2.1 Benchmarking is the process by which the PPP contractor compares either its own costs (usually in practice the costs of its subcontractors) of providing soft services against the current market cost of such services. This comparison may indicate that the PPP contractor's current or proposed price is appropriate for the period to the next benchmarking exercise. However, if the PPP contractor's costs are higher than market benchmark costs, this would warrant a reduction in the price to be charged to the public sector, and consequently a reduction in the unitary charge. Alternatively, benchmarking can result in an increase to the unitary charge where the service provider's costs are lower than market. The Project Agreement should specify the relevant percentage movement in contractor's costs which will trigger a price adjustment to the unitary charge.
2.2 Where a requirement to benchmark is included in a contract, it is usually applicable every 5-7 years. There are a few exceptions to this general rule, e.g. in some contracts there is a longer initial period until the first benchmarking before more typical intervals apply for the remaining duration of the contract.
2.3 Benchmarking is a technical cost comparison exercise between the contractual partners to ensure that the PPP remains a fair and efficient vehicle for long-term service delivery. In practice, if benchmarking results in outcomes where the parties can not reach an agreement the contract normally provides for the parties to proceed to carrying out a Market Testing exercise.