1.4.1 The Authority should specify in the ITPD when the first value testing exercise will take place. Commonly the value testing exercise will occur at five to seven year intervals with a longer interval before the first exercise. The longer initial period (which should be well into the Service Period) should ensure that bidders do not set a deliberately low initial price that they then try to increase through the review. An excessively long initial period may, however, expose the Authority to an unreasonable price premium for transferring this risk. Where benchmarking is appropriate, the first benchmarking exercise could be limited such that it is capable of resulting in decrease in price only or a capped increase in price.
1.4.2 Benchmarking and market testing are the responsibility of the Contractor, from both a cost and management perspective. Depending on the Project, this may involve an independent tender manager being employed to manage the market testing and/or benchmarking processes. Having some independent management level (coupled with appropriate information barriers) would be essential where the current service provider, or any bidder, or any member of their respective groups, had a shareholding interest in the Contractor or relevant sub-contractor.
1.4.3 This guidance assumes that the person providing the soft services to be benchmarked or market tested is an operating Sub-Contractor who has a direct contractual relationship with the Contractor. If the relevant Services are instead being provided by a sub-contractor to such an operating Sub-Contractor, and thus there is no direct contract with the Contractor, the same principles apply. However, in these cases the calculation of pricing adjustments to the Unitary Charge following value testing may become more complicated, since the relationships between cost and price charged to the Contractor become more remote.2
__________________________________________________________________
2 See Chapter 5 of Operational Taskforce Note 1 "Benchmarking and market testing guidance", October 2006.