2.9 Some contracts are precise in their requirements and specify whether benchmarking and/or market testing should be undertaken; or whether market testing should take place only if the parties cannot agree a relevant price adjustment following the outcome of the benchmarking exercise.
2.10 PPP contracts in Scotland are normally established on the basis that there are robust service providers capable of fulfilling a long-term commitment to good and reasonably priced service. The incumbent provider should therefore be given the opportunity to demonstrate, through benchmarking, that they can continue to offer that approach within the partnership ethos. Long-term partnerships are intended to provide stability and consistency of approach, as compared to the uncertainty of short-term specifications, budget re-allocations, and changing contractual terms. Regular market testing is therefore a fall-back position rather than the default partnership option that should be opted for if parties are unable to reach an agreement based on benchmarking alone.
2.11 A competitive and transparent process of market testing may be necessary if existing performance and price has fallen below acceptable levels; if the service requirement or prevailing commercial terms have altered materially from the initial specification; or if public confidence has been lost in the current service. In such circumstances the benefits of a market test may outweigh the cost and complexity of potentially changing service providers. (Where the contract contains an option for benchmarking or market testing, consideration should therefore be given to whether there is a case for proceeding directly to a market test).
2.12 For the public sector, value for money and the quality and credibility of the delivered service over the remaining period of the contract are paramount considerations. The Table below summarises the strengths and weaknesses of each approach. Further details can be found within the National Audit Office Report: Benchmarking and Market Testing the ongoing services components of PFI Projects.
| Benchmarking | Market Testing | |
| Advantages | • Cheaper • Quicker to implement • Maintains existing partnership ethos and relationships • Stability of provider can be a catalyst for process improvement • No requirement for a handover to a new provider and the potential need to re-educate users of the facilities | • Competitive process • More transparent process • Flexibility for reassessing service provisions and also performance measurement system since this can be drawn up new without recourse to variation discussions • A new provider may bring new ideas • May be a lower cost |
| Disadvantages | • Difficulty accessing comparable data • Negotiations may be difficult if there is a poor relationship between the two parties and/or there are other issues regarding performance • Robustness of the process and the results is dependent upon the robustness of the comparable data which can be difficult to assess • Potential for disagreements and disputes to drag on | • Lengthy process and may be costly • The incumbent is in a powerful position and therefore may be difficult to attract bidders and run a robust competition • Can be problematic if the incumbent is replaced and they provided both hard and soft FM services • Tendered price may not be negotiable • Possible need for TUPE to a new provider |