In-Depth: Contractual performance and debarment under the Procurement Act 2023: implications for suppliers

On 24 February 2025, the new public procurement regime for England, Wales and Northern Ireland under the Procurement Act 2023 (the “Act”) came into force.  The procurements of contracts for the significant supply of goods, services and works to the public sector[1] which start on or after that date will be governed by the Act.

While the Act introduces widespread reform to procurement rules, one area which public sector suppliers should pay close attention relates to the significant changes made to the management and assessment of contract performance and delivery. 

In particular, in this article we outline:

• the enhanced role of ‘Key Performance Indicators’;
• exclusion grounds for poor performance; and
• the debarment provisions, 

and explore what the impact for suppliers might be going forward. 

To read a summary of these changes and their practical impacts please see our earlier article here.

(1) Key Performance Indicators (“KPIs”)

Under the previous regime, central government departments have been required to comply with certain KPI reporting obligations as specified in the UK Government Cabinet Office’s Commercial Playbooks (and those will continue to apply alongside the Act’s new provisions). 

However, the Act has now established the use of mandatory KPIs to provide clear benchmarks or targets for contracting authorities to assess supplier performance over the lifetime of a public contract.

Before entering into a public contract with an estimated value of more than £5 million, a contracting authority is now required to: (a) set a minimum of three KPIs in respect of the contract; and (b) publish any KPIs that are included (sections 52(1) and (3)). 

A KPI is defined as a “factor or measure against which a supplier’s performance of a contract can be assessed during the life-cycle of the contract” (section 52(4)). 

The requirement to specify three KPIs does not apply if the authority considers that a supplier’s performance cannot appropriately be assessed by reference to KPIs, and guidance published by the Cabinet Office indicates that this could include contracts for a one-off delivery of goods or the delivery of off-the-shelf goods.[2]

Further, an authority is required to publish the three KPIs in a ‘contract details notice’ (section 53(1)). Specifically, there must be a description of the three KPIs which the authority regards as being the most ‘material’ to performance at the time the notice is published. If it considers that the three KPIs are only an initial snapshot in time and that different KPIs would be relevant when considering those that are most material over a contract’s life, an authority should also include those KPIs in the notice. This might occur, for instance, where initial performance is concerned with transitional service arrangements but the main objective of the agreement is the subsequent service delivery.

The details of these targets or benchmarks will depend on the nature of the contract and services in question, although in principle KPIs could (by way of example) relate to timeliness of delivery (e.g. a percentage of milestones that are met on schedule), quality (e.g. the number of issues reported for each deliverable), cost management (e.g. any disparity between budgeted and actual spend), health and safety compliance, environmental targets and social value pledges. 

(2) Assessment against KPIs and Publication

Linked to the above, where KPIs have been incorporated into a public contract, authorities[3] will be required – at least once every year during the contract’s lifecycle and on termination – to:

• assess performance of the supplier against the KPIs; and

• publish information relating to that assessment in a ‘contract performance notice’ (sections 71(1) and (2)).

It would be open for an authority to assess performance and publish information more frequently than every 12 months.

The KPIs will need to be assessed according to prescribed ratings, being (i) Good (performance is meeting or exceeding the KPI); (ii) Approaching Target (performance is close to meeting the KPI); (iii) Requires Improvement (performance is below the KPI); (iv) Inadequate (performance is significantly below the KPI); and (v) Other (performance cannot be described as any of the above – such as where no KPI data has been recorded by the authority for the relevant period).

In addition and significantly, where:

• a supplier has breached a contract, with the breach resulting in termination (or partial termination), the award of damages or a settlement agreement; or

• an authority considers that a supplier is not performing to the authority’s satisfaction (and has been given proper opportunity to improve performance and has failed to do so), the authority is required to publish information about the breach or non-performance within 30 days (sections 71(3)-(5)).

