Some PPP contracts require periodic 'market testing' or benchmarking of certain sub-services in the contract, to allow costs to be adjusted to market conditions. This is typically done where a PPP includes provision of a long-lived asset (such as a school or hospital facility) together with 'soft' services where market contracts are typically of shorter duration (such as cleaning). This approach is most common in PPP contracts in the United Kingdom Private Finance Initiative (PFI) tradition. One objective is that the price charged for the soft services should be kept in line with market conditions, through periodic challenges or benchmarking exercises. The other reason for market testing 'soft' services is that service providers would normally be reluctant to provide a fixed price (with simple inflation indexation) for such services over a long period of time, because the actual costs are likely to get out of line with the indexation.
A United Kingdom Operational Taskforce note provides detailed guidance on benchmarking and market testing approaches [#232]. The United Kingdom's Department of Health has also produced a code of best practice on benchmarking and market testing in hospital PFIs [#252]. This code provides guidance on how to manage the market testing process, focused on health facilities contracts-see also [#254].