[LOCAL AUTHORITY]
SCHEDULE 18
BENCHMARKING
This template includes drafting relating to utility benchmarking and net income benchmarking. The benchmarking processes set out in this Schedule may not be relevant in certain scenarios and therefore the Authority should carefully consider which benchmarking process(es) to include on a project specific basis. Similarly, competing facility benchmarking and key user benchmarking may also be relevant for a project, and if so, the relevant drafting can be incorporated from the DBOM benchmarking schedule.
The Authority may decide not to include a Net Income Benchmarking Process in light of the length of the Agreement and the proposed approach to risk transfer, in which case Part 3 of this Schedule and all associated definitions will not be required. It is not recommended that the Net Income Benchmarking Process be included for any Agreements of 10 years or less, indeed its inclusion should be carefully considered for any Leisure Management Contract.
1
Contents
Part 1Definitions
Part 2Utility Cost Benchmarking Procedure
Part 3Net Income Benchmarking Process
PART 1
Definitions
The terms and expressions used in this Schedule shall have the same meaning as set out in Clause 1 (Definitions and Interpretation). The following words and expressions shall have the meanings set out below:[1]
"Actual Income"
means the annual operating income of the Contractor in relation to the[Facility/ Facilities](without double counting and excluding any actual Excluded Items (Income) where the Actual Leisure Management Amount is a deficit figure), generated through the provision of the Benchmarked Services in relation to the[Facility/ Facilities]after adding back in any monies not received by the Contractor due to any fraudulent or criminal act or omission or due to any breach of this Agreement by the Contractor (for the avoidance of doubt, and without limitation to include loss of operating income due to Performance Failure as calculated by reference to Schedule 6 (Payment and Performance Monitoring System));
"Actual Operating Cost"
means the annual actual operating costs as such cost headings are identified in the LOBTA, to include the Head Office Costs and Profit and cost of goods sold, that are incurred by the Contractor in providing the Benchmarked Services in relation to the[Facility/ Facilities](but excluding Excluded Costs);
"Actual Leisure Management Amount"
means the Actual Income less the Actual Operating Costs (where Actual Income is greater than the Actual Operating Costs this shall be a surplus (positive number); where Actual Income is less than Actual Operating Cost this shall be a deficit (negative number)) in relation to the [Facility/ Facilities];
"Actual Utility Cost"
means the actual cost of the Benchmarked Utilities actually consumed or used at each Facility using the Target Consumption Level for the relevant Facility;
"Base Head Office Costs"
means in relation to the[Facility/ Facilities]an amount (Indexed) which is a percentage of the Base Modelled Income profiled on an annual basis for which the annual percentage profile is shown in row [X] of the ‘summary’ worksheet of the LOBTA. The Base Head Office Cost percentage figure is shown in row [X] of the ‘summary’ worksheet of the LOBTA (which at the date of this Agreement is [£X,000] for the first year following the Commencement Date)[2];
"Base Leisure Management Amount"[3]
means the Base Modelled Income less the Base Modelled Costs shown in row [X] of ‘summary’ worksheet of the LOBTA (which at the date of this Agreement for the first year following the Commencement Date gives rise to a deficit operator management fee of [£X,000] payable by the Authority to the Contractor in relation to the[Facility/ Facilities])[4];
"Base Modelled Income"[5]
means the annual operating income (Indexed) that is projected to be earned in relation to the [Facility/ Facilities] by the Contractor in providing the Benchmarked Services as the same are identified in the LOBTA (without double counting and excluding any Excluded Items (Income) projected in the LOBTA where the Base Leisure Management Amount is a deficit figure), as adjusted in accordance with this Agreement;
"Base Modelled Costs"
means the annual operating costs (Indexed) that are projected to be incurred in relation to the [Facility/ Facilities] by the Contractor in providing the Benchmarked Services as the same are identified in the LOBTA (to include the Base Head Office Costs and Base Profit and cost of goods sold but excluding Excluded Costs projected in the LOBTA), as adjusted in accordance with this Agreement;
"Base Profit"
means in relation to the [Facility/ Facilities] an amount (Indexed) which is [X%] of the Base Modelled Income shown in row [X] of the ‘summary’ worksheet of the LOBTA (which at the date of this Agreement for the first year following the Commencement Date is [£X,000])[6];
"Base Utility Cost"[7]
means the cost of the Benchmarked Utilities projected to be consumed or used at [the/ each] Facility and included within the table[s] at Appendix 1 to Part 2 of this Schedule, as may be amended at each Cost Benchmarking Date pursuant to paragraph 3.2 of Part 2 of this Schedule;
