Key Performance Indicator (KPI)

A Key Performance Indicator (KPI) is a specific, measurable metric included in a contract—typically within a Service Level Agreement—to assess the contractor’s performance during execution. KPIs might measure aspects such as system uptime in IT services, number of complaints per month in cleaning services, delivery time, or quality standards. KPIs offer an objective framework to gauge whether the contractor meets the agreed service levels and contractual obligations.

While EU procurement law does not mandate KPIs universally, the trend toward performance-based contracting is prevalent. Under the UK’s Procurement Act 2023, for instance, contracting authorities are required to set and publish at least three KPIs for contracts valued over £5 million—a shift toward greater accountability and transparency. The broader concept of performance-based contracting, commonly used in fields such as defense and infrastructure, ties payment or contract continuation to measurable results against established KPIs.

In practice, KPIs help contracting authorities monitor and manage contractor performance throughout the contract lifecycle, enabling clear expectations and precise evaluation. KPI tracking supports effective contract management—facilitating early detection of issues, transparency, and informed decisions such as corrective action or potential termination. For contractors, knowing the KPIs upfront helps align their delivery efforts and resources with performance expectations.