Definition
Key Performance Indicator(KPI)
A measurable target used to manage contract performance.
A KPI (Key Performance Indicator) is a measurable target used to track a supplier's performance against specific contract objectives, such as response times, quality scores or customer satisfaction. In public contracts, KPIs typically sit within a performance management framework linked to contract review meetings and, in some cases, payment.
How KPIs appear in tenders and contracts
Buyers often propose a draft KPI framework within the specification and invite bidders to comment, propose additional metrics, or describe how they will monitor and report performance against them. KPIs are usually reviewed at contract management meetings, with performance reported through dashboards or regular written reports.
Good KPIs are specific, measurable, achievable, relevant and time-bound (often described using the SMART framework), and directly tied to what actually matters to the service user rather than easy-to-hit but meaningless metrics.
What a strong bid response does with KPIs
- Confirms understanding of each proposed KPI and how performance will be measured and evidenced
- Proposes a realistic reporting cadence, such as monthly or quarterly review
- Flags any KPI that seems poorly defined or difficult to measure, and suggests a workable alternative
- Describes escalation processes for when a KPI target is missed
Frequently asked questions
- What is the difference between a KPI and an SLA?
- A KPI is a specific measurable metric tracking an aspect of performance, while a Service Level Agreement (SLA) is the broader contractual document setting out the agreed service standards, of which KPIs are often a component. In practice the terms are sometimes used loosely, so check the specific contract schedule.
- Can suppliers negotiate KPIs during a tender process?
- Sometimes, particularly through the clarification process before submission, where bidders can question unclear or unrealistic targets. Once a contract is signed, changing KPIs usually requires formal contract variation, so it is worth raising concerns before the bid is submitted.
- What happens if a supplier consistently misses KPI targets?
- Consequences vary by contract but can include improvement plans, service credits, increased monitoring, or in serious and sustained cases, termination for breach. Most contracts include an escalation process giving the supplier opportunity to remedy performance before more serious action is taken.
Related terms
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