3.44 To the extent a review of PFI project services identifies areas where changes to the specification may be appropriate, then it may be efficient for the authority to review standards at a time when they are preparing for a scheduled value test under the contract, so that any changes can be repriced under competitive conditions.
3.45 A key benefit of PFI is linking construction and maintenance obligations for an asset under one contract. This risk allocation incentivises PFI providers to take a whole life cost approach to design, construction and maintenance. Consequently, value testing does not apply to PFI hard facilities management and lifecycle maintenance.
3.46 If value testing of hard facilities management were to be considered, then it should be noted that the division of responsibility for undertaking lifecycle works can vary between the project sponsors and the hard FM subcontractor. This division between sponsors and sub-contractors complicates any benchmarking of costs, and creates risk in the interface between the costs of undertaking works of lifecycle replacement and the costs of undertaking day-to-day maintenance of the various parts of the building structure.
3.47 As a consequence of this division, the hard FM maintenance costs should be considered in the context of the frequency of replacement cycles included within the lifecycle replacement plan. In addition, the specific replacement costs and the frequency of replacement will depend on the original building design. As a result, to review and assess a lifecycle plan comprehensively requires an understanding of the original building design; the obligation to replace "like-with-like" as between the original design and the lifecycle plan; and the adequacy of the maintenance regime to meet the planned lifecycle replacement frequencies.
3.48 As a general rule, changes to contracted lifecycle obligations can risk undermining the long term asset risk transferred to the Project Co and as such it is unlikely to represent VfM to remove hard facilities management services and lifecycle / major maintenance from the contract or introduce value testing thereof. However, as noted earlier, the public sector authority and private sector partners' experience of the short term maintenance requirements of the asset compared with bid assumptions may offer scope for efficiencies, and transparency of the contractor's maintenance costs will be needed to identify relevant savings.
3.49 For some soft and ancillary services, procuring services outside the PFI contract or agreeing value testing provisions may offer better value for the taxpayer. This could be the case if there is an alternative service provider offering better VfM and the contract does not have value testing provisions8 (provided that the services would be value tested were the contract based on SoPC4). Where the service is no longer required (or fully required) by the authority, then it may be appropriate to remove services from the PFI contract. In such cases recalibration of the payment mechanism will be required, and the transparent sharing of contractor costs should be sought to enable appropriate adjustments to the payment mechanism to be made. For more recent local authority projects the annual best value review offers an opportunity to do this.
3.50 The majority of PFI projects that include soft facilities management contain some form of value testing, being either market testing (where the soft services are re-tendered periodically) and/or benchmarking (where the incumbent provider's costs are adjusted to benchmarks periodically). SoPC4 notes that market testing is the preferred value testing exercise for the public sector as it ultimately allows better value for money assessments to be made with respect to the services being tested. Contract managers should make use of available public sector networks to compare information and best practice on the effective value testing of services in their sectors.
3.51 It should be noted that there are costs associated with market testing, including bid costs (which are recovered through tendered prices) as well as mobilisation / demobilisation and associated operational disruption. The scale of such costs needs to be considered in the context of the scale of the soft services element of the unitary charges and potential for savings, taking into account the expected level of competition and the degree to which the soft services are market standard or bespoke (where bid costs are likely to be higher for non-standard requirements).
3.52 Cost reductions achieved through value testing will be a combination of any reduction in the service specification and standards, together with any savings achieved from the competitive process. As the nature of a value test is to seek prevailing market pricing for a service, authorities should be mindful that the results could be better or worse than their pre-existing contract pricing.
3.53 Operational Taskforce quidance on undertaking benchmarking and value testing exercises is available on the Treasury website (at http://www.hm-treasury.gov.uk/ppp_operational_taskforce.htm).
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8 Such contracts will typically be older (i.e. pre SoPC3).