There is a dangerous assumption in contract management:

If three KPIs are useful, thirty must be better.

They aren’t.

The Procurement Act has significantly increased the importance of KPIs within public-sector contracting. Section 52 requires contracting authorities, subject to the statutory exceptions, to establish KPIs before entering into public contracts with an estimated value above £5 million where performance can appropriately be assessed through KPIs.

Government training material explains that at least three KPIs must be established in these circumstances.

Section 71 then connects those measures with subsequent assessment and publication of supplier performance.

But there is a risk

Organisations may respond by creating more measures rather than better measures

A contract can contain twenty-five KPIs and still provide the contract manager with remarkably little useful information.

For example:

Number of engineers employed

may be easy to measure.

But does it demonstrate that an IT maintenance service is reliable?

Probably not.

Measures such as system availability, critical-incident resolution, repeat failures and user satisfaction may provide much better evidence of whether the required business outcome is actually being achieved.

The starting point therefore shouldn’t be:

“What can we measure?”

It should be:

“What are we trying to achieve?”

A better approach is to define

Business Objective, Contract Outcome, Critical Success Factor

KPI, Target, Threshold/Tolerance, Evidence, Corrective Action

There is another issue – supplier gaming*

Every KPI potentially creates an incentive.

A call-centre target based predominantly on call duration can encourage calls to be closed quickly.

A first-time-fix target can encourage jobs to be recorded as completed prematurely.

An availability KPI containing badly defined exclusions can result in arguments about which periods of downtime count.

Good KPI design therefore requires a simple test:

How could a rational supplier maximise its KPI score without actually delivering the outcome we require?

If that question exposes a weakness, redesign the KPI before placing it in the contract.

Contract performance management isn’t about generating more data.

It is about generating the right management information to enable better commercial decisions.

DPSS Training DPSS courses on KPIs, SLAs and Contract Performance Management under the Procurement Act use practical exercises to help delegates move from business outcomes to measurable, proportionate and commercially useful performance regimes.