would be necessary for a claimant to show that it had suffered, or at least risks suffering loss or damage as a result of the contracting authority’s breach of obligations.  Most of the omissions identified above would not in isolation support such an allegation. In reality, it would likely only be where there had been a failure to take action in relation to meeting KPIs or where the contract had been breached that a claimant could overcome this causation hurdle.

Secondly, claims of this nature may face hurdles in circumstances where the contracting authority has availed itself of the exception, as set out in the Act, to the requirement to set KPIs at all, As explained above, the exception applies for contracts in respect of which performance cannot appropriately be assessed by reference to KPIs. It remains to be seen how often and in what circumstances contracting authorities will rely on this carve-out to the KPI requirement, but it is possible that the exception will be widely invoked, making it more difficult to hold contracting authorities to account in respect of contract performance issues. 

Conclusion

The introduction of detailed contract performance provisions under the Act represents a pivotal change in public procurement in the UK. By focusing on KPIs, regular performance assessments, and stringent exclusion criteria for poor performance, the Act seeks to ensure that public contracts are delivered effectively and to the highest standards. While challenges remain, the potential benefits of these changes are significant, promising a more accountable and transparent procurement process.

The Procurement Bill: contract performance | Freshfields

(With thanks to Monckton Chambers)