Achieving Agency Goals in Public-Private Partnerships through Key Performance Indicators: Application of Existing Contract and Specification Theory

The U.S. infrastructure system is deteriorating at a rate that is outpacing its available public financing, an obvious debilitating combination. One solution to “tip the scales” and ease agencies’ financial burdens is the use of public-private partnerships (P3) for public infrastructure projects. Performance management is an important tool to help P3s deliver value for money. It relies on key performance indicators (KPIs) to indicate progress toward achieving outcomes. Developing KPIs is challenging as they must remain valid and pertinent throughout the term of a P3 program, which can range from 25 to 50 years and beyond. Existing literature on KPIs focuses on general indicators of successful projects, the most important KPIs for differing project stakeholders, and best practices. What the literature lacks is how to incorporate KPIs into contracts that are quantifiable, enforceable, and realistic in their execution while dynamic enough to be effective over time. This paper uses a combination of flexibility in legal contract theory and international agency guidelines for performance specification writing to present guidelines that will assist agencies and inform researchers on formulating KPI contract language to reach agency goals throughout the duration of the project.