1.5 We commissioned Nabarro as our legal consultants to examine the expected effectiveness of the benchmarking/market testing contract clauses for a sample of 34 PFI contracts, across departments, 13 of which were signed before the standardisation of contracts was introduced, and 21 of which were signed subsequently. The following analysis is based on a limited sample of PFI contracts and does not necessarily indicate what the outcome will be of using these terms. In the sample examined, Nabarro concluded that most of the benchmarking clauses and half of the market testing clauses were expected to have limited effectiveness (Figure 8). In these cases, where Narbarro's review of the contract clauses suggested that they were to have limited effectiveness, it may nevertheless be possible for the parties to carry out effective value testing if they develop suitable processes which may not have been set out in the contract.
8 | An assessment of the expected effectiveness of the benchmarking and market testing clauses in 34 PFI contracts both before and after Treasury introduced the Standardisation of PFI contracts in July 1999 (SoPC)1 | ||||||||
| Type |
| Benchmarking clauses |
|
| Market Testing clauses |
| ||
| Before the 1999 first standardisation of contracts | Effective | Expected qualified effectivenss2 | Expected to be not effective | Total | Effective | Expected qualified effectivenss2 | Expected to be not effective | Total |
| After the 1999 first standardisation of contracts3 | 1 | 6 | 6 | 13 | 5 | 2 | 6 | 13 |
| Total | 4 | 5 | 12 | 21 | 12 | 7 | 2 | 21 |
| Type | 5 | 11 | 18 | 34 | 17 | 9 | 8 | 34 |
| Source: Nabarro | ||||||||
NOTES 1 Further information on the methodology for this analysis is set out in Appendix 2 including the rationale behind the selection of the 34 contracts. 2 A clause was given 'qualified' status when it contained elements that could limit its effectiveness. 3 There have been three further iterations of contract standardisation which have occurred since 1999 – SoPC 2, 3 and 4. | |||||||||
1.6 Figure 8 shows that in our sample, market testing provisions are generally expected to be more effective than benchmarking provisions and have improved since contract standardisation was introduced. The legal opinion by Narbarro indicates that benchmarking provisions show less improvement since standardisation and at least half of the contracts were judged to have ineffective benchmarking provisions which, unless addressed by project teams, will have a detrimental effect on the value testing process. Effectiveness of the clauses was limited in factors such as:
■ no evidence of clear steps being given as to how to proceed with benchmarking;
■ no clear identification of comparator groups for the benchmarking; and
■ the public sector not having the right to audit the benchmarking data.
The Treasury has provided guidance on these issues in its 2006 document Operational Taskforce Note 1: Benchmarking and Market Testing Guidance. Our findings have highlighted, as recognised in the Treasury guidance, that authority teams on early PFI projects may need to engage early with the SPV in order to assess whether there are any weaknesses in the value testing clauses within their contract and to agree how best to make these clauses workable.
1.7 Projects we visited supported these findings by saying, for example, that although the contracts identified when the value testing was due to be completed, they were unclear on the process to achieve that outcome. We have shared our findings on individual contracts with the relevant authorities in order to help them deal with any weaknesses in their benchmarking provisions. The Treasury's new guidance will also help the authorities.