The project deed outlines the intervals and processes for reviewing and recontacting of reviewable services. Typically, this will occur every five, seven or 10 years. Contract directors should ensure the review and re-pricing commences early enough for a full and proper process to occur. It may take up to 12 months to complete the services review process which can be impacted by a number of factors, including:
• the number and type of services that are being reviewed;
• the processes used in the review; and
• the current relationship between the government party and the private party.
In the first instance, contract directors should refer to the processes outlined in the project deed and the contract administration manual, and consider the level of complexity involved. The private party may also be reluctant to provide information to the government party as the review process approaches, and a contingency should also allow for unexpected delays in the process. Good communication with the private party will minimise the risk of drawn-out negotiations. Appropriate planning can also prevent delays in government party approvals which might result in the current reviewable services term being extended for a short transition period.
(a) Understanding the reviewable services process contained in the contract
The approach to reviewable services must be undertaken in accordance with the project deed. The project deed will outline which services will be reviewed (if any), and at what time intervals this must occur. It will also detail the processes to be used in the services review, which may involve:
• a submission to the government party by the private party;
• benchmarking against other comparable services; or
• market testing by way of a competitive tender.
If there are insufficient details in the project deed, the process should be agreed upfront by the government party and the private party. However, before engaging with the private party, the contract director should have established an agreed State position on the desired process, and considered any desired changes to the services specifications or payment regime to ensure the government party's position is achievable and represents value for money.
As the review may be a complex process, contract directors should seek legal, commercial and technical advice to assist with understanding key issues, such as how subcontractor margins are provided for in the current service payment. Previous experience indicates that the use of a specialist facilities management adviser firm is highly recommended, as they understand the current facility management services markets, have access to current market rates, and will be able to assist with the benchmarking and market testing (which can be difficult in non-comparable markets), if required. In a full-service PPP project, it may also be necessary to engage other advisers to advise on service delivery and cost implications of operational aspects of the project.
The contract director should also undertake early discussions within the government party, in terms of the funding implications of the services review. As the cost of services in the next reviewable services term may increase rather than decrease, the contract director should start engaging with the finance area and/or DTF to provide early notification of potential changes to the project's funding requirements, and to agree on funding strategies.
(b) Reviewing the services specification and performance regime
In order to understand the level of performance that the government party will request as part of the services review, the contract director should engage with the key project stakeholders and user groups to understand their future service requirements, and to ensure these are aligned with the level of performance requested. The government party should form a working group of key stakeholders and user groups to review the current performance requirements, and to find out if they are appropriate to meet the future service requirements. If not, the government party may need to make changes to the performance requirements, which may include:
• changes to performance targets for existing KPIs;
• changes to the abatement amounts applicable to existing performance targets;
• introducing new KPIs where these are necessary to ensure a satisfactory level of service; or
• removing existing KPIs where these are unnecessary to ensure a satisfactory level of service.
The review should also consider whether any aspects of the existing service requirements are unclear or ambiguous, and identify any clarifications or changes required to the services specification.
The review may identify changes in the scope of services to be provided by the private party. Changes to the scope of services that require a material change to the project assets or the services should be implemented through the State-initiated modification regime. However, it may be appropriate to plan the timing of such modifications to coordinate them with the repricing of reviewable services.
(c) State's position on the reviewable services
Based on the agreed service requirements, the facilities management adviser will develop a revised service specification, payment regime and service costs that should be benchmarked with industry standards. This will form the basis of the government party's evaluation and negotiations with the private party.
(d) Engaging with the private party
Once the government party's initial position has been established, the contract director should engage with the private party as early as possible. This is important as the private party may interpret the requirements of the reviewable services processes outlined in the project deed differently to the government party, and it may take some time to come to an agreement on the actual processes to be followed.
Ultimately, for the services being provided, the government party and the private party will need to agree on:
• the actual processes to be followed in the services review;
• the service level requirements (and any associated KPIs);
• an appropriately calibrated abatement regime; and
• the cost of the services for the next reviewable services term (and how the change in cost will be paid).
The private party may seek other variances based on their practical service delivery experience which the government party will need to carefully consider including:
• clarification of the services requirements or changes to the performance regime;
• any recommendations for innovations, service improvements or efficiencies;
• provision of additional services, which raises a range of issues for the government party (e.g. Are the additional services required? Can they be funded? Will they affect the delivery of other services such as 'hard' maintenance?). If these changes are acceptable to the government party, they should be implemented through the State-initiated modification regime; and
• provision of services by a new subcontractor(s), in which case the contract director should have regard to the provisions in the project deed concerning the engagement and replacement of subcontractors.
The contract director should seek to ensure that the private party does not change the risk allocation or introduce new margins as part of the review. This will require assistance and advice from the legal and technical advisers.
Approval of the new reviewable service contracts will be required from a number of different entities on both the private party and the government party sides. Therefore, in planning the timing of the process, the contract director should ensure that there is adequate time allowed for all approval processes to be undertaken.