2.28 The inclusion of value testing provisions in contracts should make the initial contract price lower since the private sector is less exposed to the risk of bearing cost increases in the operational phase of the contract. However, we do not know what effect including benchmarking and market testing has had on the pricing of the original deals. There is no available data on how the contracts would have been priced without such arrangements although the expectation is that the contract prices would have increased as the private sector would have been exposed to not being able to recover from the public sector cost increases above the rate of general inflation. In addition, we noted in Figure 17, some early PFI deals where it was not clear whether some individual contract terms had affected the pricing of the deals.
17 | Contractual clauses which favour an authority or contractor in a benchmark/market test | |||
| Project | contract issue | What this meant in practice | cost of including this clause in the contract |
| Norfolk and Norwich university Hospital | Service caps that limit the price rise for each service (para 2.8). | The caps limited the financial risk to the Authority and put the emphasis of the market test on a comparison of quality between the suppliers. | unknown – the issue of service caps was never identified as a separate cost by the bidders. |
| Queen Elizabeth Hospital, Greenwich | 'Right to match' whereby the incumbent has the right to match the preferred supplier of the market test (para 2.8). | The incumbent won the market test, but there was concern expressed by the Trust that this clause could have a negative effect on competition in the future. At least one potential supplier decided not to enter into the market test because of the 'right to match' clause. | unknown. |
| Hereford and Worcester magistrates' Court | Only a downward price adjustment is allowed on the first benchmarking (para 2.13). | The benchmarking has over-run as the 'downwards only' clause may have been a disincentive to the contractor to complete the process. | unknown. |
| Source: National Audit Office interviews of Project Teams | |||