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KPIs and abatement

KPIs, abatement and service credits: modelling the effect on margin.

Yes, if the stated deductions can exceed the priced contribution in a measurement period. Identify the metric, period, trigger, calculation, cap, overlapping remedies and termination rights, then model two failures under one interaction rule so the same miss is not counted twice. Part of our guide on how to read a 400-page tender in a day.

Published: 16 September 2026 · By Andre · Reviewed by Bill · selrob

Takeaways

  • Write the interaction rule before adding two KPI deductions. Gross is not always applied.
  • Payment timing stays on payment terms. This page is the performance deduction.
  • If the model erases contribution, seek a clarification or reprice at re-qualification.

Can the stated performance deductions erase the priced margin?

Pull the service schedule, not the cover letter. For each KPI write: the metric, the measurement period, the trigger (threshold and direction), the calculation (dollars, a percentage of the monthly fee, a service credit), the cap on that KPI, and what else the same miss can trigger: set-off, a cure plan, termination. Then write how two failures in the same period interact: added, the higher of the two, or added then limited by an aggregate cap.

Uncapped abatement is a risk fail until sized. A thin facilities margin with a busy-week miss is how a deed loses money slowly; that warning sits in the FM losing-contracts playbook. Invoice timing and set-off remain on payment terms.

If the pack is silent on interaction, the model is unfinished. Do not add every schedule line and call the sum conservative. That double-counts. Write a clarification, or reprice when the priced margin no longer survives the rule you can actually read.

Worked month

One month, two failures, one interaction rule

Hypothetical. The buyer, tender and figures are invented to show the fields in use; they are not a client result. Monthly fee AUD 180,000 GST exclusive. Direct cost AUD 153,000. Contribution AUD 27,000. Measurement period: one calendar month.

KPI Threshold Actual Calculation KPI cap Gross this month
A Response 95% Priority-1 on time 91% 2% of monthly fee per point below 95% 8% of monthly fee 4 × 2% = 8% = AUD 14,400
B Availability 99.50% 99.20% 1.5% of monthly fee per 0.10% below 99.50% 10% of monthly fee 3 × 1.5% = 4.5% = AUD 8,100

Interaction rule used in this model: deductions in the same measurement period are added, then limited by an aggregate monthly cap of 10% of the monthly fee. Termination right (not cashed in this month): the Customer may terminate for default if the applied deduction hits the aggregate cap in three consecutive measurement periods.

Applied deduction

Gross, applied, remaining contribution

Line Amount AUD Working
Monthly fee 180,000 Stated
Direct cost 153,000 Stated
Contribution before deduction 27,000 180,000 − 153,000
Gross deduction 22,500 14,400 + 8,100. Not applied.
Aggregate cap 18,000 10% × 180,000
Applied deduction 18,000 min(22,500, 18,000). Each miss counted once, then capped.
Remaining contribution 9,000 27,000 − 18,000

Applying 14,400 and 8,100 as cash would count both failures in full and ignore the aggregate cap. Remaining contribution would then be 4,500, which this model rejects. If the live pack used “the higher of the two” instead, applied would be 14,400 and remaining 12,600. Write the rule you can point to. If you cannot, the month is not modelled.

What does this mean for the bid/no-bid call?

A month that still shows AUD 9,000 of contribution is not a pass if three such months allow termination, or if a busy week can push Availability further. Size a bad month and a bad year against the firm. If the priced margin does not survive the rule as written, seek a clarification or take the changed assumption to re-qualify at pricing before more hours go in.

Keep reading

Elsewhere in this guide.

How to read a 400-page tender in a dayThe service schedule is the rate you actually earn. Payment terms and cash-flow riskWhen the fee arrives. This page is what is deducted from it. The contract that loses money for yearsAbatement that surprises you in month six was on page one of the schedule. IT managed services tendersTransition, credits and exit, where this maths bites hardest. UK KPIs and payment termsStatutory duties and escalation: another jurisdiction.

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