Module 9: Contract governance

Q: Publishing KPI data (section 71(2))

At least once every 12 months (but more frequently, if provided for in the contract), you must assess and publish details of supplier performance against your contract’s three main KPIs. You do this by publishing a contract performance notice to the central digital platform. Only the lead supplier should be assessed and reported on, not their subcontractor(s). It is good practice to discuss and agree scores with your supplier(s) before publication, but no supplier has the ability to block publication or amend an assessment. The contract performance notice has two functions. The first is to publish KPI assessment data to the central platform; the second, separate function is to report on breach of contract or supplier poor performance (as detailed in fact sheet: supplier breach and poor performance) .

Question 1

2.1   Grounds for Modification

Accepted Answer

Section 74(1) of the Procurement Act sets out the three headline grounds under which contracting authorities may modify a contract:

a. where the change is a permitted modification under one of the circumstances listed in Schedule 8,

b. where the change is not a substantial modification, or

c. where the change is a below-threshold modification.

The three provisions above are separate grounds for modification. Contracting authorities only need to satisfy one of these grounds (or, more specifically in the case of (a), one of the circumstances listed under Schedule 8) to make a compliant contract modification. If it is not possible to make a modification under any of these grounds then it would be necessary to undertake a new procurement process.

Question 2

A. Amended Existing Modification Grounds

Accepted Answer

The grounds under which contracts may be modified, and the key differences under the Procurement Act, are as follows:

1. Provided for in the Contract (Schedule 8 para(1))

Ground: A contract modification is permitted where:

a. the possibility of the modification is unambiguously provided for in—

(i) the contract as awarded, and
(ii) the tender or transparency notice for the award of that contract, and

b. the modification would not change the overall nature of the contract.

Change: The wording provided in the Procurement Act 2023 is less prescriptive than that of Regulation 72(1)(a) of the PCR2015, allowing contracting authorities to unambiguously provide for the modification in the contract documentation and tender or transparency notice, but without requiring such provision to be as precise and unequivocal as the wording in the PCRs suggested. However, it is important that as much detail as possible is provided about the potential modification in both the contract as awarded and the original tender or transparency notice, to ensure that it can be described as unambiguous, and relied upon without legal challenge.

2. Unforeseeable Circumstances (Schedule 8 para(4))

Ground: A contract modification is permitted where:

The circumstances giving rise to the modification could not reasonably have been foreseen by the contracting authority before the award of the contract,
The modification would not change the overall nature of the contract, and
The modification would not increase the estimated value of the contract by more than 50%.

Change: The detailed grounds under which a modification may be made are unchanged, however there are changes to how the 50% amendment value cap^{[footnote 2]} is calculated.

Under the Act, the “estimated value of the contract” is considered to be its estimated value at the point in time immediately preceding the modification being made. This means that the 50% value cap must now be assessed against the estimated value of the contract immediately preceding the modification, rather than the original contract value, or any other estimate.

Estimated Contract Value: Calculation Change Scenario

Unforeseeable Circumstances (Schedule 8(4))

A multi-academy trust needs to modify its contract for catering equipment following an accident in which multiple assets were damaged. The contract is currently in year 4 of a total 8-year period, and the original contract value was £1m. Since the beginning of the contract, its value has increased by £120,000 due to inflation (under Schedule 8(1)). It was also modified in year 3 to cover two new additional schools (under Schedule 8(8)), increasing the value again by an additional £300,000. The current value of the contract is £1.42m. The total value of this latest proposed modification is £650,000. The amendment meets all other requirements set out in the Procurement Act Schedule 8(4).

Under the PCR 2015 this modification would not have been permitted, as the value of the amendment (£650,000) is greater than 50% of the original contract value (£1m). Under the Procurement Act it would be permitted, as the value is not greater than 50% of the contract value immediately preceding the amendment (£1.42m).

Modifications under the Act may now be made successively, allowing for multiple separate modifications of increasing value - each individually up to 50% of the immediately preceding value of the contract - to be made during a contract’s lifetime.

Successive Amendments

Scenario 1: Two Modifications under the same ground

(Unforeseeable circumstances (Schedule 8(4))

An NHS trust contract for portering services, with a total original value of £1m, is increased by £200,000 (20%) in year 2, due to unforeseeable circumstances. In year 3 a further modification of £400,000 (33.33%) is again required due to unforeseeable circumstances.

Assuming all other conditions of the ground are met, this modification is permissible because:

a. the value of the first modification is less than 50% of the value of the contract immediately preceding the amendment, and

b. the 50% modification value cap is reset for each new amendment, meaning that the second amendment in year 3 represents approx. 33% ((400,000/1,200000) x100) of the estimated contract value prior to the amendment being made.

Other modification grounds: Successive amendments are also permitted for other modifications where a % value cap applies, e.g. ‘unforeseeable circumstances’ or ‘additional goods etc.’ However, Section 74(7) and (8) is an anti-avoidance provision that prohibits contracting authorities from making successive and/or separate modifications if they could reasonably be made together.

Scenario 2: Two Modifications under different grounds

(Additional goods, services or works (Schedule 8(8)) and unforeseeable circumstances (Schedule 8(4))

A local authority contract for building repairs services, with a total original value of £3m, is increased by £900,000 (30%) in year 3 under the additional goods etc. ground when the size of the estates portfolio is expanded. In year 4 a further modification of £1.5m is required under the unforeseeable circumstances ground to manage unplanned repairs.

Assuming all other conditions of the ground are met, this modification is permissible because:

a. the 50% modification value cap is reset for each new amendment, so the value of each subsequent new amendment can be up to 50% (where the ground permits) and

b. the second modification is calculated based on the estimated value of the contract in year 4, following the first modification, meaning that it is below 50% of the total estimated contract value.

Changes to how the estimated contract and modification values are calculated, and the ability to make successive amendments, also both apply to materialisation of a known risk (Schedule 8(5-7)), additional goods, services or works (Schedule 8(8)) and below-threshold modifications (section 74(4)) (with some differences for below-threshold modifications that are detailed below).

3. Additional Goods, Services or Works (Schedule 8(8))

Ground: A contract modification is permitted if:

The modification is for the supply of goods, services or works in addition to those already provided for in the contract
Using a different supplier would result in the goods, services or works being different from, or incompatible with those already provided for in the contract,
The contracting authority considers that the difference or incompatibility would cause disproportionate technical difficulties (e.g. in operation or maintenance) or other significant inconvenience, and substantial duplication of costs, and
The modification would not increase the contract value by more than 50%.

Change: The detailed grounds under which a modification may be made are unchanged, however there are changes to how the 50% amendment value cap^{[footnote 3]} is calculated, as per unforeseeable circumstances (Schedule 8(4)).

4. Transfer on Corporate Restructuring (Schedule 8(9))

Ground: A contract may be novated or reassigned to another supplier only where this is needed following a corporate restructuring or “similar circumstance”, such as a takeover, merger, acquisition or insolvency.

Change:

Providing for modification in the event of “corporate restructuring or similar circumstance” offers greater flexibility to allow novation or assignment of a contract to a successor entity without needing to ensure that entity could be said to have fulfilled the original criteria for qualitative selection. The inclusion of “assignment” expressly recognises that, in certain insolvency scenarios, novation of the contract simply will not be possible.
Section 74(9) of the Procurement Act 2023 prohibits a change of supplier other than when made under this specific ground. This is a change from the previous regime, where a supplier may be replaced if an “unequivocal review section or option” exists within the contract.

5. Non-Substantial Modifications (Section 74(3))

Ground: A contract modification is permissible where the modification is not “substantial”. A substantial modification is where any of the following apply:

The contract term is increased or decreased by more than 10% of the original contract as awarded,
The amendment materially changes the scope of a contract, or
The amendment materially changes the economic balance of the contract in favour of the supplier.

Change: The Procurement Act 2023 replaces a fixed list of what “substantial” means, compared with the PCR 2015, making the rules more simple to understand and apply. Concepts such as “material change” and “economic balance” must be assessed by authorities on a case-by-case basis, in the context of the economic balance of the contract in question, and from the perspective of proportionality. For guidance purposes only:

A Material Change in the context of modification is, for example, a change to something that was significant to a contracting authority when it decided how to award a contract, or alternatively something significant enough to have changed whether a supplier would have decided to submit a tender for it. A material change may be where:

New conditions are introduced that may have influenced the outcome of the original procurement, or attracted other suppliers to participate in the procurement.

A modification which changes the Scope of a contract includes introducing new deliverables (goods, services and works) that were not already provided for in the contract. For example:

Modifying a contract for office chairs to include the purchase of desks or adding a new building location to a contract for cleaning services.

A modification which changes the Economic Balance of a contract is, for example:

Where a supplier receives an additional financial, economic or other similar benefit, for doing the same amount of work under a contract. Or, being paid the same under a contract for providing a reduced scope of work. Some examples may include where:

A contract is modified to reduce the number of sites that a supplier is responsible for servicing, but the cost is not reduced accordingly.

An amendment results in a supplier’s profit margin increasing.
A supplier is given an increase in pay or other commercial benefits, while the scope of works is unchanged from the original contract.
Where ownership of intellectual property rights not previously assigned is granted, with no additional benefit to the contracting authority.
Where the original contract terms are otherwise modified in the supplier’s favour.

Examples of potential substantial and non-substantial modifications may include:

Substantial	Non-Substantial
Substituting the lead contract supplier with a new supplier Substantial: other suppliers may have been able to submit a tender.	A price increase for service delivery in which the profit margin stays the same. Non-substantial: Although prices are changing, the economic balance remains the same.
Expanding the delivery of catering services from one site, as contracted, to four others. Substantial: this may have allowed for other suppliers to submit a tender for the original contract, or attracted more advantageous tenders.	Extending a 3-year contract for school classroom supplies for an additional 1 month to allow for the mobilisation of the replacement contract. Non-substantial: The contract term is increased by less than 10%.
Using a contract for site security to deliver cleaning services Substantial: this represents a change in scope to the original contract, as it is for a different service that wasn’t originally included.

Note on amending contract term: If a contracting authority needs to make an unplanned amendment that increases or reduces the contract term by more or less than 10%, and this is not an amendment provided for in the contract, then one of the other modification grounds must be used. Contracting authorities would identify this ground by determining which circumstances are most relevant to them, e.g. unforeseeable circumstances, additional goods etc.

6. Below-Threshold Modifications (Section 74(4))

Note: 74(4) deals with making a below-threshold modification to an above-threshold contract. This is different from modifying a regulated below-threshold contract, which is covered in Section 2.2 below.

Ground: “Below-threshold” amendments are permitted when all of the following apply:

The estimated contract value would not be increased or decreased by more than 10% for goods and services or 15% for works;
The amendment would not materially change the scope of the contract;
The aggregated value of amendments made to that contract under this ground are less than the relevant threshold (see Summary document 1) for the contract in question.

Change: As with the changes to grounds on ‘unforeseeable circumstances’ and ‘additional goods, services or works.’, the 10% value cap on modifications to contracts for goods and services, and 15% for works, is now assessed against the estimated value of the contract immediately preceding the modification, not on the original contract value or any other estimate.

In addition, below-threshold amendments may also now be made successively, allowing for multiple separate modifications - each individually up to the 10/15% value cap - to be made during a contract’s lifetime, but the aggregated value of all below-threshold modifications must not exceed the relevant contract threshold value. For example:

Successive Amendments (continued)

Scenario 3: ‘below-threshold’ modification ground

A central government contract for staff uniforms, with a total original value of £500,000, is uplifted in year 2 of the contract by £45,000 (9% of the total contract value), using the ‘below threshold modification’ ground, to increase the volume of uniforms ordered. In year 3 of the contract, a further modification is required under the same ground for the same purpose, which increases the contract value by £43,600 (8% of the total contract value as immediately precedes the amendment being made).

Assuming all other conditions of the ground are met, this modification is permissible because: the 10% modification value cap is reset for each new amendment, and

c. the total cumulative value of both amendments does not exceed the relative threshold value of the contract (the relative threshold value for a central government contract being £138,760, correct as of 2023), and

d. the modification is not substantial and does not materially change the scope of the contract (as the increase covers the same goods as the original contract).

Other modification grounds & below-threshold modifications: Below-threshold modifications can also be made on top of amendments made under other grounds. For example:

Scenario 4: Schedule 8 grounds + ‘below-threshold’ ground

A local authority contract for translation services, with a total original value of £800,000, is increased by £360,000 (45%) in year 2, due to unforeseeable circumstances. In year 3 a further modification of £69,600 (6% of the value of the contract immediately preceding the amendment) is made using the ‘below threshold’ modification ground.

Assuming all other conditions of the ground are met, this moification is permissible because:

a. the below-threshold modification can be made in addition to other amendments.

b. the value of modifications made under any of the Schedule 8 grounds does not count towards the 10 or 15% below-threshold modification value cap or cumulative total threshold value limit.

c. The contract term is not extended, and the scope is not materially changed, as the service provided is the same as the original contract.

Question 3

B. New Grounds for Contract Modification

Accepted Answer

1. Urgency and the Protection of Life (Schedule 8 (2-3))

Ground: Contracting authorities are permitted to modify a contract where the following conditions are met:

Paragraph 2(a): If the purpose of the modification (e.g. to respond to an emergency event) could otherwise be met by a direct award under section 41.

And, if either of the following justifications for a direct award apply.

Paragraph 2(b)(i): Extreme and unavoidable urgency (referencing schedule 5(13))
Paragraph 2(b)(ii): Direct award to protect life, etc (referencing section 42)

New provisions to better manage a direct award in the event of extreme and unavoidable urgency (schedule 5(13)) and to protect life etc (section 42) were introduced in Summary Document 3 - Procedures. This new modification ground recognises that amending an existing contract - where one is available, can meet requirements, and would not be breached by doing so - could represent a more agile and better value route to market than completing a new direct award.

The new modification ground in schedule 8(2-3) permits a contracting authority to modify an existing contract in the same circumstances that would apply to making a new directly awarded contract for the modification:

For extreme and unavoidable urgency (as per schedule 5(13))	For the protection of life (section 42) applies:
Provided that: • The goods, services or works are strictly necessary, due to extreme and unavoidable urgency, and - as a result - a competitive procurement is not possible. • The urgency is not attributable to, and could not have been foreseen by the contracting authority.	Provided that: • The contract could have been directly awarded under section 42. • The contract is of the type specified by the Minister of the Crown (e.g. in terms of the goods, works or services or conditions).

Any contract modification under this ground must:

Under section 41, be necessary as a direct consequence of the urgency. Be a genuine reflection of the circumstances, in terms of changes to costs, volumes etc.
For modifications made in reference to section 42 (the protection of life, etc), be made only to those contracts or types of contracts specified, and be in accordance with the regulations made under section 42 by a Minister of the Crown.

The direct award procedure, and grounds for urgency and the protection of life etc are covered in Summary Document 3 - Procedures.

2. Materialisation of a Known Risk (Schedule 8 (5-7))

Ground: Contracting authorities now have the ability to modify a contract based on the materialisation of a known risk, where the impact of that risk is unknown (often referred to as a “known unknown” risk), These types of risks, and how to correctly address them in a tender or transparency notice, are covered in Summary Document 3 - Procedures.

Known unknown risks are when it is possible to identify a potential risk prior to commencing a new procurement - a risk that could potentially jeopardise performance of the contract - but are unable to calculate the impact of that risk until it actually materialises during the contract.

In order to rely on this modification ground, certain information must be provided in the original tender or transparency notice for the contract (outlined in Schedule 8 (6)(b)):

The risk(s) must be identified as a risk which could jeopardise the satisfactory performance of the contact, but because of its nature, could not be addressed in the contact at the point it is awarded, and
It must be referenced that the possibility of a modification under the ‘Materialisation of a Known Risk’ ground may be required.

Assuming that the risk had been correctly provided for in the contract’s original tender or transparency notice, contracting authorities can make a modification to deal with the materialisation of a known risk if all of the following grounds are met:

A known risk has materialised (at no fault of the contracting authority or supplier).
Because of this, the contract cannot be performed to the contracting authority’s satisfaction.
Awarding a new contract to deal with the risk would not be in the public interest (e.g. it would not provide better value for money and/or could cause technical / operational issues)
The modification does not increase the estimated contract value by more than 50% (based on its estimated value immediately preceding the modification).^{[footnote 4]}
The modification goes no further than is needed to remedy the materialised risk.

Scenario

Summary Document 3 - Procedures introduced the scenario of the Hospital. Prior to commencing a procurement for a programme of building upgrade works, they conducted a site survey that flagged the potential risk of finding asbestos in the existing estate, which could not be confirmed or quantified until work commenced. The hospital identified this risk, and the possibility that a future modification may be required, as part of their tender notice.

