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should we market test a benchmarking report which does not follow the requirements of the contract?

12 September 2017

Issue

Every five years, the prices for soft facilities management (FM) services are supposed to be recalibrated to reflect current market rates. The FM provider is supposed to choose a comparator site and come up with an updated price for soft FM services calculated on the similarities and differences with the comparator site.

In many cases, however, the provider carries out only a superficial comparison and comes up with a new price which has no relationship to the other site. More often than not, this price is the one the provider wants in order to remain profitable.

Market testing remains a great unknown. If a new provider wins one of the services, the two providers will have to work together. Typically the hard FM provider will run the helpdesk and will continue to do so throughout the project term. Although the trust’s contract is with project company, inevitably it will be the trust’s users and patients who will suffer from any disputes between the two providers.

There seems to be very little appetite in the market for FM providers to bid on each other’s sites. This is even more problematic if you have been aggressive in taking deductions as any projects seen as distressed will be avoided. This means the only provider likely to bid in the market testing will be the current one. If they know this, there is very little to stop them from bidding high, on the knowledge that the trust will have no other option but to accept the bid.

Solutions

  • Avoid market testing if your project is distressed - this will mainly depend on the level of deductions and the number of disputes over the past five year period. You could carry out informal or soft market testing to see whether companies are likely to bid.
  • Negotiate the benchmarking proposal - not only are there risks for the trust in market testing, but the current FM provider will want to avoid losing any of the services. This is a good opportunity to negotiate to make changes and savings for both parties.
  • Review the services before market testing - in benchmarking, the current services are used as the baseline and any changes need to go through the variation procedure. However with market testing, changes to the specification may not need to go through the variation procedure. This is a good opportunity to review the services and make the changes you need.

At Browne Jacobson we aim to deliver solutions to PFI problems and would delighted to discuss this or other solutions to any PFI issues you may have.

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