"Benchmark Consultant"
means:
an expert appointed by agreement between the parties (subject to paragraph 1.7.2 of Part 3 of this Schedule) who:-
(a)possesses at least five (5) years’ experience of operating in, or as a consultant to, the leisure and sports facilities management industries;
(b)possesses at least five (5) years’ experience of valuing services provided in the aforementioned industries; and
(c)is engaged or employed by a reputable independent leisure organisation which is independent of the parties and of any other operator,
or in the absence of any such agreement:-
(i)a person appointed by such other mutually agreed professional body; or where the parties cannot agree on such person;
(ii)such other competent person who is appointed by an Adjudicator;
provided that the person appointed is independent of the parties and satisfies the criteria set out in (a) to (c) of this definition;
"Benchmarked Services"
means the Services to be procured at the [Facility/ Facilities] by the Contractor to satisfy the Services Specification excluding Hard FM;
"Benchmarked Utilities"
the provision of gas and electricity at the [Facility/Facilities] and Benchmarked Utility shall be construed accordingly;
"Comparable Market"
means the market for sports facilities of similar content to the [Facility/ Facilities] operated by Reputable Operators provided that at least three such facilities are considered and at least one of the three facilities is operated by a different Reputable Operator to the other two);
"Compensatory Amount"[8]
means:
(a)the Actual Leisure Management Amount for the Tested Period of the immediately preceding Net Income Benchmarking Process (Indexed up to the Income Benchmarking Date) or if none the Base Leisure Management Amount for the Tested Period (Indexed up to the Income Benchmarking Date);
LESS:
(b)the Actual Leisure Management Amount for the Tested Period adjusted to take account of the duty to mitigate as set out in paragraph 1.4 of Part 3 of this Schedule;
if this figure is a negative number;
"Cost Benchmarking Date"
means, subject to paragraph 1.3 of Part 2 of this Schedule the date which is [two][9] years after the Commencement Date and thereafter on each anniversary of the last Cost Benchmarking Date;
"Cost Benchmarking Procedure"
means the procedure to establish the Cost Figure as set out and described in Part 2 of this Schedule;
"Cost Benchmarking Proposal"
means the proposal produced pursuant to paragraph 2 Part 2of this Schedule;
"Cost Figure"
means
A – B
where
A=the Actual Utility Cost of the Benchmarked Utilities at the Target Consumption Levels (or the actual consumption levels, if lower) since the last Cost Benchmarking Date; and
B=for the first Cost Benchmarking Procedure, the Base Utility Cost at the Target Consumption Levels and for each Cost Benchmarking Procedure thereafter, the updated Base Utility Cost,
at the Target Consumption Levels (or the actual consumption levels, if lower) agreed or determined at the previous Cost Benchmarking Procedure;
"Current Decrease"
has the meaning given to it at paragraph 4.1.2 of Part 3 of this Schedule;
"Current Increase"
has the meaning given to it at paragraph 4.1.1 of Part 3 of this Schedule;
"Excluded Costs"
means all costs payable by the Contractor in relation to insurance, Utilities, NNDR, Hard FM and any Performance Deductions payable in accordance with Schedule 6 (Payment and Performance Monitoring System);
"Excluded Items (Income)[10]"
means receipt of payment on a pass through basis by the Contractor in respect of all relevant elements of the Annual Payment (to include any management fee payable to the Contractor) and the Benchmarked Utilities;
"Hard FM"
means any maintenance of a lifecycle nature provided by the Contractor;
"Head Office Costs"
means an amount which is a percentage of the Actual Income profiled on an annual basis for which the annual percentage profile is shown in row [X][11] of the ‘summary’ worksheet of the LOBTA;
"Income Benchmarking Date"
means the date, subject to paragraph 1.1.1 and paragraph 1.1.2 of Part 3 of this Schedule, on which either party serves a notice on the other party pursuant to paragraph1.2 of Part 3 of this Schedule;
"Income Benchmarking Report"
means the report to be produced by the Benchmark Consultant pursuant to paragraph 3 of Part 3 of this Schedule;
"Income Proposal"
means the report to be supplied by the Contractor to the Authority pursuant to paragraph 1.3 of Part 2 of this Schedule;
"Net Income Benchmarking Process"
means the procedure to establish the Net Income Figure or Compensatory Amount as set out and described in Part 3 of this Schedule;
"Net Income Figure[12]"
means:
(a)the Actual Leisure Management Amount for the Tested Periodof the immediately preceding Net Income Benchmarking Process (Indexed up to the Income Benchmarking Date) or if none the Base Leisure Management Amount for the Tested Period (Indexed up to the Income Benchmarking Date);
LESS:
(b)the Actual Leisure Management Amount for the Tested Period, adjusted to take account of the duty to mitigate as set out in this Schedule;
if this figure is a positive number;
"NNDR Relief"
has the meaning given to it in Schedule 16 (NNDR);
