2.4 In the first eight early examples of benchmarking, two projects (the MOD's Defence Fixed Telecommunications Service and the Foreign and Commonwealth Office's Telecommunications Network) had achieved clear benefits by using benchmarking to secure price reductions in competitive markets where communications prices were falling. This was assisted by a good working relationship between the Authority and the private sector and input from specialist advisors.
10 | Information on the projects we visited during our fieldwork in Summer 2006 | ||||||||||
| Project name | department | Project | date of Financial close | capital Value £ million | Estimated lifetime value of services subject to value testing (cash prices in 2006 prices unless otherwise stated) £ million | Annual cost of services at time of benchmarking/ market testing (2005-06) £ million | Operational length of the contract | Services benchmarked/market tested | ||
| Sussex Partnership NHS Trust | Health | Mental health facilities | 24 June 1999 | 22 | 27.81 | 0.9 | 30 years | Cleaning and catering | ||
| Darent valley Hospital | Health | First major hospital contract to be let under PFI | 30 July 1997 | 94 | 153.01 | 5.1 | 30 years | Catering, switchboard, laundry & linen, waste management, portering, portering other (transport/post), domestic, pest control, accommodation (e.g. homes for nurses, doctors) | ||
| Norfolk and Norwich university Hospital | Health | main site of the Norfolk & Norwich university Hospital NHS Trust | 9 January 1998 | 229 | 428.02 | 9.8 | 35 years (for soft Fm services, 60 years for hard Fm services with break options at 35, 40 & 50 years) | Domestic, catering, portering, laundry & linen, security, car parking, waste and grounds maintenance. | ||
| Queen Elizabeth Hospital, Greenwich | Health | The redevelopment of a former military hospital | 8 July 1998 | 113 | 170.01 | 5.7 | 30 years (extendable to 45 years or 60 years) | Portering, catering, domestic window cleaning, pest control, security, car park, residential accommodation, help desk, switchboard | ||
| University Hospital of North Durham | Health | New district hospital for North Durham | 31 march 1998 | 96 | 50.51 | 1.93 | 27 years | Portering/courier service, catering service, domestic service, security/car parking, linen service, helpdesk service, telecom service, estates services | ||
| Debden Park High School | Education | A new secondary school in Loughton | 28 march 2000 | 15 | 5.11 | 0.2 | 25 years | Cleaning, catering, ict support, caretaking and groundskeeping | ||
| Defence Fixed Telecommunications Service (DFTS) | MOD | Telecoms service | 1 July 1997 | 70 | 1,505.04 | 40.25 | 15 years6 | Telecommunications | ||
| Foreign and Commonwealth Office Telecommunications Network (FTN) | Foreign & Commonwealth Office (FCO) | Provides voice data and messaging links for the Foreign Office worldwide | 10 may 2000 | 74 | 180.0 | 32.0 | 10 years | All services subject to benchmarking and market testing | ||
| National Savings and Investments | National Savings | Provision of services for the administration of retail financial savings and investment products (including Premium Bonds) to NS&I customers. | circa April 1999 | N/A | The agreement with Siemens is a Public Private Partnership (PPP) currently in the 7th year of its 15 year term and NS&I estimate that savings to be realised by the agreement against the Public Sector Comparator amount to some £540 million. To acquire a true understanding of the cost savings arising from the agreement, a comparison would need to be undertaken between the actual investment Siemens has made to the business of providing the NS&I services, with the investment that NS&I would have had to provide in-house in order to deliver the same services, as well as quantify the risk and chances of success had the whole operation been undertaken in-house. Given the changes that have arisen since the start of the agreement, this comparison would be difficult to quantify. | |||||
| Hereford and Worcester magistrates' Court | Courts | New courthouses in Kidderminster, Hereford and Worcester. Refurbished courthouse in Redditch | 29 march 2000 | 25 | 20.0 | 0.8 | 25 years |
| Security, cleaning, portering, helpdesk, vending and catering telephone/switchboard and waste | |
| St John's House, Bootle | Office accommodation | 1 February 1997 | 12 | 20.0 | 0.8 | 25 years |
| Cleaning, waste management, grounds maintenance, vending etc | ||
| Source: National Audit Office and Partnerships UK database | ||||||||||
NOTES | |||||||||||
1 This is a proxy figure from the annual cost of the contract multiplied by the years of the contract. This method of calculating the cost of the services for the whole contract life was agreed with the projects when they were unable to identify a figure from the financial model. 2 This sum is taken from the financial model as at December 2005 and shows the projected market tested service values as at December 2005. (These values do not include contract variations which have to be adjusted). The projected total is derived from the addition of the service fee costs across the requested period – August 2001 to August 2036 – to achieve a comparison for a typical 35 year contract. 3 The figure of £1.87 million is just for the soft services the hard services were due the following year. 4 The total cost of the services over the life of the contract is £1,505 million. About 80% of the services are reviewed quarterly and if a service is judged not to be value for money then it can be subjected to the formal contractual benchmarking process. So far, one service has been contractually benchmarked: Restricted Local Area Network Interconnect (RLI). 5 The annual cost of the RLI service before benchmarking. 6 The original length of the contract was 10 years (1997-2007) but has been extended via a renegotiation from April 2005 to July 2012. | |||||||||||