The contract was awarded at a value of £7m. Three weeks after the works commenced, the supplier notified the hospital that they had discovered asbestos contamination in part of the building, and halted their works. The supplier estimated the additional cost to resolve the issue would be £300,000. The hospital obtained three other quotations, with the lowest cost being £285,000. However, arranging for a new supplier to come on site would cause significant operational issues and add further delay to the project.

The hospital considers that to award a new contract is not in the public interest in the circumstances and proceeds to modify the contract under the materialisation of a known risk ground (Schedule 8 (5-7))

The benefits of this new modification ground include:

Providing clarity on how to plan for and manage known/unknown risks.
Enabling the continued delivery of a contract that could otherwise be terminated.
Reducing the time, cost and operational impact of re-procuring the contract.
Avoiding situations where the contracting authority is stuck with a sub-optimal service.

3. Defence Authority Contracts (Schedule 8 (10-11)) - Two Grounds:

The Procurement Act 2023 introduces two new modification grounds that apply only to defence authority contracts, as set out in Schedule 8(10) and (11). These contracts are often complex and are required to allow flexibility to respond to threats or support the armed forces, so that the UK maintains operational advantage and reduces risk. The grounds permit contract modifications:

When necessary to take advantage of developments in technology, or to mitigate against any adverse effects of these developments,
To ensure the continuous supply of goods, works or services to maintain the operational capabilities, effectiveness, readiness for action, safety, security or logistical capabilities of the armed forces.

There are additional differences between the Procurement Act and DSPCR 2011.

See Summary Document: Defence & Security Contracts for information.

Question 4

2.2   Regulated Below-Threshold Modifications

Accepted Answer

The Procurement Act 2023 introduces new rules that enable contracting authorities to modify regulated below-threshold contracts where the modification would take the value of the contract above the relevant threshold. These are known as “convertible contracts”.

Note: Making a modification to a below-threshold contract is different from making a below-threshold modification.

A “Convertible contract” is a new term used to describe a contract that:

(Prior to modification) is below threshold (i.e. below the relevant threshold detailed in Schedule 1, e.g. below £139,688 for central government authority goods).
Was established in accordance with the rules surrounding regulated below-threshold contracts, as detailed in Part 6.
Will be above threshold (e.g. above £139,688 for central government authority goods) once a modification has taken place.

A modification to a convertible contract is only permitted using the same grounds that apply to above-threshold contracts, as detailed in the previous section. Once the modification has taken place, the modified contract will be a public contract and the full scope of the Act will apply to it (aside from the need to set key performance indicators), including the duty to:

Follow the contract modifications regime (section 74/ schedule 8).
Publish information about payments made under contracts (section 69).
Publish a contract termination notice, when the contract is ended (section 80).

Convertible Contract Scenario

A housing association procured a contract for a new security alarm system, at a total value of £200,000 over 4 years. The contract was procured as a regulated below-threshold contract.

In year 2 of the contract, additional equipment was required which, to ensure interoperability, had to be from the same supplier.

A modification is made to the contract under the ‘additional goods etc.’ ground, which increases the contract value by £75,000. This means that the contract value now exceeds the relevant threshold for service contracts, as outlined in Schedule 1 (being £214,904, correct as of January 2024) and as a result is now subject to the full scope of the Act.

Following this modification being made, the housing association redesigned the contract’s contract management strategy to take account of the additional duties that apply to contracts, including publication during the Manage phase of the procurement lifecycle, and requirements around contract termination.

This new provision adds flexibility for contracting authorities. It should not be used as a way to avoid the Act by procuring below-threshold contracts that contracting authorities reasonably expect will increase in value to above the relevant threshold.

Question 5

2.3  Transparency & Publication Requirements

Accepted Answer

There are three main changes to the publication requirements for contract modifications.

1. A contract change notice must be published before most modifications are made (with certain exemptions).

2. It is possible to observe a voluntary standstill period following the publication of a contract change notice before the modification is confirmed.

3. Where a contract change notice has been published and the modified contract is over £5m in value, a copy of the modified contract or a copy of the modification itself must also be published (with certain exemptions).

Contract Change Notices (Section 75 of the Act, and Regulation 40 of the Procurement Regulations 2024)^{[footnote 5]}

The contract change notice is designed to improve the availability and quality of information about how contracts evolve during their lifetimes.

A contract change notice sets out a contracting authority’s intention to modify a contract. It must be published:

Before the modification can take effect (section 75(1)).
Whenever a contract, framework or “convertible contract” is modified, subject to certain exemptions: see Summary Document 1 - Scope, Definitions and Principles.
For all modifications (regardless of value) under the ground ‘transfer on corporate restructuring’ (Schedule 8(9)).

The contract change notice must set out the details required in Regulation 40 of the Procurement Regulations 2024:

Details of the contracting authority, the contract, and supplier(s)
The modification ground being relied on
An explanation of why the modification meets that ground
Details of any change to the estimated contract value or contract term
Where the change is due to “transfer on corporate restructuring”, details of the new supplier(s)
The estimated dates when the contract will be modified and when that modification will take effect
Any other information you think is relevant
Whether a voluntary standstill period applies and, if so, the duration.

In addition to the organisations and special regime contracts that are exempt from publishing a contract change notice, additional exemptions from publication (that apply to all contracts and contracting authorities) include:

Modifications that increase or decrease the estimated contract value by 10% or less for goods and services, or by 15% or less for works.
Modifications that increase or decrease the term of a contract by 10% or less of the original maximum contract term provided for on award.

Contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded (modification ground Schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice^{[footnote 6]}.

Voluntary Standstill (Section 76)

When making a contract modification contracting authorities may wish to apply a voluntary standstill period. Applying a voluntary standstill period can reduce the risk, cost and disruption of the contract modification being set aside upon legal challenge.

If a voluntary standstill period is followed, then for this to be valid it must:

Be no less than 8 working days beginning with the day that the contract change notice is published.
Be included in the contract change notice (the intention to observe a standstill period, its duration and earliest date on which the modified contract will take effect).

If contracting authorities opt for a voluntary standstill, then a contract change notice must be published, because it is the contract change notice that formally triggers the start of the voluntary standstill period.

However, if a claim is notified to the contracting authority during the standstill period, automatic suspension will apply and contracting authorities will be unable to modify the contract until the claim has been resolved (or the suspension lifted by the court). Publishing a contract change notice as early as possible enables the voluntary standstill to pass in good time before the modification needs to be made.

The nature of the amendment (e.g. if the modification is urgent) may justify accepting the risk of the contract being set aside. Therefore, whilst a voluntary standstill period in the majority of cases is best practice, there may be other factors to consider; it is up to individual contracting authorities to make a risk-based decision when applying it or not.

Scenario 1:

A local authority is making an urgent modification to increase the value of a contract that supports frontline social services, as a result of unforeseeable circumstances. They are confident that the modification ground applies, and the risk of the contract being undeliverable outweighs the risk of challenge.

No standstill period is applied, and the modified contract is entered into after the contract change notice is published.

Scenario 2:

A central government department is modifying a high-value construction contract on the “materialisation of a known risk” ground. Although they are confident that the modification is compliant, they wish to avoid post-contractual remedies and proceed with the project with confidence.

An 8 working day standstill period is applied following publication of the contract change notice.

Publication of Modifications (Section 77)^{[footnote 7]}

Where a contract change notice is published, and the estimated value of the modified contract - including the value of the modification - is over £5m, this is known as a ‘qualifying modification’ a contracting authority need to publish either:

A copy of the contract as modified, or
The modification itself (e.g. where the contract has been modified by an addendum, or where the contract documents have already been published at an earlier stage (to avoid unnecessary duplication).

This must be published within 90 days of the modification being made.

Refer to the learning aids which include a flowchart, checklist and step-by-step guide to the contract modification process

3. Con tract Performance & Administration

Requirements to publish contract performance, contract payment and payments compliance notices will not come into effect at the same time as other transparency requirements - they will follow in later phases of the central digital platform development.

Poor performance in contracts is costly both for contracting authorities and taxpayers. The Procurement Act 2023 aims to improve the way that contract performance is managed and reported across the public sector, to improve transparency and help contracting authorities to be better equipped to address underperforming contracts.

What are the Main Changes?

The Procurement Act 2023 introduces requirements for contracting authorities to acquire, record and publish contract information throughout the “Manage” phase of the procurement lifecycle, including:

Contract performance data, in the form of key performance indicators (KPIs),
Information on poor supplier performance and breach of public contract, and
Information about payments made under public contracts.

What are the Benefits?

The objectives of introducing these changes include:

Short Term	Longer Term
• Improved in-house visibility of contract spend and supplier performance. • Better data to inform procurement and contract management strategies. • Earlier indicators of supplier or contract risk. • Strengthened supplier relationships that encourage collaboration and innovation. More detailed supply chain visibility. • Encouraging best-practice contract management across the public sector. • Increased understanding of how to design and measure Key Performance Indicators (KPIs).	• Improved quality, availability and consistency of public sector spend and performance data. • Increased opportunity for benchmarking and collaboration between contracting authorities. • Swifter identification of suppliers who may present a risk to contract performance. • Improved visibility of market performance to inform procurement strategies. • Increased public confidence in the capability and integrity of public sector procurement.

3.1 Contract Performance Reporting

The Procurement Act 2023 introduces new requirements surrounding contract and supplier performance. There are two different ways in which contracting authorities may need to share information about a supplier’s contract performance:

1. By providing data on a supplier’s KPI scores (for most contracts with a total value of £5m or more)^{[footnote 8]}; and

2. By reporting certain serious incidents of poor supplier performance, or breach of contract, as and when they occur (applicable to all contracts).

A. Key Performance Indicators

Setting KPIs (Section 52)^{[footnote 9]}

Before entering into a public contract with an estimated value of more than £5m, contracting authorities must set (in agreement with the supplier) at least three KPIs. These must be published as part of the contract details notice.

In the contract details notice, contracting authorities must provide details of:

The description of contract KPIs, and
The frequency with which these KPIs will be measured (with the minimum being once every 12 months).

Where the contract has an estimated value of more than £5m and KPIs were not set, the contract details notice must include an explanation as to why KPIs cannot be appropriately used to measure the performance of the contract.

Publishing KPI Data (Section 71(2))^{[footnote 10]}

At least once every 12 months (and more frequently, if provided for in the contract and contract details notice), the contracting authority must assess and then publish details of supplier performance against the set KPIs to the central digital platform using a contract performance notice.

For the purposes of collecting data for publication, this only needs to be data from the contracted supplier, and not for sub-contractors (even where suppliers have identified specific named sub-contractors in their tenders).

To enable consistency and ensure that data is comparable across contracts, the central digital platform will require KPI data to be published using the same standardised rating system:

Good: Performance is meeting or exceeding the key performance indicators
Approaching target: Performance is close to meeting the key performance indicators
Requires improvement: Performance is below the key performance indicators
Inadequate: Performance is significantly below the key performance indicators
Other: Where performance cannot be described as good, approaching target, requires improvement or inadequate.

“Other” may apply to a reporting period, for example, where an element of the contract cannot be reported on, or no KPI data is available, or where relevant service delivery has not taken place.

Where an alternative scoring methodology is used for assessing a contract’s KPIs, then it is important to think about how this methodology will align with this standardised rating system. Contracting authorities should consider including this within their contracts, allowing scores to be converted more easily for publication to the central digital platform.

Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies must continue to adhere to the Cabinet Office’s Commercial Playbooks and associated guidance, publishing KPI data for bronze, silver and gold contracts as set out by the Cabinet Office.

Amending KPIs

Changing one or more KPIs for reporting purposes: As contracts mature and are modified, one or more KPIs - for which performance data is published - may become obsolete and no longer scored. Where the contract allows it, it is best practice to nominate a new KPI (in agreement with the supplier), and to include details of this in the next contract performance notice published. However, you will still be obliged to report on the original KPIs with an “other” grading.

Modifying one or more contract KPIs: Where there are any changes to what is measured by an existing KPI, or to the scoring criteria for measurement, then details must be provided as part of the next contract performance notice.

Changing contract KPIs does not necessarily constitute a contract modification in its own right. Contracting authorities would also need to consider if the change results in other changes to the contract - such as price, contract duration or the economic balance. Contracting authorities must consult section 74 of the Procurement Act 2023 (modifying a public contract) to determine whether the amendment is permitted, and what actions are required.

Circumstances Where KPIs are Not Required

Certain organisations and contracts are exempt from the requirements to set, assess and publish KPI information, as detailed in the guidance for special regimes. Frameworks are also exempt, however contracts awarded under frameworks and dynamic markets are not exempt.

In addition, requirements do not apply if, in accordance with section 52(2), a contracting authority considers that the supplier’s performance under the contract could not appropriately be assessed by reference to KPIs. This is not designed to provide a blanket exemption for publication, but may be applicable in situations such as:

Contracts for a one-off purchase, where ongoing measurement is not applicable, and short-term performance should be based on delivery within the contract terms.
Contracts where the complexity of the deliverables cannot be clearly expressed in a specific, measurable, achievable, realistic and time-bound (SMART) target.
Where the data collected and / or published could have implications for national security - for example, by revealing sensitive information.

B. Poor Performance & Breach of Contract

In certain situations where a supplier breaches a public contract, or fails to satisfactorily perform a public contract, the contracting authority must report this by publishing details in a contract performance notice^{[footnote 11]}. These provisions are intended to capture the most serious and persistent performance failures.

As detailed in section 71 of the Procurement Act 2023 (assessment of contract performance), the following incidents are a trigger for contracting authorities to publish a contract performance notice:

71 (3)

a. a supplier has breached a public contract, and

b. the breach results in

(i) termination (or partial termination) of the contract,
(ii) the award of damages, or
(iii) a settlement agreement between the supplier and the contracting authority.

71 (4) A contracting authority considers that a supplier

a. is not performing a public contract to the authority’s satisfaction,

b. has been given proper opportunity to improve performance, and

c. has failed to do so.

Where a breach or failure to perform leads to full termination and this event is the first to occur, a contract termination notice is published instead.

Poor Performance & Exclusion Grounds

In the Procurement Act, the same definitions of breach and poor performance are given in section 71(3) and (4) (assessment of contract performance) and in the discretionary exclusion grounds set out in schedule 7, paragraph 12 (breach of contract and poor performance).

It is therefore important that the contracting authority reports poor performance by publishing a contract performance notice (or contract termination notice where relevant), within 30 days of the first trigger event outlined above occurring, as it provides other contracting authorities with an objective piece of evidence that may be used when assessing if any of the exclusion grounds in schedule 7, paragraph 12 apply to a supplier. The details provided in the contract performance notice (or contract termination notice where relevant) may also assist that contracting authority in exercising their discretion when deciding whether to exclude the supplier.

Because publishing a contract performance notice (or contract termination notice where relevant) could result in a supplier being excluded from a future procurement, contracting authorities must ensure that they provide accurate information.

More information on exclusions can be found in Summary Document 6.

Breach of Contract and Poor Performance

From a contracting authority’s perspective, breach of contract is where the supplier fails to meet the terms and conditions of the contract agreed between both parties. Examples may include:

Failure to deliver the goods, services or works to the required specification or on time.
Failure to adhere to a condition of the contract, such as mismanaging sensitive authority information.

However, for the breach to be sufficiently serious to trigger publication of a contract performance notice (or contract termination notice where relevant), the breach must result in one or more of the following:

partial contract termination,
the award of damages, or
a settlement agreement between the supplier and the contracting authority.

Where a breach or failure to perform leads to full termination and this event is the first to occur, a contract termination notice is published instead.

Poor contract performance is where the supplier fails to meet the obligations set out in the contract to the authority’s satisfaction, has been given a proper opportunity to improve performance and has failed to do so.

Examples of failing to meet the obligations set out in the contract may include:

Repeated failure to meet one or more KPIs over a period as set out in the contract (e.g. where a KPI is measured monthly, this may be 3 consecutive months, or 3 out of 6 months, etc.)
Failure to adhere to a core contract term, such as the requirement to hold insurance.
Failure to deliver goods, services or works to the required standard.

KPIs provide an objective way of measuring a supplier’s performance against their contractual obligations, and a clear indication of where these obligations are not being met. Low KPI scores can be used as a mechanism to “trigger” contractual improvement measures.

For poor performance to trigger publication of a contract performance notice, the supplier must have been given proper opportunity to improve performance (but subsequently failed to do so). This would typically be by exercising a contractual measure designed to manage poor performance, such as a rectification, improvement, or performance management plan, or similar. This would usually set out:

Details of performance issues / areas for improvement, with corresponding evidence.
The improvements required and associated timescales.
Actions the supplier must take, and required targets or outputs.
Clear deadlines for meeting these requirements.
Consequences for failing to do so.