There is an exception to publication if an authority is satisfied that: (a) withholding the information is necessary for the purpose of safeguarding national security; or (b) the information is sensitive commercial information and there is an overriding public interest in withholding it. For that purpose, sensitive commercial information is defined as information which constitutes a trade secret or would be likely to prejudice the commercial interests of any person if it were published or disclosed. It is likely to be a high bar to meet that test.

(Please note that these provisions under Section 71 of the Act are not yet in force – they are prospective provisions and no commencement date has yet been made. Moreover, the publication requirement concerning breach/non-performance will not apply to light touch contracts). 

(3) Exclusion of suppliers for serious breach or poor performance

The previous rules included grounds for authorities to exclude suppliers from procurement processes, although these have now been enhanced under the Act through a new single exclusion regime under which suppliers can be designated as ‘excluded’ or ‘excludable’ suppliers. 

One noteworthy change is the ability for authorities to exclude a supplier (as an ‘excludable supplier’) on broader discretionary grounds for poor performance under a relevant contract (paragraph 12, Schedule 7 of the Act). This specific exclusion could apply where:

1. a supplier commits a sufficiently serious breach of contract, meaning that it has led to termination, damages or a settlement agreement (or where a court judgment rules that such a breach has occurred);
2. a supplier has not performed the contract to a satisfactory level and has failed to improve performance to the authority’s satisfaction (after being given the opportunity to improve); or
3. an authority has published a notice relating to breach or poor performance under section 71(5) (as described above).

An authority must not exclude a supplier on these grounds unless it considers that the circumstances giving rise to the issue are continuing or likely to reoccur. 

The second and third of these grounds are especially striking as they are based on an authority’s discretion of how a supplier is performing and, in principle, could apply even where a supplier has not breached the relevant contract. That said, the Cabinet Office’s guidance indicates that these are intended to cover serious performance failures as determined by the terms of the contract. Examples given in the guidance include a failure to meet a certain number of KPIs over a set period or a failure to meet other contractual requirements such as delivery dates, specification requirements or quality standards. 

Before any exclusion occurs, suppliers must be given a reasonable opportunity to make representations and provide evidence regarding the applicability of the relevant ground, including whether the circumstances are likely to repeat again. Associated with that, the Act includes a revised ‘self-cleaning’ process which suppliers can use to show how (among other things) the risk of recurrence has been mitigated. 

After any exclusion, an affected supplier also has the right to challenge the authority’s decision, in which case it would need to show that the authority applied the law unfairly or in error. 

It should also be noted that, following the award of a public contract, it will be an implied term of the contract that the authority can terminate where (among other things) the supplier has become an excluded or excludable supplier (section 78(1) and (2)(b)).

(4) Debarment list

Alongside the exclusion regime, the Act has also introduced a new centralised supplier ‘debarment list’, to which Ministers of the Crown can add suppliers. Where a supplier is added, the consequences can be very severe:

• Where a supplier is added to the ‘mandatory’ debarment list, it will be excluded from all procurements for a specified period of time (subject to certain possible exceptions where national security is the reason for debarment); and

• Where a supplier is added to the ‘discretionary’ debarment list, a contracting authority will have a discretion as to whether to exclude the supplier from a specific future procurement (although if such discretion is exercised irrationally, an affected supplier might have grounds to challenge the decision).

Before a supplier is added to the list: 

(a) an investigation by the applicable regulatory authority[4] will need to be undertaken regarding whether the supplier is an excluded or excludable supplier – as part of an investigation the supplier will be able to make representations and the authority can request a supplier’s reasonable assistance including the provision of documents; 

(b) following the conclusion of the investigation, a report must be published and provided to the supplier detailing any applicable exclusion grounds and the associated reasoning; and 

(c) the supplier must be notified of any decision to add it to the debarment list. 

