1.11 Market testing allows a more flexible approach to the provision of services than benchmarking because it ensures that the soft service provision for the project can be re-assessed to match public sector requirements at the time the exercise takes place. Market testing also offers greater opportunity for transparency and competition. Consequentially, and because of a greater maturity in the soft services market, it is now the Treasury's view that for simple soft services market testing, rather than benchmarking, is generally most likely to yield the best value for money. However benchmarking, with a fall back to market testing if parties fail to agree on the outcome, in some cases remains an acceptable alternative2. Guidance from departmental Private Finance Units should be sought where benchmarking is proposed instead of market testing for new transactions.
1.12 Some contracts are precise in their requirements and specify whether benchmarking or market testing should be undertaken. Where this is the case the contract should be adhered to.
1.13 Where a contract specifies that services should be benchmarked in the first instance, but the Authority and the Project Company cannot agree a relevant price adjustment following the benchmarking exercise, the contract will normally state that market testing should be undertaken in order to establish market prices for the services concerned.
1.14 Where contracts do not specify either benchmarking or market testing, Authorities may wish to consider whether it would be appropriate, in order to ensure long term value for money, to introduce such provisions. Attempts to introduce benchmarking or market testing into the contract would need to be managed carefully, and may involve lengthy negotiations. Variations of this nature should only be considered where there is a strong value for money argument to do so.
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2 For example, this may be acceptable for more complicated services which involve significant capital expenditure (e.g. on equipment) or which are more integrally involved with the design or maintenance or delivery solution of the project assets.