Alongside KPIs, it is important to agree and document the definition(s) of poor performance, the escalation process for managing poor performance, and the contractual measures that can be put in place to rectify poor performance.It is important to document incidents of supplier poor performance, agreed remedial actions, and adherence to these action plans, so that details of any poor performance and failures to improve performance can be published in the contract performance notice.

It is essential that the information included in a contract performance notice (or contract termination notice where relevant) is accurate and provides the fullest possible picture of the breach / poor performance and surrounding context. Contracting authorities could be liable for breach of statutory duty should a supplier suffer (or is at risk of suffering) loss or damage due to false or inaccurate information being published in a contract performance notice, if this leads to them being excluded from a procurement.

C. Contract Performance Notices & the Contract Performance Register

Contract Performance Notices

As previously mentioned, the requirement to publish contract performance information will apply at a later phase. From this point onwards, data on contract KPIs and poor supplier performance must both be published to the central digital platform using a contract performance notice. The contract performance notice has two separate parts, to cover the following two separate purposes:

Part 1 - KPIs: Details of supplier performance against a minimum of three KPIs. Mandatory for public contracts over £5m, unless an exemption applies. Must be published at least once every 12 months, but can be published more frequently if KPIs are measured more often.

Part 2 - Poor Performance / Breach of Contract: To report serious incidents of poor supplier performance or breach of public contracts. Mandatory for almost all contracts. Must be published within 30 days of a poor performance / breach event.

To note:

Where poor performance / breach of contract leads to the partial termination of a contract, a contract performance notice should be published.
Where poor performance / breach of contract leads to full termination of the contract, a contract termination notice should be published instead.

For publication either to report KPI scores or breach/poor performance, contract performance notices must include, as a minimum (amongst other things):

Contracting authority name(s), procurement information and unique identification reference(s) for all buying organisations involved in the contract.
Supplier name(s), contact information and unique identification reference(s) for all suppliers involved in committing the breach or poor performance.
Contract details: name(s) and unique contract identification reference(s) for the contract being reported on.

Contract Performance Notices for KPI Publication

In addition to the above, contract performance notices reporting KPI scores must include, as a minimum (amongst other things):

The time period for which the assessment applies.
The KPI scores (using the rating scheme, detailed above) for each of the KPIs being assessed.

For KPI purposes, one single contract performance notice may be used to cover one single contract that has multiple suppliers and/or lots.

Contract Performance Notices for Breach or Poor Performance

In addition to the above (excluding the previous two bullet points on KPI publication), contract performance notices reporting poor performance or a breach of contract must include, as a minimum (amongst other things):

Confirmation that section 71(5) applies.
Indication of whether the notice is being issued due to contract breach or poor performance. Contracting authorities must specify whether the notice results from:

- One (or more) of the three scenarios Contract Performance Notices for Breach or Poor Performance Occurring as a result of contract breach, as set out in 71(3), or

- From poor performance, as set out in 71(4).

A narrative description of the nature of the breach or performance failure, including:

- The contract requirement / obligation breached or not being performed.

- Any steps taken by the supplier to mitigate the impact of the breach or failure to perform.

- The steps taken by the contracting authority to notify the supplier that they are in breach or failing to perform, demonstrating that proper opportunity was given for the supplier to improve (where applicable).

- Where partial termination has occurred, a description of what parts of the contract have been terminated.

Where there has been an award of damages:

- Details of the damages awarded and the basis on which they were awarded.

- A link to any related court judgement(s).

The date of publication must be no more than 30 days from the date that the first trigger event takes place. This means that the clock starts from whichever of the following events is the first to occur as a result of the breach of failure to perform:

Partial termination;
Award of damages;
Settlement agreement agreed between the CA and the supplier; or
Supplier failure to improve performance.

Contract Performance Register

The contract performance register will be introduced in a later phase of the central digital platform development. The ambition is to create a single location in which contracting authorities can view data relating to the performance of public sector contracts. The register should be freely available to all contracting authorities and other interested parties within the general public.

The objectives of the contract performance register include:

Providing data in a single, uniform format.
Increasing the availability and visibility of contract performance data.
Improving accountability for contract performance.
Helping to identify key risks and issues within a particular marketplace.
Influencing the design of a procurement process.

3.2 Contract Payment Reporting (Information about payments under public contracts: Section 70)

The Procurement Act 2023 aims to better leverage the power of public-sector spending and to increase transparency by making it easier for contracting authorities, suppliers and the general public to track contract expenditure, improve efficiency and reduce waste. To achieve this, the Act will require contracting authorities to publish information about individual payments of more than £30,000 made by the authority under a public contract, on a quarterly basis^{[footnote 12]}.

As previously mentioned, the requirement to publish this information will not come into effect at the same time as other transparency requirements - they will follow in later phases of the central digital platform development once further secondary legislation has been made.

Existing arrangements for the publication of spend data, such as those that apply under the Local Government Transparency Code, remain in place until otherwise stated.

What Can I do to Prepare?

The exact provisions for publication of payment information will be subject to further consultation, however, the following principles are expected to apply:

Data is not required to be published where information relating to the award of the contract has been withheld from publication for a legitimate reason, as identified in section 94 of the Act (safeguarding sensitive commercial data or national security).
Care must be taken, in the publication of data, not to disclose information that contravenes data protection legislation.
It is good practice to include, within tender or contract documentation, details of the responsibilities a contracting authority has to publish such information, to ensure suppliers are fully appraised of these obligations.
Contracting authorities are responsible for ensuring that data is accurate, and published in a timely manner.
Contracting authorities may wish to put in place a robust review process to safeguard against the publication of inaccurate or sensitive data.

3.3 Contract Administration & Prompt Payment

The Procurement Act 2023 contains a number of implied terms relating to the administration of contracts.

An “implied term” is a legally-binding contract term that hasn’t been expressly agreed by any parties to a contract, but which is implied into the contract by, for example, legislation. The terms implied into contracts by the Procurement Act that relate to payment and termination, subject to certain exemptions, are:

Electronic invoicing: Section 67 of the Act requires contracting authorities to accept (non-disputed) electronic invoices, which is a feature of the previous regime.

Implied payment terms in contracts^{[footnote 13]}:

Change: The PCR 2015 regulation 113(2)(a) requires invoices to be paid within 30 days of it being “regarded as” valid and undisputed, which is implied into public contracts under regulation 113(6)(a). Section 68 of the Act implies 30-day payment terms into most public contracts. Contracting authorities must pay valid, non-disputed invoices within 30 days of receipt.

Benefit: This change means that the default timescale in which the invoice must be paid is 30 days from receipt, rather than from validation (provided the invoice is not disputed on receipt). This should ensure swifter payments for suppliers.

Implied payment terms in sub-contracts^{[footnote 14]}:

Change: Section 73 of the Act extends implied 30-day payment terms into public sub-contracts that mean suppliers must pay valid, non-disputed invoices from members of their contract supply chain within 30 days of receipt.

Benefit: The extension of implied terms to include sub-contractor payments by default, rather than contracting authorities only being able to require an express provision in the sub-contracts to stipulate it, ensures that 30-day supply chain payment terms are now implied directly into all public sub-contracts.

Implied right to terminate a contract

See Contract Termination, below

Change: The PCR 2015 included implied terms for terminating a contract due to a contract being subject to a substantial modification which would have required a new procurement procedure, or a supplier being subject to an exclusion ground. Section 78 of the Act builds on the right to terminate in the PCR 2015, including an implied right to terminate a public contract where the contract has been awarded or modified in material breach of the provisions in the Act. It also includes the implied right to terminate a contract where the supplier or sub-contractor is an excluded or excludable supplier.

Benefit: The extension of implied terms to include sub-contractor terminations by default will reduce the burden on contracting authorities to have an express provision in their contracts. The wording and process that must be followed in terminating a contract under section 78 is clearer, giving contracting authorities more certainty.

Regulated below-threshold contracts: Implied payment terms

Change: Section 88 Implies 30-day payment terms into regulated below-threshold contracts, which is a new provision that did not exist in the previous regime.

Benefit. This new provision means that a requirement to pay invoices within 30 days is implied into all regulated below-threshold contracts, reducing the burden on contracting authorities and increasing prompt payment to a greater number of suppliers.

Prompt Payment

The late payment of invoices has historically been an issue for many UK businesses, particularly for SMEs and VCSEs. It can have a damaging impact on suppliers and supply chains, affect cash flow management, sub-contractor and staff payments, and plans for business growth.

The Act aims to strengthen the rules surrounding late and unfair payment practice in public sector contracts by:

Implying, by default, 30-day payment terms for valid and undisputed invoices into public and regulated below-threshold contracts, with some exemptions.
Extending this provision to cover payments made under contracts by suppliers to all sub-contractors in the public supply chain, ensuring that 30-day payment terms flow through supply chains by default.
Increasing the scope of these payment provisions to public utilities and defence.

This diagram shows the intended flowthrough of 30-day payment terms within supply chains:

Suppliers and sub-contractors within the supply chain are entitled to receive late payment interest wherever they are not paid within 30 days, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998.

Publication of Payment Performance Data (Section 69)

Under the previous regulations (PCR 2015 113(7)), contracting authorities were required to publish information online, annually, about their compliance with 30-day payment terms.

Under the Procurement Act, this is done by publishing a payments compliance notice^{[footnote 15]} to the central digital platform. Its purpose is to enhance transparency surrounding how quickly the public sector pays its suppliers, incentivise faster payments taking place, and align the public sector with current private sector reporting standards.

As previously mentioned, the transparency provision will have a separate commencement date - until then implemented, contracting authorities can continue to publish this information online as they do currently.

The key differences between PCR 2015 and the Act are:

Data must be published every six months (within 30 days of the reporting period ending), rather than annually.
Additional data is required, including average number of days taken to make payments and percentage of payments not made in the reporting period. Late payment interest liability statistics have been removed.
Data must be formally approved by a finance director (or equivalent).

Contracting authorities should work closely with the organisation’s Finance team to manage any change from current practices.

4. Contract Termination

The Procurement Act sets out three key provisions on contract termination.

Implied right to terminate public contracts (section 78): which implies a termination clause into every contract which was required to be included (or was implied) in most contracts under the previous regime.
Terminating public contracts: National security (section 79): a specific requirement for terminating contracts on grounds of national security.
Contract termination notices (section 80): A second new provision that requires contracting authorities to publish a contract termination notice on termination of a contract (subject to exemptions).

These provisions apply to the termination of public contracts procured under the Procurement Act 2023 only.

The Act does not intend to prescribe all circumstances under which contracting authorities can terminate a contract, but the changes are designed to improve clarity, certainty and transparency for contracting authorities, suppliers and the public on the subject of contract termination.

4.1 Terminating a Contract

Implied Terms for Contract Termination

Section 78 implies a term into every public contract allowing for the contracting authority to terminate the public contract in the event that one of the following grounds applies:

78(2) a) where the contracting authority considers that the contract was awarded or modified in breach of the Act or the SIs;

78(2) (b) where a supplier (or associated person) has, since the award of the contract, become excluded or excludable;

78(2) (c) where a sub-contractor has become excluded or excludable.

Definitions for associated suppliers and excluded/excludable suppliers can be found in Summary Document 6.

Termination for Excluded or Excludable Suppliers

As part of the contract management strategy it is good practice to regularly review whether suppliers are stated as excluded or excludable suppliers.

If a supplier appears on the debarment list for a mandatory exclusion ground or a discretionary exclusion ground, or a contracting authority finds that - following a review of the supplier’s circumstances - they should now be classified as an excluded supplier, then the contract can be terminated under the term implied by section 78.

If this same review process shows that the supplier should now be classified as an excludable supplier and a discretionary ground applies, then the contract can be terminated under the term implied by section 78.

Terminating a Contract

If one of grounds 78(2)(a)-(c) apply, then certain steps must be taken prior to terminating the contract:

Give the supplier notice of the intention to terminate the contract.
Specify the relevant ground (78(2)(a)-(c)) that applies and why the authority has decided to terminate the contract.
Give the supplier a reasonable opportunity to respond to the decision to terminate, and make representations about whether they believe the termination ground applies.
Where termination is on the grounds of a sub-contractor being excluded or excludable, give the lead supplier reasonable opportunity to cease their arrangements and, if necessary, replace them with an alternative provider.
The terms of the relevant contract will also need to be followed in order to terminate the contract.

Sub-contractors

To terminate a contract on the ground that a sub-contractor is an excluded or excludable supplier (78(2)(c)), contracting authorities must have requested information about the lead supplier’s sub-contractors as part of the original procurement process (as detailed under section 28 of the Act), and either:

1. Have not been made aware of the supplier’s intention to sub-contract some or all of the contract performance, or

2. Sought to determine whether the sub-contractor in question was excluded or excludable (including where the sub-contractor is on the debarment list) prior to contract award and did not know this was the case.

If the requirements for termination are met, the contracting authority should consider the supplier’s representations in its decision whether to terminate the contract. Subject to these representations or if the supplier is unable to replace an excluded or excludable sub-contractor, the contracting authority can proceed with the implied right to terminate the contract under section 78, subject to any other terms of the contract..

Termination on the Grounds of National Security

In addition to the steps listed above, if a contracting authority intends to use section 78 to terminate a contract on the grounds of national security (on the basis that the discretionary exclusion ground applies listed in paragraph 14 of Schedule 7), they must first obtain approval from the relevant Minister of the Crown under the process set out by the National Security Unit for Procurement in the Cabinet Office.

If a contracting authority intends to use section 78 to terminate a contract on the grounds of national security (on the basis that the mandatory exclusion ground applies listed in paragraph 35 of Schedule 6), they must first notify the relevant Minister of the Crown of their intention under the process set out by the National Security Unit for Procurement in the Cabinet Office.

Other Types of Termination

Other types of contract termination include, but are not limited to:

Expiry	Where the contract has reached its end date (including any extensions).
Discharge by Performance	Where the contract obligations / deliverables are fulfilled, payments made and any disputes settled.
Early Termination for Breach	Where one or more parties are found to be in breach of contract.
Termination by a Party	Where either party exercises a contractual or implied legal right to end the contract.
Termination by Mutual Consent	Where both parties agree to end the contract.
Rescission	Where the contract is reversed and its parties restored to the position they were in before the contract was signed.
Set Aside by Court Order	Where the contract is declared to be invalid by a legal judgement.
Breach of the Act / Regulations	Where the contracting authority considers that the contract was awarded or modified in material breach of the Act or regulations.
Contract Frustrated	Where unforeseeable circumstances make performance of the contract impossible.

Termination: Express Conditions of Contract

It is not possible to include an express contract clause in a public contract that overrides or restricts the provisions of these implied terms, as set out above, However, as the Act states, a contract may contain provision about restitution and other matters alongside the terms implied by the Procurement Act 2023.

It is good practice to include clear and unambiguous terms within the contracts that outline:

The steps to be taken in the event of a breach of contract or poor supplier performance (to avoid dispute should the event arise during contract delivery).
Additional terms under which the contracting authority or supplier may exercise a contractual right to terminate the contract early, and any associated notice period(s).
Any compensation that may be associated with early termination (to protect the supplier’s position).

Contracting authorities should consider having a clear contractual term that covers what sums are payable on termination, either for goods or services provided or by way of compensation in the event of termination by any means - including by the terms implied by the Procurement Act 2023.

Termination in Accordance with the Act

Whilst it is important to have flexibility when considering the termination of a contract, it is also important to ensure that contracting authorities act in good faith with respect to their contracted suppliers.

Contracting authorities should not terminate a contract, in whole or in part, in a way that seeks to circumvent the Procurement Act 2023 or Regulations, to avoid compliance with any other relevant law, or to avoid international obligations. Terminations must be fully compliant with the Procurement Act 2023 and the objectives set out therein.

When terminating a contract, contracting authorities should keep records around the decisions made and actions taken.

4.2 Contract Termination Notices

Contract termination notices^{[footnote 16]} are a new provision aimed at improving transparency surrounding when and why contracts are terminated.

A contract termination notice communicates to the marketplace that a contract has ended - including the reasons why it has ended. The contract termination notice must be published within 30 days of the contract ending, and is published on the central digital platform (using an eSender where relevant).

Where multiple contracts have been awarded through one procurement process (e.g. multiple lots to different suppliers), a single contract termination notice may be used to confirm termination, where applicable. Where KPIs are measured and published, a final assessment should be completed and a contract performance notice published in addition to the termination notice.