That notice will start an eight working day standstill period, during which time the supplier can make an application to the Court to suspend the debarment decision on an interim basis. The Court will then have to decide whether the supplier’s entry onto the list should be suspended pending the outcome of the supplier’s appeal. If any such application is successful, a supplier will not be added to the list until either: (i) the appeal proceedings have been determined, discontinued or otherwise disposed of; or (ii) where the supplier has failed to bring appeal proceedings within 30 days of when it knew (or ought to have known) of the decision to add it to the list. However, suppliers should be aware that the rights of appeal are limited to material mistakes in law.

What does this mean for suppliers in practice?

The mandatory use of KPIs and the publication requirements mean that there will be enhanced transparency and accountability in public procurements and the performance of contracts post-award. As the new rules mean that contracting authorities can clearly assess performance and publish the results (as part of their objectives to ensure that value for money is being delivered and the public benefit is being maximised), suppliers will face increased public scrutiny concerning the delivery of their contractual obligations.

When a contract faces issues or problems, one can envisage the possibility of authorities utilising these rules to maximise their leverage against suppliers.

For example, where a supplier fails to meet KPIs or receives a negative assessment, contracting authorities and competitors will have visibility of those issues. It follows that the supplier could suffer reputational damage in the market and find it difficult to win similar opportunities in the future. This may also present an opportunity for interested third parties (such as a supplier’s competitors or other operators who were unsuccessful in their own tenders) to challenge or pressurise the actions of authorities about how a public contract is being managed and performed. 

On the other hand, if a supplier consistently meets or exceeds KPIs, it could gain a competitive advantage and use positive assessments as accreditations when bidding for other public contracts.

If a supplier commits a serious breach or there are serious performance failures, it will also face the risk of exclusion from future procurements and/or inclusion on the debarment list. These risks serve as a strong deterrent against inadequate performance and should encourage suppliers to adapt and main high standards in contractual delivery and compliance.

The new rules also increase the chance of commercial disputes arising between the relevant stakeholders. Future disputes are likely to focus on:

• Whether a supplier is meeting KPIs or is otherwise performing in accordance with the terms of the contract and to the contracting authority’s satisfaction;

• Whether information relating to the assessment of a supplier’s performance amounts to sensitive commercial information and, accordingly, whether it should be published; and

• Whether an authority has grounds for excluding a supplier from future procurements and/or adding a supplier to the debarment list.

What should suppliers be doing in anticipation of these challenges?

It is important that suppliers familiarise themselves with the new requirements and provisions under the Act. There are certain steps that suppliers can take to better position themselves in view of the changes and to maintain a competitive edge in the public sector market:

1. To the extent that KPIs are discussed or negotiated during the bidding process, suppliers should seek to ensure that the benchmarks/targets are properly achievable and measurable. Careful and appropriate drafting of the KPIs will be crucial. It is possible that some authorities will adopt standardised KPIs across certain contracts, in which case suppliers will need to ensure that authorities’ expectations are fully understood and are attainable. 
2. Suppliers should assess and, where necessary, update their internal processes. This would include implementing systems to track and report on performance against KPIs, including the use of alert and monitoring systems where a supplier considers that a target might be breached. 
3. Suppliers should ensure that their performance-related data is accurate given that it could be shared with contracting authorities and published. Performance data can also be used to identify any areas for improvement (or ‘self-cleaning’).
4. Suppliers should seek to ensure that their delivery standards and measures are followed by any relevant subcontractors in the supply chain, including accurate and timely reporting of information within the chain. 
5. Suppliers can monitor the performance of their competitors who have won public contracts – such information could be useful when bidding for other opportunities or when seeking to challenge a future award.

If you have any questions or queries concerning this topic or public procurement issues more generally, please do not hesitate to contact us.

[1] With an estimated value of not less than certain threshold amounts.

[2] These requirements also do not apply to framework public contracts (although they do apply to call-off contracts under frameworks over £5 million), utilities contracts awarded by a private utility, concession contracts and light touch contracts.

[3] Except for private utility companies.

[4] Such as the Procurement Review Unit (PRU).