15.3.1 As noted above, it may be beneficial to include within the Contract provisions for periodic value testing of certain Services provided by the Contractor. By "value testing", this guidance generally refers to either market testing or benchmarking, although other forms of value testing may sometimes be appropriate.
15.3.2 Market testing means the re-tendering by the Contractor of a relevant Service to ascertain the market price of that Service. This may lead to the replacement of the Sub-Contractor operating such Service by the winning bidder. Any increase or decrease in the cost of such Service following market testing should be reflected by an adjustment in the price charged to the Authority.
15.3.3 Benchmarking is a process by which the Contractor compares either its own costs or the cost of its Sub-Contractors for providing certain Services against the market price of such Services. This may lead to a price adjustment, but not to a change in the sub-contractor providing the Service.
15.3.4 The Services provided by the Contractor that are suitable for value testing are generally limited to soft services. By "soft services", this guidance means Services such as facilities management services for an accommodation project (e.g. catering, cleaning and security), to the extent they do not involve a significant capital outlay in their performance or affect the value of any capital asset under the Contract or to the extent capital cost is repaid before the value testing (e.g. ICT in some acute hospitals deals). Specific advice should be taken on the relevancy of this in post primary and higher education projects, given the existing policy. These services are suitable as the prices charged by the incumbent sub-contractor and by various potential sub-contractors for such services from year to year should be comparable. Where an incumbent sub-contractor has incurred capital costs, its price cannot be expected to compete with the price of a bidder who was not required to incur those capital costs. Services such as building "re-fit" or lifecycle maintenance or "heavy maintenance" of equipment should not generally be market tested or benchmarked.224 These services are referred to as "hard services".
15.3.5 Providing for periodic value testing of soft services in the Contract may benefit both the Authority and the Contractor. Testing against the market is an important mechanism for the Authority to ensure that the soft service costs remain value for money over the life of the Contract and that the Contractor does not become complacent in its pricing or delivery. In addition, if the Contractor was required to enter into a fixed price long-term contract for soft services (with a simple indexation mechanic and the assumption of operational change of law risk) without any form of periodic testing, significant risk reserves may need to be built into its price. This in turn would not offer value for money to the Authority. It is important that both the Authority and the Contractor understand the purpose of the value testing process and the results it may yield. In particular, if the Contractor has misjudged its original service delivery bid or is inefficient in its operation, value testing should not be viewed by it as a means of passing Service or delivery risk back to the Authority.
____________________________________________________________________________________
224 In some Contracts, it may nevertheless be possible for the Contractor to market test or benchmark "hard services" because they are of a standard nature (e.g. routine vehicle maintenance). The decision on the appropriateness and extent of market testing or benchmarking should be considered on a case by case basis in such Contracts.