Alongside standard information about the contracting authority, supplier and contract, contract termination notices must include:

The reasons for termination
The date of termination
Whether the termination is a result of a breach of contract
The estimated value of the public contract, at the time of expiry

Termination on the Basis of Supplier Performance

As discussed earlier, a contract may contain termination rights for poor performance etc. If the contract is terminated in full, for either reason, then a contract termination notice must be published (rather than a contract performance notice) including details of the reasons for termination. For partial termination, a contract performance notice should be published, and a contract termination notice is not required.

This is to ensure that there is a clear public record of where contracts are being terminated due to breach of contract and poor performance. Using a contract termination notice instead of a contract performance notice means that contracting authorities can avoid having to publish two separate notices that are essentially telling the market the same information.

A contract termination notice must be published within 30 days of termination taking place.

Remedies

Failure to comply with the requirements set out in Parts 3, 4, 6 and 8 may be a breach of statutory duty, leading to contracting authorities being challenged under Part 9 (Remedies for breach of statutory duty).

65. Key performance indicators: Fact sheet

This fact sheet provides an overview of key performance indicators (KPIs) as they apply under the Procurement Act 2023, including your responsibilities to set, assess and publish data.

What are KPIs?

Key performance indicators are contractual targets against which a supplier’s contract delivery can be measured. They should be designed around the most important contract deliverables. They must clearly link to the wider contract objectives and should also include minimum satisfactory standards and performance escalation protocols, should these not be met.

In some cases, a KPI could be something that you are already monitoring by default - e.g through internal service audits or quality assessments - or something that your supplier is already providing you with data for, e.g. through management information.

KPIs can be a useful and objective tool for measuring a supplier’s performance against contractual obligations. Low scores can be used as a mechanism to trigger contract improvement measures, and to signpost you towards the performance areas that are in need of change.

Do I need to set KPIs?

Prior to the Procurement Act 2023, central government departments, their executive agencies and non-departmental public bodies had to adhere to requirements to publish KPIs as indicated by the Cabinet Office ‘Commercial Playbooks’ (Sourcing, Consultancy, Construction and Digital Playbooks). Under section 52 of the act this requirement is extended to include most public sector contracting authorities:

Before entering into a contract with a total estimated value of more than £5m, you must set (in agreement with the supplier) at least three key performance indicators. You then need to publish the three most appropriate KPIs as part of the contract details notice.

Once set, you must assess and publish information about the supplier’s performance against these three KPIs on at least an annual basis for the remainder of the contract. See appendix 1: KPI flowchart for the end-to-end process.

Exemptions to KPI publication

Certain contracts are exempt from the requirements to set, assess and publish KPI information:

utilities contracts awarded by a private utility
concession contracts
light touch contracts
establishing a framework (however, contracts awarded under a framework are not exempt)
dynamic markets (however, contracts awarded under a dynamic market are not exempt)

Even if you are not obligated to publish KPIs you may still wish to set these in your contract as a means of monitoring supplier performance and as part of performance improvement planning. See fact sheet: supplier breach and poor performance.

In addition, you are not required to set KPIs if, in accordance with section 52(2), you consider that the supplier’s performance could not appropriately be assessed by them. For example:

contracts for a one-off purchase
contracts where the complexity of the deliverables cannot be clearly expressed in a specific, measurable, achievable, realistic and time-bound (SMART) target.
where the data collected and / or published could represent a risk to national security.

What KPIs might be suitable for my contract?

KPIs should be designed based on what aspects of contract performance are the most important to its success. They should be specific, measurable, achievable, realistic and timebound, including:

1. a clear and realistic target linked to one or more contract objectives

2. a scoring mechanism to determine the supplier’s performance under that KPI, and

3. a “minimum score” that, if not met, could trigger performance improvement measures.

Examples:

Contract objective	KPI	Target score	Frequency measured	Minimum score
Maintain buildings so that no safety risk is presented	% critical health and safety repairs completed monthly	100%	Monthly	95%
On-time delivery of business-critical goods	% deliveries made on time and in full	95%	Weekly	90%
Swift response to security issues at a sensitive site	% urgent call-outs attended within 30 minutes	98%	Quarterly	95%
Delivery of services that meet the needs of service users	% of users rating the service as “good” or “outstanding”	90%	Monthly	80%

Equally, there are KPIs that may add little value to your contract and actually cause additional cost instead. Suppliers may raise their tender prices to “price in the risk” of failing to meet KPIs, or to cover the additional work needed to gather and present performance data. Increased internal costs may also be incurred.

Assessing KPIs

To enable consistency and ensure that data is comparable across contracts, the central digital platform will require KPI data to be published using the following standardised rating system: Good:

Performance is meeting or exceeding the key performance indicators
Approaching target: Performance is close to meeting the key performance indicators
Requires improvement: Performance is below the key performance indicators
Inadequate: Performance is significantly below the key performance indicators
Other: Where performance cannot be described as good, approaching target, requires improvement or inadequate (e.g. where no data is available or where relevant service delivery has not taken place).

Where an alternative scoring methodology is used for assessing KPIs, then it is important to think about how you can align your methodology with this standard system. See appendix 2 for an example of how this could look.

You must ensure that suppliers understand what is being measured, when, how and against what scoring system.

Publishing KPI data (section 71(2))

At least once every 12 months (but more frequently, if provided for in the contract), you must assess and publish details of supplier performance against your contract’s three main KPIs. You do this by publishing a contract performance notice to the central digital platform. Only the lead supplier should be assessed and reported on, not their subcontractor(s).

It is good practice to discuss and agree scores with your supplier(s) before publication, but no supplier has the ability to block publication or amend an assessment.

The contract performance notice has two functions. The first is to publish KPI assessment data to the central platform; the second, separate function is to report on breach of contract or supplier poor performance (as detailed in fact sheet: supplier breach and poor performance).

Amending KPIs

Changing one or more KPIs for reporting: If one or more contract KPIs become obsolete and no longer measured, then - where the contract allows it - it is best practice to nominate a different KPI to be published (in agreement with the supplier) and to include details of this in the next contract performance notice published.

However, you will still be obliged to report on the original KPIs, even if this means just submitting a nil return.

Modifying one or more contract KPIs: Where there are any changes to what is measured by an existing KPI, or to the scoring criteria used for measurement, then details must be provided as part of the next contract performance notice.

Changing contract KPIs would not usually constitute a contract modification in its own right, but if it results in other changes to the contract - such as price, contract duration or the economic balance - then contracting authorities must consult section 74 of the act (modifying a contract) to determine whether the amendment is permitted, and what actions are required.

Appendix 1: mapping standardised scores to KPIs

Mapping the % scores awarded to a supplier against the standardised Cabinet Office rating system for reporting KPI performance (example):

KPI	Good	Approaching target	Requires Improvement	Inadequate
% critical health and safety repairs completed monthly	100%	98 to 99%	96 to 97%	95%
% deliveries made on time and in full	95%	93 to 94%	91 to 92%	90%
% urgent call-outs attended within 30 mins	98%	97%	96%	95%
% of users rating the service as “good” or “outstanding”	90%	88 to 89%	81 to 87%	80%

Note that ‘inadequate’ would typically be the minimum % score that you would accept, and the trigger point for performance improvement mechanisms.

Appendix 2: process flowchart for setting, monitoring and measuring KPIs

66. Implied terms: Fact sheet

What are implied terms?

An implied term is a contract term that has not been expressly agreed by any of the contracting parties, but which is implied into the contract by virtue of its existence in law.

This is different from terms that are expressly agreed into contracts by all parties. The Procurement Act contains a number of implied terms designed to set out the rights and obligations of contracting authorities and/or suppliers in their delivery of public contracts.

How do they work?

An implied term can be legally relied on by parties to the contract. They cannot be removed from a contract, restricted or overwritten by an express term. Therefore, it is important for you (and your suppliers) to understand that these terms will be a feature of the public contracts you award under the Procurement Act.

The Public Contracts Regulations (PCR 2015) and their counterparts already implied several terms into the contracts that were made under them. The Procurement Act retains these terms, but also extends their scope into several new areas.

Section	Implied terms in the Procurement Act	Exemption(s)
Section 48	Frameworks Gives contracting authorities the right to exclude a supplier that is, or has become, an excluded or excludable supplier since the award of the framework, from participating in any further competitions.	N/A
Section 67	E-invoicing Requires contracting authorities to accept and process for payment any valid, non-disputed electronic invoices.	N/A
Section 68	Implied payment terms in public contracts Implies 30-day payment terms into most public contracts. Contracting authorities must pay valid, non-disputed invoices within 30 days of receipt.	Concession contracts. Contracts awarded by a private utility or by a school.
Sections 73	Implied payment terms in sub-contracts Extends implied 30-day payment terms into public sub-contracts: suppliers must pay valid, non-disputed invoices from members of their contract supply chain within 30 days of receipt.	Concession contracts. Contracts awarded by a private utility or by a school.
Section 78	Implied right to terminate a public contract Gives the contracting authorities the right to terminate the contract if one of the following termination grounds apply: • the contract was awarded or modified in breach of the act • a supplier has become excluded or excludable • a subcontractor has become excluded or excludable	N/A
Section 88	Regulated below-threshold contracts: implied payment terms New provision that implies 30-day payment terms into regulated below-threshold contracts. Contracting authorities must pay valid, non-disputed invoices within 30 days of receipt.	N/A

67. Supplier poor performance and breach of contract: Fact sheet

This fact sheet is designed to provide an overview of how poor supplier performance and breach of contract are managed under the Procurement Act 2023, steps you may take if a supplier is not performing against its contractual terms, and the associated transparency requirements.

What are breach and poor performance?

The act has introduced performance measures that are intended to capture - and protect contracting authorities from - the most serious and persistent failures in contract delivery.

Breach of contract

This is where a supplier fails to meet one or more key terms agreed on contract award, which is generally serious enough (or ‘material’) so that the contract cannot be delivered as agreed. The act requires a breach to be “sufficiently serious” for performance measures to apply, which it outlines in section 71(3) as being a breach that results in:

full or partial contract termination
the award of damages
a settlement agreement

Poor performance

This is a failure to deliver aspects of the contract to the contracting authority’s satisfaction, taking into account the frequency, duration and impact on contract delivery. Serious and persistent failings are those that are repeated, or cause the most disruption to the contract. Section 71(4) of the act states that performance measures apply where:

the supplier is not performing the contract to the contracting authority’s satisfaction
has been given proper opportunity to improve performance and
has failed to do so

Poor performance examples:

failure to meet one or more KPIs over a period exceeding 3 months
poor feedback from service users (where this is integral to contract performance)
poor account management service, meaning a frequent need to escalate issues

Breach of contract examples:

refusing to deliver contractual obligations
non-compliance with a key contract term, such as the renewal of an insurance policy
failure to adhere to a joint investment agreement linked to contract delivery

How does the act help to manage poor performance?

Contract performance notice (Section 71(5))

Section 71 sets out that you must publish a contract performance notice in the event of breach of contract and / or poor performance in a contract (private utilities and light touch contracts are exempt from this publication requirement). This is alongside the need to set, assess and report on KPI scores (see fact sheet: KPIs for more details). In addition to increasing transparency around contract performance, the notice should also increase accountability and visibility, which should act as a deterrent towards poor performance.

Poor performance and KPIs

KPIs are mandatory under the act for certain contracts over £5m. They can be a useful and objective tool in any contract for measuring a supplier’s performance, identifying any gaps between contractual obligations and actual delivery. Low scores can also be used as a mechanism to trigger contract improvement measures, and can signpost you towards the performance areas that are in need of change. It is important to note poor performance or breach of contract can relate to any contractual requirement, not just the KPIs agreed for publication.

Actions in the event of poor performance

Section 71(5) of the Procurement Act instructs that a contract performance notice must be published in the event of supplier breach or poor performance.

In the event of poor performance, however, you must first provide the supplier with “proper opportunity” to improve their performance. These must be contractual measures that may take the form of an improvement or performance management plan, or similar, and set out:

details of performance issues / areas for improvement, with corresponding evidence
the improvements required and associated timescales
actions the supplier must take, and required targets or outputs
clear deadlines for meeting these requirements
consequences for failing to do so (e.g. part termination of certain services, and the publication of a contract performance notice) the supplier’s express agreement to these terms

To ensure this ground can be easily relied upon, contracting authorities should ensure that they include, within their contracts, clear “trigger events” (i.e. the circumstances that would constitute poor performance or breach of contract) and set contractual measures that will be applied in the event of poor performance.

Transparency requirements

In the event of supplier breach of contract or poor performance, a contract performance notice must be published within 30 days of the event taking place.

Contract termination

If the breach / poor performance results in the termination of the contract in full, then a contract termination notice should be completed instead of a contract performance notice.

Partial termination of a contract

If the breach / poor performance results partial termination of a contract e.g. service elements and their proportionate costs being withdrawn from the contract and where the contract term and / or value of the whole contract decreases (or increases) information about the amendment should be included in the contract performance notice.

Breach / poor performance and the exclusion grounds

The same definitions of breach and poor performance are given in section 71(3) and (4) as they are for the discretionary exclusion ground set out in schedule 7(12) (breach of contract and poor performance). It is therefore important that you complete a contract performance notice to report when breach or poor performance has occurred, and ensure the information provided is accurate and provides the fullest picture possible of the issue(s).

How can I improve performance management?

Agree KPIs with your supplier regardless of the contract value and measure these regularly to help identify potential issues at an early stage.

Set clear performance expectations through the tender notice, documents and contract.

Agree in the contract escalation, performance improvement or similar measures in the event of poor performance. Define in the contract what the “trigger point” is for poor performance.

68. Supplier poor performance and breach of contract: Flowchart

Appendix 1: exemptions from publication

This table lists the organisations and contracts that are exempt from publishing one or more of the notices as listed in the flowchart above. If your organisation, contract type and/or modification ground does not appear in the table below, then publication is required.

Type of notice	Exemption
Contract performance notice (for breach / poor performance reports)	• Private utilities • Light touch contracts
Contract termination notice	• Private utilities • Direct award - user choice contracts

69. Modifying an above-threshold or convertible contract: Step by step guide

This guide takes you through the steps typically followed when modifying a public contract or ‘convertible contract’. A regulated below-threshold contract that, following modification, exceeds the relevant threshold set out in schedule 1 of the act and is now a public contract. See appendix 1 for exemptions to the publication requirements.

Step 1 - assess the requirement

Identify the potential impact of the modification (e.g. increase / decrease to contract value, increase / decrease to contract duration, etc.). Continue to step 2.

Step 2 - grounds for modification

Identify the appropriate ground for modification and ensure that you meet all applicable conditions in full.

Reason for modification	Associated modification ground
To exercise an optional contract clause	Schedule 8 (1): provided for in the contract
Extreme urgency or for the protection of life	Schedule 8 (2 and 3): urgency and the protection of life, etc
Due to unforeseen circumstances arising	Schedule 8 (4): unforeseeable circumstances
Because a known risk has materialised	Schedule 8 (5 to 7): materialisation of a known risk
To make additional purchases	Schedule 8 (8): additional goods, services or works
To novate the contract to a new supplier - it is not permitted to change a supplier under any circumstances other than schedule 8(9)	Schedule 8 (9): transfer on corporate restructuring
In response to changes in technology	Schedule 8 (10): for defence authority contracts only
Continuity of supplies to the armed forces	Schedule 8 (11): for defence authority contracts only

Or, where none of the above grounds apply, modification is permitted where:

Reason for modification	Associated modification ground
The modification is not substantial	Section 74 (3): not substantial
The modification itself is below-threshold	Section 74 (4): below-threshold

Does your modification meet the criteria of one of the above grounds?

If yes, continue to step 3.

If no, modification is not possible and a new procurement is required.

Note, it is not permitted under the act to artificially separate one single modification that would not be permitted under the above grounds, into multiple smaller ones.

Step 3 - below-threshold modifications

Is the modification a “below threshold” modification (section 74(4))?

If yes, confirm that the total aggregated value of modifications made under this ground during the life of the contract will remain below the relevant threshold amount that applies to your contract, as detailed in schedule 1. If so, continue to step 4.

Note, modifications under the “below threshold” ground (74(4)): the value of any single modification, and the total cumulative value of modifications made under this ground during the life of the contract, must be below the relevant threshold amount that applies to your contract, as detailed in schedule 1. This does not include the value of modifications made under other grounds, i.e. the grounds detailed in schedule 8.

If making this modification would result in the aggregated value of modifications made under this ground exceeding that threshold, then modification under this ground is not permitted.

If no, continue to step 4.

Step 4 - agree terms

Agree the terms of the modification with the contracted supplier(s), adhering to any internal governance processes that may apply. Continue to step 5.

Step 5 - publish a contract change notice (where applicable)

Many modifications require you to publish a contract change notice, unless an exemption applies - see appendix 1 for a list of exemptions.

Are you exempt from publishing a contract change notice for this modification?

