A-Z of construction law Our beginner’s guide to legal basics reaches K, and the increasingly important notion of the key performance indicator
K is for KPIs
Key performance indicators have been associated with the construction industry since, at least, Sir John Egan’s Rethinking Construction report in 1998. In the simplest terms, they are data sets against which the performance of a project can be benchmarked in areas such as time, cost, health and safety, quality and client satisfaction. Although all these may be measurable, some areas, such as time and cost, may be measured objectively whereas client satisfaction may be considered as subjective. However, benchmarking is vital to ensuring that the performance of the industry measurably improves over time.
Although there are no KPIs that must be used, there are a number of recognised sets such as those Constructing Excellence publish each year. These are the UK Construction Industry KPIs, and are based on data collected by the business and enterprise department. These KPIs can be accessed on line by an interactive system that allows the user to build its own set of KPIs.
In certain sectors (such as PFI and PPP contracts) KPIs have become established concepts but these tend to relate to the operational phase of the project. Here, KPIs have a clear contractual effect; for example, there may be deductions if there is a lack of service availability. The corollary is that bonuses may be paid if performance exceeds the KPIs.
Benchmarking is vital to ensuring that the performance of the industry measurably improves over time
Where there is partnering in the supply chain, there are greater perceived benefits of improving performance from one project to the next. This is why some of the contracts that deal with the build end of partnered projects have KPI provisions and these include the JCT Constructing Excellence Contract, PPC2000 and NEC3 (by using options X12 or X20). Sometimes, even though contracts have provisions that anticipate KPIs, the parties signing up to the contract do not implement (or possibly even agree) on the KPIs.
In what may prove an interesting twist, site waste management plans (which must be used on all projects worth more than £300,000) will, in effect, require the benchmarking of waste generation. Typical KPIs will be the number of cubic metres of waste per £100,000 of project value or per 100m2 of floor area. A failure to compare estimated waste with actual waste is an offence under the regulations, which could be seen as an effective incentive to monitor KPIs.
Michael Conroy Harris is a senior legal manager at Eversheds