"Profit"
means an amount which is [X%][13] of the Actual Income;
"Receiving Party"
has the meaning given to it in paragraph 2.1 of Part 2;
"Reputable Operator"
means a reputable private sector leisure/sports facilities operator or trust leisure/sports facilities operator possessing a broadly comparable degree of skill, resources and financial standing as the Contractor;
"Requesting Party"
has the meaning given to it in paragraph 2.1 of Part 2;
"Target Consumption Level"
means the target consumption levels of Benchmarked Utilities at the [Facility/ Facilities] as shown in Appendix 1 of Part 2;
"Tested Period"
means the [five (5) years][14] immediately preceding the Income Benchmarking Date.
PART 2
Utility Cost Benchmarking Procedure
1UTILITY COST BENCHMARKING PROCEDURE
1.1In respect of Benchmarked Utilities, a Cost Benchmarking Procedure may be carried out to determine the Cost Figure in accordance with this Schedule on each Cost Benchmarking Date[15].
1.2If either party wishes to submit a Benchmarked Utility to a Cost Benchmarking Procedure it must issue a notice in writing to that effect to the other party no later than five (5) Business Days before a Cost Benchmarking Date.
1.3If a Cost Benchmarking Procedure is scheduled to occur within twelve months of aNet Income Benchmarking Process, then the Authority may opt to delay or bring forward the Cost Benchmarking Procedure to be carried out at the same time as the Net Income BenchmarkingProcess, in which case such alternative date shall be regarded as the Cost Benchmarking Date.
1.4[If, away from the Cost Benchmarking Date, either party believes that extraordinary fluctuations in the utility market have resulted in the requirement for a Cost Benchmarking Procedure, it may issue a notice in writing to that effect to the other party. Both parties must meet (but with no obligation to act) within ten (10) Business Days of the date of the notice to discuss the extraordinary utility market fluctuations and the possibility of agreeing a Cost Benchmarking Procedure away from the Cost Benchmarking Date at each party’s discretion. For the avoidance of doubt, the Cost Benchmarking Procedure will not take place if both parties are not in agreement that it should take place away from the Cost Benchmarking Date.][16]
2COST BENCHMARKING PROPOSAL
2.1Within two (2) months of the Cost Benchmarking Date, the party requesting the Cost Benchmarking Procedure (the "Requesting Party") shall carry out at its own cost a benchmarking procedure with a view to establishing the information set out in paragraph 2.2 and the Cost Figure and shall by the end of the same two (2) month period, deliver to the other party (the "Receiving Party") its proposals for the Cost Figure (the "Cost Benchmarking Proposal").
2.2The Cost Benchmarking Proposal shall be in a report containing all of the following information on a per Facility basis provided by the Requesting Party:
2.2.1the Base Utility Cost (Indexed) and Actual Utility Cost for the period since the last Cost Benchmarking Date (or for the first Cost Benchmarking Procedure, since the Commencement Date);
2.2.2in addition to the Actual Utility Cost, any supporting evidence relevant to the particular Benchmarked Utility including invoices paid and actual consumption levels at the Facility with reference to the applicable Target Consumption Level;
2.2.3any efficiency steps which the Contractor has taken to reduce the impact of higher utility Costs;
2.2.4any mitigatory steps which might reasonably be taken to reduce the future impact of increased utility Costs;
2.2.5details of any tendering for supply of Benchmarked Utilities recently undertaken, including brokerage arrangements;
2.2.6details and an analysis of tariff changes, charges and structures of four natural gas and electricity suppliers or alternatively the details and an analysis of tariff charges and structures tendered by natural gas and electricity suppliers for any portfolios to which the Contractor has access since the last Cost Benchmarking Date where gas or electricity is being benchmarked;
2.2.7the proposed Cost Figure for the relevant Benchmarked Utility and the proposed consequential adjustment to the Annual Payment;
2.2.8the methodology and all assumptions by which the Cost Figure has been determined;
2.2.9assessments made in respect of the Benchmarked Utilities by a Comparable Market (in so far as such information is available after having made reasonable enquiry);
2.2.10evidence in support of each of the criteria used to determine the Cost Figure and proposed consequential adjustment to the Annual Payment;
2.2.11full details of sources of information used in establishing the Cost Figure and proposed consequential adjustment to the Annual Payment;
2.2.12in respect of each component of the Cost Figure and proposed consequential adjustment to the Annual Payment, a breakdown of how each is comprised;
2.2.13any other evidence required (so as to provide further evidence to that already provided) to support the proposed consequential adjustment to the Annual Payment and enable a decision to be made by the other party;
2.2.14such other details as the parties may agree at the time.