If yes, you do not need to publish a contract change notice unless you want to observe a voluntary standstill, continue to step 7.

If no, you must publish a contract change notice, then continue to step 6.

Step 6 - voluntary standstill period (optional)

Prior to publishing a contract change notice, decide if you wish to observe a voluntary standstill period of no less than 8 working days. Note, it is not possible to observe a voluntary standstill period unless you publish a contract change notice. Are you observing a voluntary standstill period?

If yes, observe the voluntary standstill period (min. 8 working days) then continue to step 7.

If no, continue to step 7.

Step 7 - contract signature

Sign the modified contract, and arrange for the supplier to sign it also. Continue to step 8.

Step 8 - publish the modification (where applicable)

Where a contract change notice is published and the value of the modified contract is over £5m (including the value of the modification), this is a ‘qualifying modification’ and you must publish a copy of the contract as modified / the modification itself - within 90 days of modifying the contract, unless exempt from doing so.

a. Were you exempt from publishing a contract change notice, and/or are you otherwise exempt from publishing contract documents for this modification? (See appendix 1)

If yes, continue to step 9.

If no, continue to step 8b.

Was the total value of the contract over £5m before this modification was made?

If yes, you may publish a copy of the modification itself only (e.g. as an addendum).

If no, you must publish a full copy of the contract documents, as modified. Then continue to step 9.

Step 9

Keep a full record of the contract modification for audit trail purposes.

Appendix 1: exemptions from publication

This table lists the organisations and contracts that are exempt from publishing a contract change notice and/or modified contract documents. It also lists the modification grounds where publication of a contract change notice and contract documents is not required. If your organisation, contract type and/or modification ground does not appear in the table below, then publication is required.

Exempt from publishing a contract change notice

Specific contracts / contracting authorities:

defence and security contracts
light touch contracts
contracts awarded by a private utility
contracts awarded by a transferred Northern Ireland authority - unless it was awarded as part of a procurement under a reserved procurement arrangement or a devolved Welsh procurement arrangement

Applicable to all contracting authorities:

provided for in the contract (schedule 8(1)) - contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded (modification ground schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice
where the modification increases or decreases the contract term by less than 10%
where the modification increases or decreases the contract value by less than 10% (goods & services) or 15% (works) - unless they are a convertible contract, then a contract change notice must be published

Exempt from publication of modifications

defence and security contracts
light touch contracts
contracts awarded by a private utility
contracts awarded by a transferred Northern Ireland authority - contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded (modification ground schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice
contracts awarded by a devolved Welsh authority - unless it was awarded as part of a procurement under a reserved procurement arrangement
contracts that are below £5m in value (including the value of the modification)

70. Making a contract modification: Checklist

This checklist is designed to help you comply with the Procurement Act with respect to contract modifications. It covers the steps you may typically follow when modifying a public contract or ‘convertible contract’ (a regulated below-threshold contract that, following modification, exceeds the relevant threshold set out in schedule 1 of the act and is now a public contract). For more detailed information on the modification process, please see the step-by-step guide to modification.

Contract modification checklist

1. Where applicable, if the modification is the result of poor supplier performance or breach of contract, then follow the guidance on managing poor performance and breach of contract alongside this checklist.

2. Identify the need for contract modification and determine impact (e.g. change in contract cost, duration, etc.)

3. Identify the appropriate modification ground (see schedule 8 and section 74 of the Procurement Act) and ensure that you meet all applicable conditions in full.

4. Agree the terms of the modification in principle with your supplier(s).

5. Where applicable, publish a contract change notice (unless an exemption applies - see appendix 1)

6. Optional - if you have published a contract change notice: observe a voluntary standstill period (minimum 8 working days)

7. Arrange for you and your supplier to sign the modification / modified contact (following the conclusion of any standstill period)

8. Where applicable, publish the modification within 90 days of it being made, where applicable (unless an exemption applies - see appendix 1), as follows:

a. Publication is not applicable because an exemption applies (see appendix 1). No action required.

b. Where the value of the contract was over £5m before the modification. You may publish a copy of the modification itself only (e.g. as an addendum).

c. Where the value of the contract is now over £5m as a result of the modification. You must publish a full copy of the contract documents, as modified.

9. Keep a full record of the contract modification for audit trail purposes.

Appendix 1: exemptions from publication

This appendix lists the organisations and contracts that are exempt from publishing a contract change notice and/or modified contract documents. It also lists the modification grounds where publication of a contract change notice and contract documents is not required. If your organisation, contract type and/or modification ground does not appear in the lists below, then publication is required.

Exempt from publishing a contract change notice

Specific contracts / contracting authorities:

Defence and security contracts
Light touch contracts
Contracts awarded by a private utility
Contracts awarded by a transferred Northern Ireland authority - unless it was awarded as part of a procurement under a reserved procurement arrangement or a devolved Welsh procurement arrangement

Applicable to all contracting authorities:

Provided for in the contract (schedule 8(1)) - contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded

(modification ground schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice

Where the modification increases or decreases the contract term by less than 10%
Where the modification increases or decreases the contract value by less than 10% (goods & services) or 15% (works)
Unless they are a convertible contract - then a contract change notice must be published

Exempt from publication of modifications

Defence and security contracts
Light touch contracts
Contracts awarded by a private utility
Contracts awarded by a transferred Northern Ireland authority - contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded (modification ground schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice
Contracts awarded by a devolved Welsh authority - unless it was awarded as part of a procurement under a reserved procurement arrangement
Contracts that are below £5m in value (including the value of the modification)

71. Modifying a contract: Flowchart

This flowchart is designed to help you comply with the Procurement Act with respect to contract terminations. For more detailed information, please see the step-by-step guide to contract modification. A checklist is also available.

First, identify the reason for termination - this will identify the process to follow. The examples below are examples and not exhaustive.

Annex 1: Exemptions

Exempt from publishing contract change notice

Specific contracts / contracting authorities:

defence and security contracts
light touch contracts
contracts awarded by a private utility
contracts awarded by a transferred Northern Ireland authority (unless it was awarded as part of a procurement under a reserved procurement arrangement or a devolved Welsh procurement arrangement)

Applicable to all contracting authorities:

provided for in the contract (schedule 8(1))
where the modification increases or decreases the contract term by less than 10%
where the modification increases or decreases the contract value by less than 10% (goods & services) or 15% (works)unless they are a convertible contract - then a contract change notice must be published

Exempt from publication of modifications

Specific contracts / contracting authorities:

defence and security contracts
light touch contracts
contracts awarded by a private utility
contracts awarded by a transferred Northern Ireland authority (unless it was awarded as part of a procurement under a reserved procurement arrangement or a devolved Welsh procurement arrangement)
contracts awarded by a devolved Welsh authority (unless it was awarded as part of a procurement under a reserved procurement arrangement or as part of a procurement under a transferred Northern Ireland procurement arrangement)

Applicable to all contracting auhorities:

all contracts who were exempt from publishing a contract change notice, plus
contracts where a contract change notice was published, but the total contract value (following the modification) is over £5m

72. Managing risk: Fact sheet

This fact sheet is designed to provide a quick and practical reference to dealing with different types of risk through different grounds for contract modification. For more information on identifying types of risk prior to undertaking a procurement, see Module 3: Identifying Risk.

What is a “known unknown” risk?

A “known unknown” risk is where it’s possible to identify the potential risk in advance of undertaking a procurement process, but where the impact of that risk, should it materialise, is unknown. It is possible to identify the risk before awarding a contract, but not possible to include contractual provisions to deal with the impact. A modification ground has been introduced in the Procurement Act that allows contracts to be modified to deal with the materialisation of this type of risk.

What are some examples of known unknown risks?

Examples of known unknown risks may include (but are not limited to):

construction / infrastructure works
legislative changes
IT systems
changes to standard

Construction / infrastructure works

The possibility of hazardous substances, structural issues, ground conditions or other problems may increase contract costs, but the severity of the risk may be unknown until works get underway / surveys are completed, so impact can’t be determined.

Legislative changes

New laws governing e.g. health and safety standards, data protection etc. are due to be introduced, but the changes needed to comply are not known until the laws are fully defined.

IT systems

New cyber threats may emerge that require existing systems to be adapted.

A cyber attack itself could cause damage to systems or data, with the cost will depend on the extent of the damage.

Changes to standard

If changes to standards (e.g. BSI, ISO, etc) are anticipated during the contract, but not clear enough to provide for prior to award.

What would likely not qualify as a known unknown risk?

Risks that would likely not qualify as a known unknown include:

risks where the impact can be identified and mitigated against prior to contract award (a “known known” risk)
risks that materialise due to the supplier’s solution (e.g. the availability of specific technology, equipment or staff that mean the contract cannot be delivered)
problems with the suppliers’ subcontractors (this would be a supplier performance issue)

How does the “materialisation of a known risk” modification ground work?

This new ground (Schedule 8(5-7)) enables you to modify a public contract in the event of a known unknown risk materialising, providing that a number of conditions are met. If one or more of these conditions are not met, then you will not be able to rely on this ground.

In order to rely on this modification ground, certain information must be provided in the original tender or transparency notice for the contract (outlined in Schedule 8 (6)(b)):

1. the risk(s) in question must be identified - alongside confirmation that they could jeopardise the satisfactory performance of the contract - in the tender or transparency notice

2. the change is required to manage a known risk that has materialised (through no fault of the contracting authority or supplier)

3. the contract can’t be delivered to the contracting authority’s satisfaction because of this

4. it’s in the public interest to amend the contract, rather than award a new one, considering:

a. value for money (e.g. whether a lower cost or better value solution could be sourced by running a new procurement)

b. technical considerations (e.g. the compatibility of materials)

c. operational considerations (e.g. delivery timescales)

5. the modification doesn’t increase the contract value by more than 50% (the 50% cap does not apply to utilities contracts)

It is important to note that inclusion of a known risk in the tender or transparency notice does not imply any liability on either party for any cost changes as a result of the risk materialising.

What’s the difference between the “materialisation of a known risk” and “unforeseeable circumstances” modification grounds?

A separate modification ground, unforeseeable circumstances (schedule 8(4)), is designed to address “unknown unknown” risks: these are risks where you are aware of neither the risk itself or the impact, should it materialise, prior to awarding a contract.

Example: materialisation of a known risk

The contracting authority is aware of the potential risk, but not of the impact.

New legislation is planned during the life of the contract, which means product specifications may need to be redesigned in some way.

Adverse ground conditions may cause issues with a construction project, but the works need to begin before a survey can assess the impact.

Example: unforeseeable circumstances

The contracting authority is aware of neither the potential risk nor the impact.

New legislation is introduced without warning, which requires product specifications to be redesigned in a specific way.

A global shortage of key construction materials means that an alternative must be sourced (at a higher cost) to enable the project to continue.

Awareness of a potential risk

If you are aware of a potential risk (but not the impact) then you must address this in the tender/transparency notice: it is not possible to use the ground for materialisation of a known risk where this information is not provided.

What about contract modifications for “known known” risks?

A “known known” risk is one where the risk and impact, should it materialise, can both be identified. In this case, the risk should be managed prior to contract award with appropriate mitigations and provisions for allocating risks. Neither of the above modification grounds are likely to apply for this type of risk. Alternative modification grounds could include:

Modification ground	Conditions
Provided for in the contract (schedule 8(1))	The impact (e.g. change to cost, duration or other) impact is unambiguously provided for in the tender/transparency notice and in the contract as awarded.
Additional goods etc (schedule 8(8))	Only permitted where the modification is for additional goods, services or works already provided for. Tests around technical compatibility and cost duplication apply.
Below-threshold or non-substantial modifications (74(3-4))	Where the contract value increases or decreases by less than 10% (goods and services) or 15% works, or the contract term changes by less than 10%.

73. Terminating a public contract: Step by step guide

This guide is designed to help you comply with the Procurement Act with respect to contract terminations. It covers the steps you may typically follow when terminating a public contract, depending on the reasons for termination.

Reason for termination

The termination process you follow will vary based on the reason for termination. The following represent the main changes to contract terminations under the Procurement Act.

Process	Reason for termination	Definition
A	Termination on contract expiry / completion of deliverables	Where the contract has reached its end date (including any extensions), or all deliverables have been fulfilled
B	Early termination for breach or poor performance	Where the supplier is found to be in breach of contract, or has failed to deliver the contract to your satisfaction
C	Supplier / subcontractor exclusion (implied term) - an implied term is a clause that is included in all public contracts by virtue of the Procurement Act (without being expressly agreed). For more information see Fact sheet: implied terms.	The supplier, their subcontractor or a connected person has become subject to a mandatory exclusion ground

Process A: termination on expiry or completion of deliverables

Process B: early termination due to supplier breach or poor performance

Step 1: Supplier Breach / Poor Performance Occurs. Has a supplier breached the contract, and / or failed to perform the contract to your satisfaction? For a breach to be sufficiently serious, it must result in full / partial contract termination, the award of damages or a settlement agreement. In cases of poor performance, the supplier must have been given ‘proper opportunity’ to improve their performance, and failed to do so. If yes, continue to step 2. If no, this process does not apply, please identify an alternative process. Step 2: Contract Termination. Will the breach or poor performance result in full termination of the contract (either alone, or as part of a wider settlement agreement between you and the supplier)? If yes, continue to step 3. If no, this process does not apply, please follow guidance on the process for managing poor performance and breach of contract. Step 3: Supplier Notification. Notify the supplier of your intention to terminate the contract. Confirm the reasons why, and provide evidence where needed (e.g. a copy of a failed performance improvement plan). Continue to step 4. Step 4: Finalise Outstanding Matters. Have all outstanding payments been made and any outstanding disputes been settled? If yes, go to step 5. If no, ensure all outstanding matters are finalised, then continue to step 5. Step 5: Final KPI Assessment & Publication (where applicable). Were you required to set KPIs, assess performance and publish details in a contract performance notice)? For a breach to be sufficiently serious, it must result in full / partial contract termination, the award of damages or a settlement agreement. In cases of poor performance, the supplier must have been given ‘proper opportunity’ to improve their performance, and failed to do so. If yes, complete a final KPI assessment and publish a final contract performance notice, then continue to step 6. If no, you do not need to publish a contract performance notice, continue to step 6. Step 6: Publish a Contract Termination Notice (where applicable). In most cases you will be required to publish a contract termination notice, unless an exemption applies (private utilities and direct award: user choice contracts are exempt from contract termination notices), within 30 days of the contract ending. Are you exempt from publishing a contract termination notice? If yes, you do not need to publish a contract termination notice. If no, publish a contract termination notice (complete relevant notice fields to confirm that termination is the result of supplier breach of contract or poor performance).

Keep a record of the contract termination and associated correspondence for audit trail purposes.

Process C: termination due to supplier exclusion

The act implies two terms into every public contract that allow for termination in the event of a supplier or their subcontractor becoming excluded or excludable, subject to certain conditions.

Step 1: Identify Supplier Exclusion. Has the supplier (or an associated person) or subcontractor become an excluded or excludable supplier since the contract was awarded? If yes, continue to step 2. If no, this process does not apply, please identify an alternative process. Step 2: Basis of Exclusion. Who does the exclusion ground(s) or debarment apply to? If the supplier or an associated person then continue to step 4. If one of the supplier’s subcontractors then continue to step 3. Step 3: Excluded or Excludable Subcontractor(s). Step 3.1: Before awarding the contract, did you request information about whether the supplier intended to subcontract all or part of the contract performance? If yes, continue to step 3.2. If no, unfortunately you are unable to terminate the contract based on this term. Step 3.2: Before awarding the contract, a) did the supplier fail to advise that they were subcontracting all or part of the contract, or b) did you seek to determine the subcontractor’s exclusion status, but couldn't determine if this was the case? If yes, continue to step 4. If no, unfortunately you are unable to terminate the contract based on this term. Step 4: Notify the Supplier and Assess Evidence. Notify the supplier of your intention to terminate the contract, and: • Inform them of the relevant ground that applies, • Give them reasonable opportunity to respond and make representations about whether they believe the termination ground applies, • Consider any evidence submitted by the supplier for self-cleaning purposes, • Where termination is on the grounds of a subcontractor being excluded or excludable, give the supplier opportunity to cease the arrangement and / or replace them with an alternative subcontractor. Has the supplier demonstrated satisfactory self-cleaning / removed the subcontractor? If yes, you no longer need to terminate the contract, and should formally notify the supplier. If no, continue to step 5. Step 5: Discretion. Is the supplier, their associated person or subcontractor subject to a discretionary exclusion? If yes, you may choose to exercise discretion as to whether or not you exclude them. If no, (or, if you choose not to exercise discretion) continue to step 6. Step 6: National Security. Is the supplier, associated person or subcontractor subject to the mandatory or discretionary grounds relating to National Security (Schedule 6 (34A) or Schedule 7(14)? If yes, you must notify a Minister of the Crown before termination, then continue to step 7. If no, continue to step 7. Step 7: Finalise Outstanding Matters. Have you formally notified the supplier of contract termination, made all outstanding payments and settled any outstanding disputes? If yes, continue to step 8. If no, ensure all outstanding matters are finalised, then continue to step 8. Step 8: Final KPI Assessment & Publication (where applicable). Were you required to set KPIs, assess performance and publish details in a contract performance notice)? If yes, complete a final KPI assessment and publish a final contract performance notice, then continue to step 9. If no, you do not need to publish a contract performance notice, continue to step 9. Step 9: Publish a Contract Termination Notice (where applicable). In most cases you will be required to publish a contract termination notice - unless an exemption applies - within 30 days of the contract ending. Are you exempt from publishing a contract termination notice? If yes, you do not need to publish a contract termination notice. If no, publish a contract termination notice (complete relevant notice fields to confirm that termination is the result of supplier breach of contract or poor performance).

