15.3.3.1 At the outset of the Project, when developing its business case, the Authority should consider what Services it needs and whether it is appropriate to include soft services (paragraph 4.25 and beyond of HMT's "Value for Money Assessment Guidance" November 2006 contains useful guidance on this). An Authority may decide that only those Services intimately connected with the design solution of the Project, such as hard services, should be included in the Project; a number of hospital projects have taken this route. If soft services are to be included in the Contract, the nature of the individual services and their degree of integration in the design solution and with each other needs to be considered.
15.3.3.2 The Authority should specify in the ITPD when the first value testing exercise will take place. Commonly the value testing exercise will occur at five to seven year intervals with a longer interval before the first exercise. The longer initial period (which should be well into the Service Period) should ensure that bidders do not set a deliberately low initial price that they then try to increase through the review. An excessively long initial period may, however, expose the Authority to an unreasonable price premium for transferring this risk. Where benchmarking is appropriate, the first benchmarking exercise could be limited such that it is capable of resulting in decrease in price only or a capped increase in price.
15.3.3.3 Some early projects have experienced practical difficulties in managing their benchmarking and market testing procedures and some early contracts lack detail on these processes. Contracts in any event are unlikely to provide a comprehensive blue print for such procedures. The Operational Taskforce has published guidance on this entitled "Operational Taskforce Note 1: Benchmarking and market testing guidance" (October 2006)226 which, in particular, sets out the relevant practical considerations to be taken into account. Any practitioners preparing for a market test or benchmark exercise should refer to this.
15.3.3.4 Benchmarking and market testing are the responsibility of the Contractor, from both a cost and management perspective. Depending on the Project, this may involve an independent tender manager being employed to manage the market testing and/or benchmarking processes. Having some independent management level (coupled with appropriate information barriers) would be essential where the current service provider, or any bidder, or any member of their respective groups, had a shareholding interest in the Contractor or relevant sub-contractor.
15.3.3.5 This guidance assumes that the person providing the soft services to be benchmarked or market tested is an operating Sub-Contractor who has a direct contractual relationship with the Contractor. If the relevant Services are instead being provided by a sub-contractor to such an operating Sub-Contractor, and thus there is no direct contract with the Contractor, the same principles apply. However, in these cases the calculation of pricing adjustments to the Unitary Charge following value testing may become more complicated, since the relationships between cost and price charged to the Contractor become more remote.227
___________________________________________________________________________
226 See HMT website at www.hm-treasury gov.uk
227 See Chapter 5 of Operational Taskforce Note 1 "Benchmarking and market testing guidance", October 2006.