2.3The parties shall meet within 1 month of the Receiving Party receiving the Cost Benchmarking Proposal to review and discuss the Cost Benchmarking Proposal taking into account the following:
2.3.1any above [CPI] change relating to price movement since the last Cost Benchmarking Date (or for the first Cost Benchmarking Procedure, since the Pricing Reference Date) as identified through enquiries with local and national providers in accordance with paragraph 2.2.6 and taking into account utility prices paid by the Authority; and
2.3.2actual consumption levels at the [Facility/Facilities] in comparison to the applicable Target Consumption Level.
2.4For the avoidance of doubt, the unit cost only of the Benchmarked Utilities shall only be negotiated by the parties and not consumption levels. The consumption levels applied to such unit costs will be the actual consumption levels up to but no greater than the relevant Target Consumption Levels. For the avoidance of doubt, where the Benchmarked Utility consumption level is above the relevant Target Consumption Level, any cost associated with such excess shall be met by the Contractor.
2.5By a date that is no more than two (2) months after receipt of the Cost Benchmarking Proposal the Receiving Party shall respond to the Requesting Party in writing indicating whether or not it accepts the Cost Benchmarking Proposal. If the Receiving Party agrees the content of the Cost Benchmarking Proposal and the proposed variation to the Annual Payment, paragraph 3 of this Part 2 shall apply. If the Receiving Party rejects the Cost Benchmarking Proposal the matter shall be determined by the Dispute Resolution Procedure.
2.6If the Receiving Party fails to respond to the Cost Benchmarking Proposal within the period referred to in paragraph 2.5 above, it shall be deemed to have approved the Cost Benchmarking Proposal and the proposed variation to the Annual Payment and paragraph 3 of this Part 2 shall apply.
3IMPLEMENTATION
3.1When the Cost Figure is agreed or determined pursuant to this Schedule the Annual Payment shall be adjusted by the full amount of the Cost Figure and such adjustment shall be effective from the Cost Benchmarking Date, and, as appropriate, backdated to such date. For the avoidance of doubt, the adjustment to the Annual Payment is upwards where the Cost Figure is positive and the adjustment to the Annual Payment is downwards where the Cost Figure is negative.
3.2For the avoidance of doubt the Base Utility Cost will be rebased at the end of each Cost Benchmarking Procedure to reflect the price payable by the Authority per unit at as a result of that Cost Benchmarking Procedure. Accordingly, the parties agree that following agreement or determination of the Actual Utility Cost in accordance with paragraph 3.1 above, the Actual Utility Cost (for that period) becomes the Base Utility Cost for the next Cost Benchmarking Procedure
3.3Appendix 2 to this part of this Schedule comprises a worked example of how the Cost Figure is established and the adjustment to the Annual Payment.
4CHOICE OF SUPPLIER
4.1Subject to paragraph 4.2 of this Part 2, if the Authority provides to the Contractor a detailed written quotation which identifies a cheaper appropriately regulated utility supplier than that proposed by the Contractor, then the Contractor shall contract with the supplier identified by the Authority. The Authority shall have no responsibility for or liability in respect of the identified or any other supplier. Any comparison should be on a like for like basis. For the avoidance of doubt, the requirement for the Contractor to enter into contract with the supplier identified by the Authority shall only apply where the Contractor’s existing contract with its existing supplier expires following a fixed term product or otherwise on the Authority’s instruction.