Keep a record of the contract termination and associated correspondence for audit trail purposes.

74. Terminating a contract: Checklist

This flowchart is designed to help you comply with the Procurement Act with respect to contract terminations. For more detailed information, please see the step-by-step guide to contract modification. A checklist is also available.

First, identify the reason for termination - this will identify the process to follow. The examples below are examples and not exhaustive.

Identify the reason for termination: the termination process you follow will vary based on the reason for termination. The following are examples only and not exhaustive:

Process	Reason for termination	Definition
A	Termination on contract expiry / completion of deliverables	Where the contract has reached its end date (including any extensions), or all deliverables have been fulfilled.
B	Early termination for breach or poor performance	Where the supplier is found to be in breach of contract, or has failed to deliver the contract to your satisfaction.
C	Supplier / subcontractor exclusion (implied term) - an implied term is a clause that is included in all public contracts by virtue of the Procurement Act (without being expressly agreed). For more information see Fact sheet: implied terms.	The supplier (including an associated person) or their subcontractor has become subject to a mandatory or discretionary exclusion ground.

Process A: termination on expiry or completion of deliverables

Termination on expiry or completion:

1. Confirm contract expiry / completion with the supplier.

2. Finalise any outstanding disputes and make final payments.

3. Where applicable complete a final KPI scoring assessment and publish a contract performance notice.

4. Publish a contract termination notice (unless an exemption applies) - private utilities and direct award: user choice contracts are exempt from contract termination notices.

5. Keep a full record of the contract termination for audit trail purposes.

Process B: early termination due to supplier breach or poor performance

Termination due to supplier breach of contract / poor performance:

1. Ensure that the breach and / or poor performance will result in full termination of the contract. If this is not the case, see guidance on managing poor performance and breach of contract.

2. For breach of contract: ensure the breach is ‘sufficiently serious’, as per the act. For poor performance, ensure you have given the supplier ‘proper opportunity’ to improve.

3. Give the supplier reasonable notice of your intention to terminate the contract, the ground for termination, and opportunity to respond.

4. Finalise any outstanding disputes and make final payments.

5. Where applicable complete a final KPI scoring assessment and publish a contract performance notice.

6. Publish a contract termination notice (unless an exemption applies) - private utilities and direct award: user choice contracts are exempt from contract termination notices.

7. Keep a full record of the contract termination for audit trail purposes.

Process C: termination due to supplier exclusion

Termination due to supplier exclusion:

1. Identify whether it is the supplier (including an associated person) or a subcontractor who is excluded or excludable.

2. For subcontractors only - check the following conditions were met prior to contract award:

a. You requested information from the supplier about their intention to subcontract. If this is not the case, you cannot terminate the contract under this ground.

b. Either the supplier did not advise that they were subcontracting the contract, or

c. You sought to determine if the subcontractor was excluded or excludable, but were not able to do so. If neither of options B or C apply, you cannot terminate the contract under this ground.

3. Give the supplier notice of your intention to terminate the contract, and the relevant exclusion grounds that apply. Allow them reasonable opportunity to respond and make representations about whether they believe the exclusion ground applies.

4. For suppliers - assess any evidence submitted by the supplier for self-cleaning purposes. If satisfied, discontinue the termination and notify the supplier.

5. For subcontractors - assess any evidence for self-cleaning purposes; give the lead supplier opportunity to end their arrangement with the subcontractor and/or find an alternative subcontractor. If satisfied, discontinue the termination and notify the supplier.

6. Where the supplier / subcontractor is subject to a discretionary exclusion, you may exercise discretion over whether or not to exclude them.

7. Where the supplier / subcontractor is subject to a mandatory or discretionary exclusion ground relating to national security, notify a minister of the crown prior to termination.

8. If continuing with the termination confirm intention to terminate with supplier

9. Finalise any outstanding disputes and make final payments.

10. Where applicable complete a final KPI scoring assessment and publish a contract performance notice.

11. Publish a contract termination notice (unless an exemption applies) - private utilities and direct award: user choice contracts are exempt from contract termination notices.

12. Keep a full record of the contract termination for audit trail purposes.

75. Terminating a contract: Flowcharts

This flowchart is designed to help you comply with the Procurement Act with respect to contract terminations. For more detailed information, please see the step-by-step guide to contract modification. A checklist is also available.

First, identify the reason for termination - this will identify the process to follow. The examples below are examples and not exhaustive.

Process	Reason for termination	Definition
A	Termination on contract expiry / completion of deliverables	Where the contract has reached its end date (including any extensions), or all deliverables have been fulfilled
B	Early termination for breach or poor performance	Where the supplier is found to be in breach of contract, or has failed to deliver the contract to your satisfaction
C	Supplier / subcontractor exclusion (implied term)	The supplier (including an associated person) or their subcontractor has become subject to a mandatory or discretionary exclusion ground

Process A: termination on expiry or completion of deliverables

Process B: early termination due to supplier breach or poor performance

Process C: termination due to supplier exclusion

Exemptions apply. ↩
Exemptions apply for utilities contracts. ↩
Exemptions apply for utilities contracts. ↩
Exemptions apply for utilities contracts. ↩
Exemptions apply. ↩
However, it should be noted that this is not a specific exemption under the Act. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩
Exemptions apply. ↩

Question 6

3.1   Contract Performance Reporting

Accepted Answer

The Procurement Act 2023 introduces new requirements surrounding contract and supplier performance. There are two different ways in which contracting authorities may need to share information about a supplier’s contract performance:

1. By providing data on a supplier’s KPI scores (for most contracts with a total value of £5m or more)^{[footnote 8]}; and

2. By reporting certain serious incidents of poor supplier performance, or breach of contract, as and when they occur (applicable to all contracts).

Question 7

A. Key Performance Indicators

Accepted Answer

Setting KPIs (Section 52)^{[footnote 9]}

Before entering into a public contract with an estimated value of more than £5m, contracting authorities must set (in agreement with the supplier) at least three KPIs. These must be published as part of the contract details notice.

In the contract details notice, contracting authorities must provide details of:

The description of contract KPIs, and
The frequency with which these KPIs will be measured (with the minimum being once every 12 months).

Where the contract has an estimated value of more than £5m and KPIs were not set, the contract details notice must include an explanation as to why KPIs cannot be appropriately used to measure the performance of the contract.

Publishing KPI Data (Section 71(2))^{[footnote 10]}

At least once every 12 months (and more frequently, if provided for in the contract and contract details notice), the contracting authority must assess and then publish details of supplier performance against the set KPIs to the central digital platform using a contract performance notice.

For the purposes of collecting data for publication, this only needs to be data from the contracted supplier, and not for sub-contractors (even where suppliers have identified specific named sub-contractors in their tenders).

To enable consistency and ensure that data is comparable across contracts, the central digital platform will require KPI data to be published using the same standardised rating system:

Good: Performance is meeting or exceeding the key performance indicators
Approaching target: Performance is close to meeting the key performance indicators
Requires improvement: Performance is below the key performance indicators
Inadequate: Performance is significantly below the key performance indicators
Other: Where performance cannot be described as good, approaching target, requires improvement or inadequate.

“Other” may apply to a reporting period, for example, where an element of the contract cannot be reported on, or no KPI data is available, or where relevant service delivery has not taken place.

Where an alternative scoring methodology is used for assessing a contract’s KPIs, then it is important to think about how this methodology will align with this standardised rating system. Contracting authorities should consider including this within their contracts, allowing scores to be converted more easily for publication to the central digital platform.

Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies must continue to adhere to the Cabinet Office’s Commercial Playbooks and associated guidance, publishing KPI data for bronze, silver and gold contracts as set out by the Cabinet Office.

Amending KPIs

Changing one or more KPIs for reporting purposes: As contracts mature and are modified, one or more KPIs - for which performance data is published - may become obsolete and no longer scored. Where the contract allows it, it is best practice to nominate a new KPI (in agreement with the supplier), and to include details of this in the next contract performance notice published. However, you will still be obliged to report on the original KPIs with an “other” grading.

Modifying one or more contract KPIs: Where there are any changes to what is measured by an existing KPI, or to the scoring criteria for measurement, then details must be provided as part of the next contract performance notice.

Changing contract KPIs does not necessarily constitute a contract modification in its own right. Contracting authorities would also need to consider if the change results in other changes to the contract - such as price, contract duration or the economic balance. Contracting authorities must consult section 74 of the Procurement Act 2023 (modifying a public contract) to determine whether the amendment is permitted, and what actions are required.

Circumstances Where KPIs are Not Required

Certain organisations and contracts are exempt from the requirements to set, assess and publish KPI information, as detailed in the guidance for special regimes. Frameworks are also exempt, however contracts awarded under frameworks and dynamic markets are not exempt.

In addition, requirements do not apply if, in accordance with section 52(2), a contracting authority considers that the supplier’s performance under the contract could not appropriately be assessed by reference to KPIs. This is not designed to provide a blanket exemption for publication, but may be applicable in situations such as:

Contracts for a one-off purchase, where ongoing measurement is not applicable, and short-term performance should be based on delivery within the contract terms.
Contracts where the complexity of the deliverables cannot be clearly expressed in a specific, measurable, achievable, realistic and time-bound (SMART) target.
Where the data collected and / or published could have implications for national security - for example, by revealing sensitive information.

Question 8

B. Poor Performance & Breach of Contract

Accepted Answer

In certain situations where a supplier breaches a public contract, or fails to satisfactorily perform a public contract, the contracting authority must report this by publishing details in a contract performance notice^{[footnote 11]}. These provisions are intended to capture the most serious and persistent performance failures.

As detailed in section 71 of the Procurement Act 2023 (assessment of contract performance), the following incidents are a trigger for contracting authorities to publish a contract performance notice:

71 (3)

a. a supplier has breached a public contract, and

b. the breach results in

(i) termination (or partial termination) of the contract,
(ii) the award of damages, or
(iii) a settlement agreement between the supplier and the contracting authority.

71 (4) A contracting authority considers that a supplier

a. is not performing a public contract to the authority’s satisfaction,

b. has been given proper opportunity to improve performance, and

c. has failed to do so.

Where a breach or failure to perform leads to full termination and this event is the first to occur, a contract termination notice is published instead.

Poor Performance & Exclusion Grounds

In the Procurement Act, the same definitions of breach and poor performance are given in section 71(3) and (4) (assessment of contract performance) and in the discretionary exclusion grounds set out in schedule 7, paragraph 12 (breach of contract and poor performance).

It is therefore important that the contracting authority reports poor performance by publishing a contract performance notice (or contract termination notice where relevant), within 30 days of the first trigger event outlined above occurring, as it provides other contracting authorities with an objective piece of evidence that may be used when assessing if any of the exclusion grounds in schedule 7, paragraph 12 apply to a supplier. The details provided in the contract performance notice (or contract termination notice where relevant) may also assist that contracting authority in exercising their discretion when deciding whether to exclude the supplier.

Because publishing a contract performance notice (or contract termination notice where relevant) could result in a supplier being excluded from a future procurement, contracting authorities must ensure that they provide accurate information.

More information on exclusions can be found in Summary Document 6.

Breach of Contract and Poor Performance

From a contracting authority’s perspective, breach of contract is where the supplier fails to meet the terms and conditions of the contract agreed between both parties. Examples may include:

Failure to deliver the goods, services or works to the required specification or on time.
Failure to adhere to a condition of the contract, such as mismanaging sensitive authority information.

However, for the breach to be sufficiently serious to trigger publication of a contract performance notice (or contract termination notice where relevant), the breach must result in one or more of the following:

partial contract termination,
the award of damages, or
a settlement agreement between the supplier and the contracting authority.

Where a breach or failure to perform leads to full termination and this event is the first to occur, a contract termination notice is published instead.

Poor contract performance is where the supplier fails to meet the obligations set out in the contract to the authority’s satisfaction, has been given a proper opportunity to improve performance and has failed to do so.

Examples of failing to meet the obligations set out in the contract may include:

Repeated failure to meet one or more KPIs over a period as set out in the contract (e.g. where a KPI is measured monthly, this may be 3 consecutive months, or 3 out of 6 months, etc.)
Failure to adhere to a core contract term, such as the requirement to hold insurance.
Failure to deliver goods, services or works to the required standard.

KPIs provide an objective way of measuring a supplier’s performance against their contractual obligations, and a clear indication of where these obligations are not being met. Low KPI scores can be used as a mechanism to “trigger” contractual improvement measures.

For poor performance to trigger publication of a contract performance notice, the supplier must have been given proper opportunity to improve performance (but subsequently failed to do so). This would typically be by exercising a contractual measure designed to manage poor performance, such as a rectification, improvement, or performance management plan, or similar. This would usually set out:

Details of performance issues / areas for improvement, with corresponding evidence.
The improvements required and associated timescales.
Actions the supplier must take, and required targets or outputs.
Clear deadlines for meeting these requirements.
Consequences for failing to do so.

Alongside KPIs, it is important to agree and document the definition(s) of poor performance, the escalation process for managing poor performance, and the contractual measures that can be put in place to rectify poor performance.It is important to document incidents of supplier poor performance, agreed remedial actions, and adherence to these action plans, so that details of any poor performance and failures to improve performance can be published in the contract performance notice.

It is essential that the information included in a contract performance notice (or contract termination notice where relevant) is accurate and provides the fullest possible picture of the breach / poor performance and surrounding context. Contracting authorities could be liable for breach of statutory duty should a supplier suffer (or is at risk of suffering) loss or damage due to false or inaccurate information being published in a contract performance notice, if this leads to them being excluded from a procurement.

Question 9

C. Contract Performance Notices & the Contract Performance Register

Accepted Answer

Contract Performance Notices

As previously mentioned, the requirement to publish contract performance information will apply at a later phase. From this point onwards, data on contract KPIs and poor supplier performance must both be published to the central digital platform using a contract performance notice. The contract performance notice has two separate parts, to cover the following two separate purposes:

Part 1 - KPIs: Details of supplier performance against a minimum of three KPIs. Mandatory for public contracts over £5m, unless an exemption applies. Must be published at least once every 12 months, but can be published more frequently if KPIs are measured more often.

Part 2 - Poor Performance / Breach of Contract: To report serious incidents of poor supplier performance or breach of public contracts. Mandatory for almost all contracts. Must be published within 30 days of a poor performance / breach event.

To note:

Where poor performance / breach of contract leads to the partial termination of a contract, a contract performance notice should be published.
Where poor performance / breach of contract leads to full termination of the contract, a contract termination notice should be published instead.

For publication either to report KPI scores or breach/poor performance, contract performance notices must include, as a minimum (amongst other things):

Contracting authority name(s), procurement information and unique identification reference(s) for all buying organisations involved in the contract.
Supplier name(s), contact information and unique identification reference(s) for all suppliers involved in committing the breach or poor performance.
Contract details: name(s) and unique contract identification reference(s) for the contract being reported on.

Contract Performance Notices for KPI Publication

In addition to the above, contract performance notices reporting KPI scores must include, as a minimum (amongst other things):

The time period for which the assessment applies.
The KPI scores (using the rating scheme, detailed above) for each of the KPIs being assessed.

For KPI purposes, one single contract performance notice may be used to cover one single contract that has multiple suppliers and/or lots.

Contract Performance Notices for Breach or Poor Performance

In addition to the above (excluding the previous two bullet points on KPI publication), contract performance notices reporting poor performance or a breach of contract must include, as a minimum (amongst other things):

Confirmation that section 71(5) applies.
Indication of whether the notice is being issued due to contract breach or poor performance. Contracting authorities must specify whether the notice results from:

- One (or more) of the three scenarios Contract Performance Notices for Breach or Poor Performance Occurring as a result of contract breach, as set out in 71(3), or

- From poor performance, as set out in 71(4).