11 | Key Features of the PFI projects that have value tested their services | |||||||
| Project name | Type of services value tested | Value Testing Method | Supplier (after the market testing) | Annual cost of Services (2005-06) | Final Agreed Price change (excluding enhancements) | NAO assessment of whether vfm was likely to have been achieved through the value testing process (see Figure 16) | |
| Sussex Partnership NHS Trust | Soft | market Testing | In-house | £0.9m | 5.7% | Uncertain | |
| Norfolk and Norwich university Hospital | Soft | market Testing | Incumbent | £9.8m | – 2.2% | yes | |
| Queen Elizabeth Hospital, Greenwich | Soft | market Testing | Incumbent | £5.7m | 6% | Uncertain | |
| Darent valley Hospital | Soft | Not applicable1 | £5.1m | – 2.4% | yes | ||
| Debden Park High School | Soft | Not applicable1 | £0.2m | 14% | Uncertain | ||
| Hereford and Worcester magistrates' Court | Soft | Not applicable1 | £0.8m | Not completed | Uncertain | ||
| St John's House, Bootle | Soft | Not applicable1 | £0.8m | 0% (no change) | yes | ||
| University Hospital of North Durham | Soft and Hard | Not applicable1 | £3.5m | 1.2% | Uncertain | ||
| Defence Fixed Telecommunications Service | Telecommunications | Not applicable1 | £40.2m | – 37.3% | yes | ||
| Foreign and Commonwealth Office Telecommunications Network | Telecommunications | Not applicable1 | £32.0m | – 19% | yes | ||
| National Savings and Investments | Financial | Not applicable1 Difficult to quantify | Not yet quantified (Figure 15) | Uncertain | |||
| From the above 11 projects: |
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| Service provider following market tests | |||||||
| Number of projects won by the incumbent | Number of projects won by in-house supplier | Number of projects won by new external suppliers | Total | ||||
| 2 | 1 | Nil | 3 | ||||
| Price changes for those projects that have market tested or benchmarked | |||||||
| Projects | Number of projects which had a price increase | Number of projects which had a price decrease | Number of projects where the price stayed the same | unresolved | Not yet quantified | Total | |
| Buildings | 4 | 2 | 1 | 1 | 0 | 8 | |
| Financial/ Communications | 0 | 2 | 0 | 0 | 1 | 3 | |
| Total | 4 | 4 | 1 | 1 | 1 | 11 | |
| Source: National Audit Office | |||||||
NOTE 1 There is no change of supplier in a benchmarking exercise. | ||||||||
2.5 In the other six projects, the effectiveness of the benchmarking was more varied. A key factor was that a number of project teams told us that comparable data for benchmarking soft FM services was sometimes difficult to find, and in some cases, data collected was of limited use. For example, the nature of the services provided will vary from project to project - cleaning will, for example, vary depending on the configuration of a hospital and the type of clinical services. There may also be regional variations in costs. For benchmarking to be successful therefore, comparable market data often needs to be adjusted to take account of the characteristics of the particular project. The Treasury, in liaison with departments, has started collecting information so that there will be a central source of data which can be used by projects.
2.6 A variety of information databases exist which contain benchmark costs although these will often include non-PFI data which is not directly comparable with PFI projects3. The Department of Health (DoH) is advanced compared with other sectors in providing a costs database, ERIC (Estates Returns Information Collection). However users of ERIC told us there are weaknesses within ERIC which can undermine the value of the data (Figure 12).
2.7 Based on our visits to the eight projects that had used benchmarking, although the projects had experienced these practical difficulties in applying benchmarking, the following factors in certain projects had contributed positively to the benchmarking process:
■ A well structured PFI contract providing an effective means of price adjustment.
■ The use of external FM consultants to collate appropriate data.
■ The authority having a strong negotiating position enhanced by the option to instigate a market test if agreement cannot be reached.
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3 Databases include the British Institute of Facilities Management, the International Property Database and Trade Organisations such as the British Institute of Cleaning Science. However, PFI projects have different contractual arrangements and standards to non-PFI projects. For example, service specifications may be set higher and payment risk regimes will reflect the fact that a service provider may face penalty deductions if the service does not meet the minimum standard.