1.1 This Briefing Note has been prepared by the Scottish Government to assist Procuring Authorities in their understanding of benchmarking and market testing in PPP projects. 'PPP' in this context is interpreted as a long-term contract for the construction, maintenance and provision of LCM and FM services relating to major assets typically for a contract period of 20 to 30 years. Benchmarking / market testing feature in PPP contracts as a mechanism for checking that an appropriate balance of service specification, risk and price is maintained over time. As such it is an essential process in the value for money of such contracts.
1.2 This Briefing Note applies to all PPP contracts in Scotland which have benchmarking and market testing provisions within the Project Agreement. Additional guidance is provided by the Operational Taskforce in the form of a Benchmarking and Market Testing Help Pack which can be obtained from www.partnerships.org.uk. The guidance is only applicable generally to soft services (typically catering and cleaning but occasionally grounds maintenance and other soft services) within PPP projects and where specific benchmarking and market testing provisions apply. In cases where, as a result of a VfM appraisal, an in-house FM provider has subcontracted to the SPV, normal benchmarking provisions should apply and are subject to this guidance.
1.3 This Briefing Note will not normally apply to the insurance or utility elements of PPP contracts. Separate benchmarking guidance in accord with SoPC requirements applies.
1.4 This Briefing Note indicates the policy approach taken by the Scottish Government to the practical application of benchmarking and market testing in PPPs, and will be reflected in future versions of standard contracts. The form of contractual terms to be used will be the subject of separate drafting and consultation. Currently, standard PPP contracts based on SOPC include both benchmarking and market testing provisions and state that market testing should only be undertaken where the two parties have failed to agree any price adjustment following a benchmarking exercise. Some early PPP contracts were signed without benchmarking provisions and this Briefing Note will not be applicable. Further, early projects signed before SOPC3/4 was available may not provide detailed drafting on the conduct of a benchmarking or market testing process. In this situation, the Briefing Note will be particularly relevant.
1.5 This Briefing Note is designed to support contract managers in both public and private sectors. It defines benchmarking and market testing stages and what they should achieve. It identifies the benefits to both the Project Company and the Authority. The Briefing Note covers the general principles to be followed and encourages contract managers to prepare well for benchmarking and market testing so that they can manage the process and outcomes. Individual negotiations will reflect local requirements but should consistently follow the principles and approach of this Briefing Note.
1.6 Benchmarking and market testing also afford an opportunity to review the specification of benchmarked services, which may arise from legislative or policy changes, changes in standards and expectations, etc. Whilst both parties may wish to explore such changes in free negotiation, the exercise does not exist to amend or renegotiate original contract terms and price which have applied up to the time of the benchmarking / market testing exercise. Authorities should be aware that a wider review of the services to be delivered is likely to make the exercise more complex and may result in additional time being required for the market testing and benchmarking process.
1.7 This Briefing Note has been drawn up in consultation with interested parties in the public and private sectors. Where existing contracts may be open to interpretation regarding the purpose and process of benchmarking / market testing, the consultation has indicated that both public and private sector representative bodies and most individual bodies support the processes outlined within this Briefing Note as the preferred way of conducting benchmarking / market testing. Accordingly the Scottish Government will expect the approach outlined within this Briefing Note to be used as the 'best practice approach' in these cases.
1.8 Benchmarking and Market Testing provisions exist in PPP contracts because it is often not practical, possible nor VfM to price soft FM service elements of a contract over, for example, a 25 year period. The process should deliver a price for the next benchmarking period which is value for money and takes into consideration any risk issues - for example, circularity of risk transfer if an in-house Bidder is involved.