A narrative description of the nature of the breach or performance failure, including:

- The contract requirement / obligation breached or not being performed.

- Any steps taken by the supplier to mitigate the impact of the breach or failure to perform.

- The steps taken by the contracting authority to notify the supplier that they are in breach or failing to perform, demonstrating that proper opportunity was given for the supplier to improve (where applicable).

- Where partial termination has occurred, a description of what parts of the contract have been terminated.

Where there has been an award of damages:

- Details of the damages awarded and the basis on which they were awarded.

- A link to any related court judgement(s).

The date of publication must be no more than 30 days from the date that the first trigger event takes place. This means that the clock starts from whichever of the following events is the first to occur as a result of the breach of failure to perform:

Partial termination;
Award of damages;
Settlement agreement agreed between the CA and the supplier; or
Supplier failure to improve performance.

Contract Performance Register

The contract performance register will be introduced in a later phase of the central digital platform development. The ambition is to create a single location in which contracting authorities can view data relating to the performance of public sector contracts. The register should be freely available to all contracting authorities and other interested parties within the general public.

The objectives of the contract performance register include:

Providing data in a single, uniform format.
Increasing the availability and visibility of contract performance data.
Improving accountability for contract performance.
Helping to identify key risks and issues within a particular marketplace.
Influencing the design of a procurement process.

Question 10

3.2  Contract Payment Reporting (Information about payments under public contracts: Section 70)

Accepted Answer

The Procurement Act 2023 aims to better leverage the power of public-sector spending and to increase transparency by making it easier for contracting authorities, suppliers and the general public to track contract expenditure, improve efficiency and reduce waste. To achieve this, the Act will require contracting authorities to publish information about individual payments of more than £30,000 made by the authority under a public contract, on a quarterly basis^{[footnote 12]}.

As previously mentioned, the requirement to publish this information will not come into effect at the same time as other transparency requirements - they will follow in later phases of the central digital platform development once further secondary legislation has been made.

Existing arrangements for the publication of spend data, such as those that apply under the Local Government Transparency Code, remain in place until otherwise stated.

What Can I do to Prepare?

The exact provisions for publication of payment information will be subject to further consultation, however, the following principles are expected to apply:

Data is not required to be published where information relating to the award of the contract has been withheld from publication for a legitimate reason, as identified in section 94 of the Act (safeguarding sensitive commercial data or national security).
Care must be taken, in the publication of data, not to disclose information that contravenes data protection legislation.
It is good practice to include, within tender or contract documentation, details of the responsibilities a contracting authority has to publish such information, to ensure suppliers are fully appraised of these obligations.
Contracting authorities are responsible for ensuring that data is accurate, and published in a timely manner.
Contracting authorities may wish to put in place a robust review process to safeguard against the publication of inaccurate or sensitive data.

Question 11

3.3  Contract Administration & Prompt Payment

Accepted Answer

The Procurement Act 2023 contains a number of implied terms relating to the administration of contracts.

An “implied term” is a legally-binding contract term that hasn’t been expressly agreed by any parties to a contract, but which is implied into the contract by, for example, legislation. The terms implied into contracts by the Procurement Act that relate to payment and termination, subject to certain exemptions, are:

Electronic invoicing: Section 67 of the Act requires contracting authorities to accept (non-disputed) electronic invoices, which is a feature of the previous regime.

Implied payment terms in contracts^{[footnote 13]}:

Change: The PCR 2015 regulation 113(2)(a) requires invoices to be paid within 30 days of it being “regarded as” valid and undisputed, which is implied into public contracts under regulation 113(6)(a). Section 68 of the Act implies 30-day payment terms into most public contracts. Contracting authorities must pay valid, non-disputed invoices within 30 days of receipt.

Benefit: This change means that the default timescale in which the invoice must be paid is 30 days from receipt, rather than from validation (provided the invoice is not disputed on receipt). This should ensure swifter payments for suppliers.

Implied payment terms in sub-contracts^{[footnote 14]}:

Change: Section 73 of the Act extends implied 30-day payment terms into public sub-contracts that mean suppliers must pay valid, non-disputed invoices from members of their contract supply chain within 30 days of receipt.

Benefit: The extension of implied terms to include sub-contractor payments by default, rather than contracting authorities only being able to require an express provision in the sub-contracts to stipulate it, ensures that 30-day supply chain payment terms are now implied directly into all public sub-contracts.

Implied right to terminate a contract

See Contract Termination, below

Change: The PCR 2015 included implied terms for terminating a contract due to a contract being subject to a substantial modification which would have required a new procurement procedure, or a supplier being subject to an exclusion ground. Section 78 of the Act builds on the right to terminate in the PCR 2015, including an implied right to terminate a public contract where the contract has been awarded or modified in material breach of the provisions in the Act. It also includes the implied right to terminate a contract where the supplier or sub-contractor is an excluded or excludable supplier.

Benefit: The extension of implied terms to include sub-contractor terminations by default will reduce the burden on contracting authorities to have an express provision in their contracts. The wording and process that must be followed in terminating a contract under section 78 is clearer, giving contracting authorities more certainty.

Regulated below-threshold contracts: Implied payment terms

Change: Section 88 Implies 30-day payment terms into regulated below-threshold contracts, which is a new provision that did not exist in the previous regime.

Benefit. This new provision means that a requirement to pay invoices within 30 days is implied into all regulated below-threshold contracts, reducing the burden on contracting authorities and increasing prompt payment to a greater number of suppliers.

Prompt Payment

The late payment of invoices has historically been an issue for many UK businesses, particularly for SMEs and VCSEs. It can have a damaging impact on suppliers and supply chains, affect cash flow management, sub-contractor and staff payments, and plans for business growth.

The Act aims to strengthen the rules surrounding late and unfair payment practice in public sector contracts by:

Implying, by default, 30-day payment terms for valid and undisputed invoices into public and regulated below-threshold contracts, with some exemptions.
Extending this provision to cover payments made under contracts by suppliers to all sub-contractors in the public supply chain, ensuring that 30-day payment terms flow through supply chains by default.
Increasing the scope of these payment provisions to public utilities and defence.

This diagram shows the intended flowthrough of 30-day payment terms within supply chains:

Suppliers and sub-contractors within the supply chain are entitled to receive late payment interest wherever they are not paid within 30 days, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998.

Publication of Payment Performance Data (Section 69)

Under the previous regulations (PCR 2015 113(7)), contracting authorities were required to publish information online, annually, about their compliance with 30-day payment terms.

Under the Procurement Act, this is done by publishing a payments compliance notice^{[footnote 15]} to the central digital platform. Its purpose is to enhance transparency surrounding how quickly the public sector pays its suppliers, incentivise faster payments taking place, and align the public sector with current private sector reporting standards.

As previously mentioned, the transparency provision will have a separate commencement date - until then implemented, contracting authorities can continue to publish this information online as they do currently.

The key differences between PCR 2015 and the Act are:

Data must be published every six months (within 30 days of the reporting period ending), rather than annually.
Additional data is required, including average number of days taken to make payments and percentage of payments not made in the reporting period. Late payment interest liability statistics have been removed.
Data must be formally approved by a finance director (or equivalent).

Contracting authorities should work closely with the organisation’s Finance team to manage any change from current practices.

4. Contract Termination

The Procurement Act sets out three key provisions on contract termination.

Implied right to terminate public contracts (section 78): which implies a termination clause into every contract which was required to be included (or was implied) in most contracts under the previous regime.
Terminating public contracts: National security (section 79): a specific requirement for terminating contracts on grounds of national security.
Contract termination notices (section 80): A second new provision that requires contracting authorities to publish a contract termination notice on termination of a contract (subject to exemptions).

These provisions apply to the termination of public contracts procured under the Procurement Act 2023 only.

The Act does not intend to prescribe all circumstances under which contracting authorities can terminate a contract, but the changes are designed to improve clarity, certainty and transparency for contracting authorities, suppliers and the public on the subject of contract termination.

4.1 Terminating a Contract

Implied Terms for Contract Termination

Section 78 implies a term into every public contract allowing for the contracting authority to terminate the public contract in the event that one of the following grounds applies:

78(2) a) where the contracting authority considers that the contract was awarded or modified in breach of the Act or the SIs;

78(2) (b) where a supplier (or associated person) has, since the award of the contract, become excluded or excludable;

78(2) (c) where a sub-contractor has become excluded or excludable.

Definitions for associated suppliers and excluded/excludable suppliers can be found in Summary Document 6.

Termination for Excluded or Excludable Suppliers

As part of the contract management strategy it is good practice to regularly review whether suppliers are stated as excluded or excludable suppliers.

If a supplier appears on the debarment list for a mandatory exclusion ground or a discretionary exclusion ground, or a contracting authority finds that - following a review of the supplier’s circumstances - they should now be classified as an excluded supplier, then the contract can be terminated under the term implied by section 78.

If this same review process shows that the supplier should now be classified as an excludable supplier and a discretionary ground applies, then the contract can be terminated under the term implied by section 78.

Terminating a Contract

If one of grounds 78(2)(a)-(c) apply, then certain steps must be taken prior to terminating the contract:

Give the supplier notice of the intention to terminate the contract.
Specify the relevant ground (78(2)(a)-(c)) that applies and why the authority has decided to terminate the contract.
Give the supplier a reasonable opportunity to respond to the decision to terminate, and make representations about whether they believe the termination ground applies.
Where termination is on the grounds of a sub-contractor being excluded or excludable, give the lead supplier reasonable opportunity to cease their arrangements and, if necessary, replace them with an alternative provider.
The terms of the relevant contract will also need to be followed in order to terminate the contract.

Sub-contractors

To terminate a contract on the ground that a sub-contractor is an excluded or excludable supplier (78(2)(c)), contracting authorities must have requested information about the lead supplier’s sub-contractors as part of the original procurement process (as detailed under section 28 of the Act), and either:

1. Have not been made aware of the supplier’s intention to sub-contract some or all of the contract performance, or

2. Sought to determine whether the sub-contractor in question was excluded or excludable (including where the sub-contractor is on the debarment list) prior to contract award and did not know this was the case.

If the requirements for termination are met, the contracting authority should consider the supplier’s representations in its decision whether to terminate the contract. Subject to these representations or if the supplier is unable to replace an excluded or excludable sub-contractor, the contracting authority can proceed with the implied right to terminate the contract under section 78, subject to any other terms of the contract..

Termination on the Grounds of National Security

In addition to the steps listed above, if a contracting authority intends to use section 78 to terminate a contract on the grounds of national security (on the basis that the discretionary exclusion ground applies listed in paragraph 14 of Schedule 7), they must first obtain approval from the relevant Minister of the Crown under the process set out by the National Security Unit for Procurement in the Cabinet Office.

If a contracting authority intends to use section 78 to terminate a contract on the grounds of national security (on the basis that the mandatory exclusion ground applies listed in paragraph 35 of Schedule 6), they must first notify the relevant Minister of the Crown of their intention under the process set out by the National Security Unit for Procurement in the Cabinet Office.

Other Types of Termination

Other types of contract termination include, but are not limited to:

Expiry	Where the contract has reached its end date (including any extensions).
Discharge by Performance	Where the contract obligations / deliverables are fulfilled, payments made and any disputes settled.
Early Termination for Breach	Where one or more parties are found to be in breach of contract.
Termination by a Party	Where either party exercises a contractual or implied legal right to end the contract.
Termination by Mutual Consent	Where both parties agree to end the contract.
Rescission	Where the contract is reversed and its parties restored to the position they were in before the contract was signed.
Set Aside by Court Order	Where the contract is declared to be invalid by a legal judgement.
Breach of the Act / Regulations	Where the contracting authority considers that the contract was awarded or modified in material breach of the Act or regulations.
Contract Frustrated	Where unforeseeable circumstances make performance of the contract impossible.

Termination: Express Conditions of Contract

It is not possible to include an express contract clause in a public contract that overrides or restricts the provisions of these implied terms, as set out above, However, as the Act states, a contract may contain provision about restitution and other matters alongside the terms implied by the Procurement Act 2023.

It is good practice to include clear and unambiguous terms within the contracts that outline:

The steps to be taken in the event of a breach of contract or poor supplier performance (to avoid dispute should the event arise during contract delivery).
Additional terms under which the contracting authority or supplier may exercise a contractual right to terminate the contract early, and any associated notice period(s).
Any compensation that may be associated with early termination (to protect the supplier’s position).

Contracting authorities should consider having a clear contractual term that covers what sums are payable on termination, either for goods or services provided or by way of compensation in the event of termination by any means - including by the terms implied by the Procurement Act 2023.

Termination in Accordance with the Act

Whilst it is important to have flexibility when considering the termination of a contract, it is also important to ensure that contracting authorities act in good faith with respect to their contracted suppliers.

Contracting authorities should not terminate a contract, in whole or in part, in a way that seeks to circumvent the Procurement Act 2023 or Regulations, to avoid compliance with any other relevant law, or to avoid international obligations. Terminations must be fully compliant with the Procurement Act 2023 and the objectives set out therein.

When terminating a contract, contracting authorities should keep records around the decisions made and actions taken.

4.2 Contract Termination Notices

Contract termination notices^{[footnote 16]} are a new provision aimed at improving transparency surrounding when and why contracts are terminated.

A contract termination notice communicates to the marketplace that a contract has ended - including the reasons why it has ended. The contract termination notice must be published within 30 days of the contract ending, and is published on the central digital platform (using an eSender where relevant).

Where multiple contracts have been awarded through one procurement process (e.g. multiple lots to different suppliers), a single contract termination notice may be used to confirm termination, where applicable. Where KPIs are measured and published, a final assessment should be completed and a contract performance notice published in addition to the termination notice.

Alongside standard information about the contracting authority, supplier and contract, contract termination notices must include:

The reasons for termination
The date of termination
Whether the termination is a result of a breach of contract
The estimated value of the public contract, at the time of expiry

Termination on the Basis of Supplier Performance

As discussed earlier, a contract may contain termination rights for poor performance etc. If the contract is terminated in full, for either reason, then a contract termination notice must be published (rather than a contract performance notice) including details of the reasons for termination. For partial termination, a contract performance notice should be published, and a contract termination notice is not required.

This is to ensure that there is a clear public record of where contracts are being terminated due to breach of contract and poor performance. Using a contract termination notice instead of a contract performance notice means that contracting authorities can avoid having to publish two separate notices that are essentially telling the market the same information.

A contract termination notice must be published within 30 days of termination taking place.

Remedies

Failure to comply with the requirements set out in Parts 3, 4, 6 and 8 may be a breach of statutory duty, leading to contracting authorities being challenged under Part 9 (Remedies for breach of statutory duty).

65. Key performance indicators: Fact sheet

This fact sheet provides an overview of key performance indicators (KPIs) as they apply under the Procurement Act 2023, including your responsibilities to set, assess and publish data.

What are KPIs?

Key performance indicators are contractual targets against which a supplier’s contract delivery can be measured. They should be designed around the most important contract deliverables. They must clearly link to the wider contract objectives and should also include minimum satisfactory standards and performance escalation protocols, should these not be met.

In some cases, a KPI could be something that you are already monitoring by default - e.g through internal service audits or quality assessments - or something that your supplier is already providing you with data for, e.g. through management information.

KPIs can be a useful and objective tool for measuring a supplier’s performance against contractual obligations. Low scores can be used as a mechanism to trigger contract improvement measures, and to signpost you towards the performance areas that are in need of change.

Do I need to set KPIs?

Prior to the Procurement Act 2023, central government departments, their executive agencies and non-departmental public bodies had to adhere to requirements to publish KPIs as indicated by the Cabinet Office ‘Commercial Playbooks’ (Sourcing, Consultancy, Construction and Digital Playbooks). Under section 52 of the act this requirement is extended to include most public sector contracting authorities:

Before entering into a contract with a total estimated value of more than £5m, you must set (in agreement with the supplier) at least three key performance indicators. You then need to publish the three most appropriate KPIs as part of the contract details notice.

Once set, you must assess and publish information about the supplier’s performance against these three KPIs on at least an annual basis for the remainder of the contract. See appendix 1: KPI flowchart for the end-to-end process.

Exemptions to KPI publication

Certain contracts are exempt from the requirements to set, assess and publish KPI information:

utilities contracts awarded by a private utility
concession contracts
light touch contracts
establishing a framework (however, contracts awarded under a framework are not exempt)
dynamic markets (however, contracts awarded under a dynamic market are not exempt)

Even if you are not obligated to publish KPIs you may still wish to set these in your contract as a means of monitoring supplier performance and as part of performance improvement planning. See fact sheet: supplier breach and poor performance.

