1.2.1 Although the Contractor may take on some services which are incidental to the hard FM services (such as wall or ceiling finishes, PAT Testing and minor maintenance, as outlined in Section 7.1 (Introduction and Range of Services to be provided)) and could be seen as being on the interface between hard and soft services, these would not of themselves normally be significant enough to warrant any value testing regime and these provisions would not apply to them.
1.2.2 Market testing means the re-tendering by the Contractor of a relevant Soft Service to ascertain the market price of that Service. This may lead to the replacement of the Sub-Contractor operating such Service by the winning bidder. Any increase or decrease in the cost of such Service following market testing should be reflected by an adjustment in the price charged to the Authority.
1.2.3 Benchmarking is a process by which the Contractor compares either its own costs or the cost of its Sub-Contractors for providing certain Services against the market price of such Services. This may lead to a price adjustment, but not to a change in the sub-contractor providing the Service.
1.2.4 The Services provided by the Contractor that are suitable for value testing are limited to Soft Services. This term will include Services such as facilities management services for an accommodation project (e.g. catering, cleaning and security), to the extent they do not involve a significant capital outlay in their performance or affect the value of any capital asset under the Contract. These services are suitable as the prices charged by the incumbent sub-contractor and by various potential sub-contractors for such services from year to year should be comparable. Where an incumbent sub-contractor has incurred capital costs, its price cannot be expected to compete with the price of a bidder who was not required to incur those capital costs. Services such as building "re-fit" or lifecycle maintenance or "heavy maintenance" of equipment should not generally be market tested or benchmarked. These services are referred to as "hard services".
1.2.5 Providing for periodic value testing of soft services in the Contract may benefit both the Authority and the Contractor. Testing against the market is an important mechanism for the Authority to ensure that the soft service costs remain value for money over the life of the Contract and that the Contractor does not become complacent in its pricing or delivery. In addition, if the Contractor was required to enter into a fixed price long-term contract for soft services (with a simple indexation mechanic without any form of periodic testing, significant risk reserves may need to be built into its price. This in turn would not offer value for money to the Authority. It is important that both the Authority and the Contractor understand the purpose of the value testing process and the results it may yield. In particular, if the Contractor has misjudged its original service delivery bid or is inefficient in its operation, value testing should not be viewed by it as a means of passing Service or delivery risk back to the Authority.