2.13 Contracts, particularly some of the earlier ones, are not always clear on the scope of what should be benchmarked. Where there is a lack of clarity in the contract in terms of the scope of services and costs to be benchmarked, agreement will be required on what is to be included within the benchmarking exercise. This agreement needs to be confirmed before the process starts. Soft services may be tested at the facilities management level and possibly also at the individual sub-contract level.
2.14 It is desirable that the risk profile and contractual relationships of the original contract are not altered. The objective is to quickly and efficiently 'refresh' specification and price without adjusting the basic contractual and value for money framework upon which the contract is based.
2.15 If more fundamental change is to be negotiated, additional issues will need to be addressed - for example, risk allocation, value for money recalculation and clearance of contractual changes. More fundamental changes may arise in the case of older contracts, due to the longer period since the original contract was signed. In these situations it is more likely that circumstances, expectations and commercial terms will have moved on. All parties will have learnt what works and what does not, and possibly both parties will have identified desired changes. In such circumstances a more significant negotiation will be required. This will need strong professional advice in support of negotiations to effect changes whilst preserving a value for money delivery arrangement. If this scenario arises, the Scottish Government (either the appropriate policy contact or FPU directly) should be notified as soon as possible so that any policy considerations and Value for Money issues can be considered.
2.16 In accordance with the above, when more fundamental change arises, professional advice needs to be taken as to the options for negotiation. For example, rather than routine benchmarking the public sector may wish to consider a contract variation to address wider areas of the contract, service or Authority needs. The service performance, cost and vfm implications of more fundamental changes must be fully understood and modelled before as well as during a negotiation. Appropriate Business Case reporting is required, the scope of which should be agreed by the FPU in advance of the benchmarking/market testing exercise.
Benefits of benchmarking / market testing Benchmarking is intended to protect both parties to a PPP contract: - The PPP Contractor The Project Company is provided with a fair price for the service delivered and is protected from unforeseeable cost pressures over the life of the contract which may lead to cost increases significantly above the rate of any inflation indexation which may be included in the contract. These may include: • particular sector-related influences on costs; • geographical influences on costs; and/or • some operational cost consequences of changes in the law. However, benchmarking is not intended to protect a PPP contractor against general inflationary cost increases or to recompense an inefficient service provider for previous losses. The Public Sector The public sector can ensure that VfM of soft services continues to be achieved from the PPP contract. The process should also ensure that the public sector benefits from new technologies and improved methods of service delivery through the life of the contract. Successful benchmarking and market testing will result in tangible benefits that are needed in the public sector, such as: • improving performance and innovation; • improving quality and productivity; • improving performance measurement; • maintaining or improving VfM (for example delivering economies of scale) in relation to the benchmarked services; • provide a better understanding of external market forces in relation to the provision of soft FM services by contractors; and • providing an improved understanding of interface issues between capital assets and related soft FM services |