In addition, you are not required to set KPIs if, in accordance with section 52(2), you consider that the supplier’s performance could not appropriately be assessed by them. For example:

contracts for a one-off purchase
contracts where the complexity of the deliverables cannot be clearly expressed in a specific, measurable, achievable, realistic and time-bound (SMART) target.
where the data collected and / or published could represent a risk to national security.

What KPIs might be suitable for my contract?

KPIs should be designed based on what aspects of contract performance are the most important to its success. They should be specific, measurable, achievable, realistic and timebound, including:

1. a clear and realistic target linked to one or more contract objectives

2. a scoring mechanism to determine the supplier’s performance under that KPI, and

3. a “minimum score” that, if not met, could trigger performance improvement measures.

Examples:

Contract objective	KPI	Target score	Frequency measured	Minimum score
Maintain buildings so that no safety risk is presented	% critical health and safety repairs completed monthly	100%	Monthly	95%
On-time delivery of business-critical goods	% deliveries made on time and in full	95%	Weekly	90%
Swift response to security issues at a sensitive site	% urgent call-outs attended within 30 minutes	98%	Quarterly	95%
Delivery of services that meet the needs of service users	% of users rating the service as “good” or “outstanding”	90%	Monthly	80%

Equally, there are KPIs that may add little value to your contract and actually cause additional cost instead. Suppliers may raise their tender prices to “price in the risk” of failing to meet KPIs, or to cover the additional work needed to gather and present performance data. Increased internal costs may also be incurred.

Assessing KPIs

To enable consistency and ensure that data is comparable across contracts, the central digital platform will require KPI data to be published using the following standardised rating system: Good:

Performance is meeting or exceeding the key performance indicators
Approaching target: Performance is close to meeting the key performance indicators
Requires improvement: Performance is below the key performance indicators
Inadequate: Performance is significantly below the key performance indicators
Other: Where performance cannot be described as good, approaching target, requires improvement or inadequate (e.g. where no data is available or where relevant service delivery has not taken place).

Where an alternative scoring methodology is used for assessing KPIs, then it is important to think about how you can align your methodology with this standard system. See appendix 2 for an example of how this could look.

You must ensure that suppliers understand what is being measured, when, how and against what scoring system.

Publishing KPI data (section 71(2))

At least once every 12 months (but more frequently, if provided for in the contract), you must assess and publish details of supplier performance against your contract’s three main KPIs. You do this by publishing a contract performance notice to the central digital platform. Only the lead supplier should be assessed and reported on, not their subcontractor(s).

It is good practice to discuss and agree scores with your supplier(s) before publication, but no supplier has the ability to block publication or amend an assessment.

The contract performance notice has two functions. The first is to publish KPI assessment data to the central platform; the second, separate function is to report on breach of contract or supplier poor performance (as detailed in fact sheet: supplier breach and poor performance).

Amending KPIs

Changing one or more KPIs for reporting: If one or more contract KPIs become obsolete and no longer measured, then - where the contract allows it - it is best practice to nominate a different KPI to be published (in agreement with the supplier) and to include details of this in the next contract performance notice published.

However, you will still be obliged to report on the original KPIs, even if this means just submitting a nil return.

Modifying one or more contract KPIs: Where there are any changes to what is measured by an existing KPI, or to the scoring criteria used for measurement, then details must be provided as part of the next contract performance notice.

Changing contract KPIs would not usually constitute a contract modification in its own right, but if it results in other changes to the contract - such as price, contract duration or the economic balance - then contracting authorities must consult section 74 of the act (modifying a contract) to determine whether the amendment is permitted, and what actions are required.

Appendix 1: mapping standardised scores to KPIs

Mapping the % scores awarded to a supplier against the standardised Cabinet Office rating system for reporting KPI performance (example):

KPI	Good	Approaching target	Requires Improvement	Inadequate
% critical health and safety repairs completed monthly	100%	98 to 99%	96 to 97%	95%
% deliveries made on time and in full	95%	93 to 94%	91 to 92%	90%
% urgent call-outs attended within 30 mins	98%	97%	96%	95%
% of users rating the service as “good” or “outstanding”	90%	88 to 89%	81 to 87%	80%

Note that ‘inadequate’ would typically be the minimum % score that you would accept, and the trigger point for performance improvement mechanisms.

Appendix 2: process flowchart for setting, monitoring and measuring KPIs

66. Implied terms: Fact sheet

What are implied terms?

An implied term is a contract term that has not been expressly agreed by any of the contracting parties, but which is implied into the contract by virtue of its existence in law.

This is different from terms that are expressly agreed into contracts by all parties. The Procurement Act contains a number of implied terms designed to set out the rights and obligations of contracting authorities and/or suppliers in their delivery of public contracts.

How do they work?

An implied term can be legally relied on by parties to the contract. They cannot be removed from a contract, restricted or overwritten by an express term. Therefore, it is important for you (and your suppliers) to understand that these terms will be a feature of the public contracts you award under the Procurement Act.

The Public Contracts Regulations (PCR 2015) and their counterparts already implied several terms into the contracts that were made under them. The Procurement Act retains these terms, but also extends their scope into several new areas.

Section	Implied terms in the Procurement Act	Exemption(s)
Section 48	Frameworks Gives contracting authorities the right to exclude a supplier that is, or has become, an excluded or excludable supplier since the award of the framework, from participating in any further competitions.	N/A
Section 67	E-invoicing Requires contracting authorities to accept and process for payment any valid, non-disputed electronic invoices.	N/A
Section 68	Implied payment terms in public contracts Implies 30-day payment terms into most public contracts. Contracting authorities must pay valid, non-disputed invoices within 30 days of receipt.	Concession contracts. Contracts awarded by a private utility or by a school.
Sections 73	Implied payment terms in sub-contracts Extends implied 30-day payment terms into public sub-contracts: suppliers must pay valid, non-disputed invoices from members of their contract supply chain within 30 days of receipt.	Concession contracts. Contracts awarded by a private utility or by a school.
Section 78	Implied right to terminate a public contract Gives the contracting authorities the right to terminate the contract if one of the following termination grounds apply: • the contract was awarded or modified in breach of the act • a supplier has become excluded or excludable • a subcontractor has become excluded or excludable	N/A
Section 88	Regulated below-threshold contracts: implied payment terms New provision that implies 30-day payment terms into regulated below-threshold contracts. Contracting authorities must pay valid, non-disputed invoices within 30 days of receipt.	N/A

67. Supplier poor performance and breach of contract: Fact sheet

This fact sheet is designed to provide an overview of how poor supplier performance and breach of contract are managed under the Procurement Act 2023, steps you may take if a supplier is not performing against its contractual terms, and the associated transparency requirements.

What are breach and poor performance?

The act has introduced performance measures that are intended to capture - and protect contracting authorities from - the most serious and persistent failures in contract delivery.

Breach of contract

This is where a supplier fails to meet one or more key terms agreed on contract award, which is generally serious enough (or ‘material’) so that the contract cannot be delivered as agreed. The act requires a breach to be “sufficiently serious” for performance measures to apply, which it outlines in section 71(3) as being a breach that results in:

full or partial contract termination
the award of damages
a settlement agreement

Poor performance

This is a failure to deliver aspects of the contract to the contracting authority’s satisfaction, taking into account the frequency, duration and impact on contract delivery. Serious and persistent failings are those that are repeated, or cause the most disruption to the contract. Section 71(4) of the act states that performance measures apply where:

the supplier is not performing the contract to the contracting authority’s satisfaction
has been given proper opportunity to improve performance and
has failed to do so

Poor performance examples:

failure to meet one or more KPIs over a period exceeding 3 months
poor feedback from service users (where this is integral to contract performance)
poor account management service, meaning a frequent need to escalate issues

Breach of contract examples:

refusing to deliver contractual obligations
non-compliance with a key contract term, such as the renewal of an insurance policy
failure to adhere to a joint investment agreement linked to contract delivery

How does the act help to manage poor performance?

Contract performance notice (Section 71(5))

Section 71 sets out that you must publish a contract performance notice in the event of breach of contract and / or poor performance in a contract (private utilities and light touch contracts are exempt from this publication requirement). This is alongside the need to set, assess and report on KPI scores (see fact sheet: KPIs for more details). In addition to increasing transparency around contract performance, the notice should also increase accountability and visibility, which should act as a deterrent towards poor performance.

Poor performance and KPIs

KPIs are mandatory under the act for certain contracts over £5m. They can be a useful and objective tool in any contract for measuring a supplier’s performance, identifying any gaps between contractual obligations and actual delivery. Low scores can also be used as a mechanism to trigger contract improvement measures, and can signpost you towards the performance areas that are in need of change. It is important to note poor performance or breach of contract can relate to any contractual requirement, not just the KPIs agreed for publication.

Actions in the event of poor performance

Section 71(5) of the Procurement Act instructs that a contract performance notice must be published in the event of supplier breach or poor performance.

In the event of poor performance, however, you must first provide the supplier with “proper opportunity” to improve their performance. These must be contractual measures that may take the form of an improvement or performance management plan, or similar, and set out:

details of performance issues / areas for improvement, with corresponding evidence
the improvements required and associated timescales
actions the supplier must take, and required targets or outputs
clear deadlines for meeting these requirements
consequences for failing to do so (e.g. part termination of certain services, and the publication of a contract performance notice) the supplier’s express agreement to these terms

To ensure this ground can be easily relied upon, contracting authorities should ensure that they include, within their contracts, clear “trigger events” (i.e. the circumstances that would constitute poor performance or breach of contract) and set contractual measures that will be applied in the event of poor performance.

Transparency requirements

In the event of supplier breach of contract or poor performance, a contract performance notice must be published within 30 days of the event taking place.

Contract termination

If the breach / poor performance results in the termination of the contract in full, then a contract termination notice should be completed instead of a contract performance notice.

Partial termination of a contract

If the breach / poor performance results partial termination of a contract e.g. service elements and their proportionate costs being withdrawn from the contract and where the contract term and / or value of the whole contract decreases (or increases) information about the amendment should be included in the contract performance notice.

Breach / poor performance and the exclusion grounds

The same definitions of breach and poor performance are given in section 71(3) and (4) as they are for the discretionary exclusion ground set out in schedule 7(12) (breach of contract and poor performance). It is therefore important that you complete a contract performance notice to report when breach or poor performance has occurred, and ensure the information provided is accurate and provides the fullest picture possible of the issue(s).

How can I improve performance management?

Agree KPIs with your supplier regardless of the contract value and measure these regularly to help identify potential issues at an early stage.

Set clear performance expectations through the tender notice, documents and contract.

Agree in the contract escalation, performance improvement or similar measures in the event of poor performance. Define in the contract what the “trigger point” is for poor performance.

68. Supplier poor performance and breach of contract: Flowchart

Appendix 1: exemptions from publication

This table lists the organisations and contracts that are exempt from publishing one or more of the notices as listed in the flowchart above. If your organisation, contract type and/or modification ground does not appear in the table below, then publication is required.

Type of notice	Exemption
Contract performance notice (for breach / poor performance reports)	• Private utilities • Light touch contracts
Contract termination notice	• Private utilities • Direct award - user choice contracts

69. Modifying an above-threshold or convertible contract: Step by step guide

This guide takes you through the steps typically followed when modifying a public contract or ‘convertible contract’. A regulated below-threshold contract that, following modification, exceeds the relevant threshold set out in schedule 1 of the act and is now a public contract. See appendix 1 for exemptions to the publication requirements.

Step 1 - assess the requirement

Identify the potential impact of the modification (e.g. increase / decrease to contract value, increase / decrease to contract duration, etc.). Continue to step 2.

Step 2 - grounds for modification

Identify the appropriate ground for modification and ensure that you meet all applicable conditions in full.

Reason for modification	Associated modification ground
To exercise an optional contract clause	Schedule 8 (1): provided for in the contract
Extreme urgency or for the protection of life	Schedule 8 (2 and 3): urgency and the protection of life, etc
Due to unforeseen circumstances arising	Schedule 8 (4): unforeseeable circumstances
Because a known risk has materialised	Schedule 8 (5 to 7): materialisation of a known risk
To make additional purchases	Schedule 8 (8): additional goods, services or works
To novate the contract to a new supplier - it is not permitted to change a supplier under any circumstances other than schedule 8(9)	Schedule 8 (9): transfer on corporate restructuring
In response to changes in technology	Schedule 8 (10): for defence authority contracts only
Continuity of supplies to the armed forces	Schedule 8 (11): for defence authority contracts only

Or, where none of the above grounds apply, modification is permitted where:

Reason for modification	Associated modification ground
The modification is not substantial	Section 74 (3): not substantial
The modification itself is below-threshold	Section 74 (4): below-threshold

Does your modification meet the criteria of one of the above grounds?

If yes, continue to step 3.

If no, modification is not possible and a new procurement is required.

Note, it is not permitted under the act to artificially separate one single modification that would not be permitted under the above grounds, into multiple smaller ones.

Step 3 - below-threshold modifications

Is the modification a “below threshold” modification (section 74(4))?

If yes, confirm that the total aggregated value of modifications made under this ground during the life of the contract will remain below the relevant threshold amount that applies to your contract, as detailed in schedule 1. If so, continue to step 4.

Note, modifications under the “below threshold” ground (74(4)): the value of any single modification, and the total cumulative value of modifications made under this ground during the life of the contract, must be below the relevant threshold amount that applies to your contract, as detailed in schedule 1. This does not include the value of modifications made under other grounds, i.e. the grounds detailed in schedule 8.

If making this modification would result in the aggregated value of modifications made under this ground exceeding that threshold, then modification under this ground is not permitted.

If no, continue to step 4.

Step 4 - agree terms

Agree the terms of the modification with the contracted supplier(s), adhering to any internal governance processes that may apply. Continue to step 5.

Step 5 - publish a contract change notice (where applicable)

Many modifications require you to publish a contract change notice, unless an exemption applies - see appendix 1 for a list of exemptions.

Are you exempt from publishing a contract change notice for this modification?

If yes, you do not need to publish a contract change notice unless you want to observe a voluntary standstill, continue to step 7.

If no, you must publish a contract change notice, then continue to step 6.

Step 6 - voluntary standstill period (optional)

Prior to publishing a contract change notice, decide if you wish to observe a voluntary standstill period of no less than 8 working days. Note, it is not possible to observe a voluntary standstill period unless you publish a contract change notice. Are you observing a voluntary standstill period?

If yes, observe the voluntary standstill period (min. 8 working days) then continue to step 7.

If no, continue to step 7.

Step 7 - contract signature

Sign the modified contract, and arrange for the supplier to sign it also. Continue to step 8.

Step 8 - publish the modification (where applicable)

Where a contract change notice is published and the value of the modified contract is over £5m (including the value of the modification), this is a ‘qualifying modification’ and you must publish a copy of the contract as modified / the modification itself - within 90 days of modifying the contract, unless exempt from doing so.

a. Were you exempt from publishing a contract change notice, and/or are you otherwise exempt from publishing contract documents for this modification? (See appendix 1)

If yes, continue to step 9.

If no, continue to step 8b.

Was the total value of the contract over £5m before this modification was made?

If yes, you may publish a copy of the modification itself only (e.g. as an addendum).

If no, you must publish a full copy of the contract documents, as modified. Then continue to step 9.

Step 9

Keep a full record of the contract modification for audit trail purposes.

Appendix 1: exemptions from publication

This table lists the organisations and contracts that are exempt from publishing a contract change notice and/or modified contract documents. It also lists the modification grounds where publication of a contract change notice and contract documents is not required. If your organisation, contract type and/or modification ground does not appear in the table below, then publication is required.

Exempt from publishing a contract change notice

Specific contracts / contracting authorities:

defence and security contracts
light touch contracts
contracts awarded by a private utility
contracts awarded by a transferred Northern Ireland authority - unless it was awarded as part of a procurement under a reserved procurement arrangement or a devolved Welsh procurement arrangement

Applicable to all contracting authorities:

provided for in the contract (schedule 8(1)) - contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded (modification ground schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice
where the modification increases or decreases the contract term by less than 10%
where the modification increases or decreases the contract value by less than 10% (goods & services) or 15% (works) - unless they are a convertible contract, then a contract change notice must be published

Exempt from publication of modifications

defence and security contracts
light touch contracts
contracts awarded by a private utility
contracts awarded by a transferred Northern Ireland authority - contracting authorities do not have to publish a contract change notice when taking up an option that was already provided for in the contract as awarded (modification ground schedule 8(1)), provided that the modification was built in to the contract value and/or term (as applicable) listed in the respective contract detail notice
contracts awarded by a devolved Welsh authority - unless it was awarded as part of a procurement under a reserved procurement arrangement
contracts that are below £5m in value (including the value of the modification)