Group 2 Services

The Service included in this group will be subject to the terms of the Labour Services Agreement.  The government also recognises that over a 28 year period it is difficult to estimate the cost of the various operating services and that not all services inflate at CPI.  Therefore, it has included a benchmarking mechanism whereby specific services over the Operating Phase will be benchmarked to market.

The Specific Services included within this Category include:

•  Security Services

•  Cleaning Services

•  Catering Services

•  Materials Handling Services

Commencing eight years from Financial Close and every five years thereafter, the Service Payment may be adjusted upward, or downward for any change in the cost of providing the benchmark services, which is more than 5 per cent from the indexed base price7.  The Project Company therefore bears the risk of inflation (apart from changes to the labour costs) affecting its underlying services by more than CPI for the first eight years of the Project.  At this point, the Service Payment is reset to align with the underlying costs with the market and then the price is fixed for the next five years and so on.

Between benchmarking dates and for the first eight years of the Project, the Project Company is exposed to the cost of the non-labour component of the benchmarked services increasing at a rate greater than actual CPI, or the assumption in relation to CPI that may have been built into the financial model (e.g. CPI + 1.5%).  In addition, the private sector will bear wage inflation risk for its management staff and the extent to which it requires the use of casual agency staff.  This Systematic Risk will be priced into the Service Payments by the Project Company.

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7 Details like these can normally be obtained from the Project Deed and associated contractual documents.