The contract provisions were:
º Benchmarking was to occur every 5 years at year 5,10,15 and 20.
º A group of services were to be benchmarked in aggregate including catering, domestic services, laundry, portering, security and domestic services.
º The project had performed well to date with good relationships and services being described as "on the whole good and responsive." Although there had been debates over quality issues for example catering.
º The contract permitted for benchmarking to be initiated by either party 10-12 months prior to the benchmark date.
º It required that the group of services was considered relative to six comparable projects with the same or similar services.
º The benchmarking process was to be managed by the FM sub-contractor who would prepare the review which included the reference price from six comparable projects and applicable adjustments. They were to provide their views on price and substantiate both the benchmarked prices and any adjustments they proposed.
º If the parties could not agree then they would proceed to market testing
Experience in practice
º 6 comparable projects could not be identified - only 2. Neither party could agree on the proposed comparability adjustments and therefore entered into a negotiated settlement.
º The negotiated agreement was outwith the terms of the contract; not ideal for any party. There was no agreed basis as to how to proceed and in the end, the original benchmarking report was used to identify the issues which required to be negotiated and agreed.
º The Procuring Authority had to facilitate access to the benchmarking information that was available due to a reluctance to share cost information between competitors. There was also resistance on the public sector side to share information.
º Both parties preferred this approach - market testing was perceived as a last resort.
º The Procuring Authority had developed an expectation of the likely price increase, based on recent employment initiatives and the cost of their inhouse team. They had a clear concept of the benchmarking envelope and providing the final settlement fell within this envelope they could assess the results as Value for Money.
º An agreement was reached which both parties felt was value for money. The relationship was strengthened and services continue to be provided well.
Recommendations
º The Procuring Authority should have a clear view of the acceptable outcome from the benchmarking process and should be prepared to negotiate hard for this outcome. The threat of market testing focused the negotiations to a pragmatic solution.
º Know the market - this is the only way to demonstrate VfM and ensure you negotiate the best settlement.
º As a negotiated settlement was used, both parties agreed that the costs would be re-reviewed in 3 years rather than the 5 years (the next benchmarking date). This gave both parties the time to revert to market testing in time for the 10 year review.
º The negotiated settlement worked well at the first benchmarking date but could not be relied upon throughout the concession. If benchmarking data was not available for the second or third benchmarking periods, market testing would need to be followed.