Effective procurement in the public sector is not just about awarding a contract to a supplier. It is about nurturing relationships, setting the right expectations and ensuring value for money over the lifetime of the contract and for the communities that the project serves.
An important element in successful procurement is how you manage supplier performance. This is the ongoing monitoring, evaluation and engagement that turns a contract into a successful delivery of goods, services, or works that serve public needs. For procurement teams in the UK public sector, solid supplier performance management is increasingly vital in light of recent legislative changes under the Procurement Act 2023.
In this guide, we explore what it means to manage supplier performance, how the Procurement Act is reshaping expectations and practical guidance for procurement teams on embedding strong supplier performance management from the earliest stages.
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What does it mean to manage supplier performance?
Managing supplier performance refers to the ongoing process of ensuring that a supplier meets the agreed standards, targets and obligations throughout the life of a contract. It is a combination of measurement, communication and collaboration, designed to deliver quality, efficiency and value. At its core, supplier performance management includes:
Defining clear and measurable objectives for supplier delivery at the outset (whether around timeliness, quality, cost control, social value or other criteria).
Putting in place supplier performance metrics and other procurement KPIs to track whether these objectives are being met.
Regularly reviewing supplier delivery against those metrics, identifying any gaps or risks early.
Engaging with the supplier when issues arise, to understand root causes, agree remedial actions and monitor improvement.
Fostering open communication, feedback loops, and, where relevant, early supplier involvement so that suppliers understand expectations and feel invested in long-term success.
This proactive approach contrasts with a hands-off mindset, where performance issues may only come to light at the end of a contract or after failure to deliver. In supplier performance management, the focus is on continuous oversight, partnership, and active engagement.
Why supplier performance management matters more than ever: The Procurement Act and KPIs
The Procurement Act 2023 marks a significant shift in the regulatory framework for UK public procurement. For the first time, the Act makes it a legal requirement for many large public contracts (over an expected value of £5 million) to embed and publish measurable Key Performance Indicators (KPIs). This change formalises what for many was already a best practice, but means that it’s no longer merely optional.
Under the new regulations, the contracting authority must set and publish at least three supplier KPIs to assess their performance throughout the whole contract lifecycle. Once the contract has been awarded, the authority must produce a Contract Performance Notice (CPN) at least once every 12-month period, and on termination, to show how the supplier performance matches up against the KPIs.
This change places transparency, accountability and performance measurement at the heart of public procurement.
How to embed supplier performance management effectively
We’ve compiled some practical steps procurement teams can take to set up and manage supplier performance effectively, from the earliest stages of procurement right through to contract completion.
Define clear, measurable, relevant supplier metrics at contract award
Choose at least three indicators (as required for contracts over £5 million) that align to the core outcomes of the contract (e.g. delivery timescales, quality standards, social value metrics, responsiveness, sustainability targets).
Ensure that these KPIs are specific, measurable, achievable, relevant and time-bound (SMART); where possible, include baseline and target values so that performance can be objectively assessed.
Consult with suppliers early. Early supplier involvement helps build a shared understanding of what matters most and what is realistic, ensuring KPIs are mutually agreed and practically deliverable.
Integrate KPI monitoring into contract management processes
Establish data collection mechanisms from the start. Agree how and when KPI data will be reported, by whom (supplier, contract manager, independent auditor) and in what format.
Assign responsibility internally for performance management and monitoring (e.g. a contract manager, project lead, or procurement team member) so that oversight isn’t left ad hoc.
Set a schedule for regular performance reviews at least annually (to meet CPN requirements) but ideally quarterly or bi-annually for large or complex contracts.
Maintain open communication and transparency with suppliers
Share KPI results with suppliers routinely, discuss any variances or underperformance early and don’t wait for problems to escalate before taking action.
Treat performance management as collaborative, not punitive. Where KPIs are missed, work with the supplier to understand the root causes and agree remediation plans and support to give the best chance of long-term success.
Embed feedback loops: encourage suppliers to surface issues early and suggest improvements. This can be especially valuable if contract scope, risk or requirements change over time
Document performance and decision-making carefully
Keep clear records of all KPI data, assessments, communications and any remedial actions agreed. This ensures accountability and helps if contract performance notices or termination becomes necessary.
Align your internal monitoring with the ratings framework mandated by the Act (e.g. “Good,” “Approaching target,” “Requires improvement,” “Inadequate,” or “Other” where measurement was not possible). This will help to ensure that published ratings are consistent and defensible.
Periodically review and adapt KPIs as the contract evolves
It’s important to recognise that priorities can shift over a contract’s lifecycle (e.g. volume delivery phase, service-delivery phase, maintenance phase). Select the three most material KPIs at each review stage and publish them accordingly.
If necessary (and contractually permitted), revise or add new KPIs if required, but ensure any modifications are documented and published in accordance with the Act’s requirements.
The benefits of robust supplier performance management
Putting in place strong supplier performance management delivers multiple tangible advantages for public sector organisations and ultimately for taxpayers. These benefits include:
Spotting issues in real time: By tracking performance regularly, procurement teams can identify and address problems early before they escalate into major failures or delivery delays. This proactive oversight is far more effective than reactive audits at contract end.
Greater accountability: Because KPIs and performance assessments must be published, both contracting authorities and suppliers are held to account. This transparency helps safeguard public trust. Poor performance cannot simply be ignored, and any decisions (such as termination or remedial action) are backed by official records.
Improved collaboration and communication: Regular reviews and open dialogue create a partnership dynamic rather than an ‘us vs them’ scenario. Suppliers know what is expected, understand where they fall short, and can work with the authority to improve. Early supplier involvement helps embed this collaborative mindset from the start.
Better value for money and risk mitigation: Supplier performance management enables organisations to ensure deliverables meet quality, cost and time expectations. It reduces the risk of failure, cost overruns, reputational damage and contractual disputes.
Evidence-based decision-making and future procurement insight: Performance data collected over time becomes a valuable asset. It can help inform future procurement decisions, supplier selection for subsequent tenders and internal process improvements.
Enhanced transparency and public trust: The publication of KPIs and performance results helps demonstrate to stakeholders (including the public) that procurement processes are being managed responsibly, savings are being delivered and public funds are being deployed efficiently.
How we can help you manage procurement supplier performance
Our range of procurement solutions and support services are designed to help public bodies to navigate procurement projects with a clear strategy and an efficient approach. With our flexible and compliant solutions, you can access proven high-quality pre-approved suppliers across a wide range of different areas. This helps to reduce the admin burden and the time it takes to get to market, along with providing support on various supplier metrics that can help you manage performance and achieve your objectives.