As stated in paragraph 11 (Payment Mechanism), the basic premise of the Contract is that the Contractor is obliged to provide all the services and it receives a fixed Service Payment from the Board for this. However, the cost of the provision of some services may be so unknown/unpredictable that it is not good value for the Board for the Contractor to price this risk. To address this, some of the services (typically soft services such as cleaning rather than maintenance) will either be market tested or benchmarked at agreed intervals (usually every five years). This means that the Contractor does not have to include a risk contingency for the costs of such services increasing dramatically in the Service Payment and that the Board is not paying excessive costs for services compared to the rest of the market, as the Contractor will get a degree of price protection during the Operational Term through the Market Testing or Benchmarking provisions. The Market Testing provisions can ultimately allow a sub-contractor to be replaced following a tender competition (as the Contractor is bound to accept the most economically advantageous bid received via market testing) and the Service Payment altered to reflect the new costs Whereas for Benchmarking the Contractor proposes a price for soft services for the subsequent period and the Board can then benchmark the price with comparable services in the market to see if it offers value for money.
It is anticipated that in the majority of areas, a Board will wish to consider using a Benchmarking process, rather than Market Testing as a first option. Boards should refer to guidance on value testing and develop appropriate contractual provisions on a project specific basis