Are KPIs in the Procurement Act the equivalent of a shipping forecast for the built environment?

The general consensus is that the Procurement Act, which is due to come into effect next week (24 February), can be seen as evolutionary rather than revolutionary. However, one notable addition is the use of KPIs.

With the aim to maximise value and accountability, the act requires projects in excess of £5m to set at least three key performance indicators, which must be published in the contract details notice (on entering into contracts) and then the supplier’s performance against those KPIs published at least every 12 months.

In many respects KPIs have the same familiarity as the shipping forecast. It may feel odd in the 21st century that we need a twice-daily radio broadcast of the weather out at sea in Cromarty, Fair Isle and Dogger. Whether or not the forecast still saves lives at sea or places a nostalgic blanket of comfort over the country on a stormy day may be up for debate, but it does have many devotees (myself included).

And so it may be with KPIs. Will they drive better outcomes and improved performance in public procurement, or merely serve as a comfort to us all that we have the industry challenges in our collective consciousness?

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Setting KPIs is left to the discretion of procuring authorities. Good and bad approaches to KPIs have been debated for many years, but still perhaps not as widely as they should be.

Goodhart’s law springs to mind, named after a 1970s economist and often summarised as “when a measure becomes a target, it ceases to be a good measure”. While KPIs are widely accepted as having value, the contrary argument here is that people will gamify the process to achieve the target rather than perform to or beyond their obligation – and thus neglect qualitative aspects of performance.

The tide does seem to be shifting towards procurement of outcomes and not deliverables

In construction, an example of Goodhart’s law would be a focus on production rates. Having KPIs for output (for example, the number of bricks laid in a week) may encourage quality to suffer and mistakes and poor workmanship to be covered up.

It may get one metric the desired attention, but not others. Clearly contract KPIs are unlikely to be at this granular level of detail, but they could become targets and not indicators of performance.

The government’s guidance does, rightly, recognise that priorities may change over the life of a contract, allowing for reporting to be adjusted: “The KPIs to be included must be those regarded as most material at the time the contract performance notice is published, so may change over time.”

However, the tide does seem to be shifting towards procurement of outcomes and not deliverables. Procuring outcomes changes the focus from bricks and mortar to the intended outcome from the built asset (for example, better educational attainment or reduced carbon emissions). KPIs are the bridge between contracting for outcomes and contracting for the bricks and mortar.

We have had industry KPIs for many decades… The Procurement Act shifts KPIs from playbook to legislation

It is suggested in the Construction Playbook (and therefore logical) that KPIs  used under the act should be aligned to outcomes. The Value Toolkit that is now distributed by Constructing Excellence is certainly of use in helping define value from project inception to operations.

Defining KPIs well at tender stage can be a key way of linking values through to contractor selection criteria and onwards to delivery. The KPIs may get more than lip service if the contractor’s performance against them is published and project teams are required by the Procurement Act to actively monitor the KPIs.

However, we have had industry KPIs for many decades. They have been a solution for, among other things, improved performance, client satisfaction, safety and skills shortages. The Procurement Act shifts KPIs from playbook to legislation.

I, for one, will stay tuned to the drive for KPIs in the same way I get my daily fix of the shipping forecast. KPIs will be a barometer of the state of play of a project, portfolio and our industry. I do hope that they drive better outcomes, but I am more hopeful that they are a transition step to more widespread outcome-based contracting.

Paul Beeston is RLB’s head of industry and service insight