The aim of this paper is to examine the changing role of the state in a more market-driven system of industrial relations, specifically in terms of the new roles that are being developed with regard to mediation, advisory and arbitration services. It focuses empirically on the role played by the British Advisory, Conciliation and Arbitration Service (ACAS) in facilitating the modernisation of public sector employment relations. We show how ACAS has played a ‘benchmarking’ role that assists the development of more strategic forms of decision-making and co-operation in employment relations change, and identify the challenges of developing such an approach in the context of the shift towards a more decentralised and market-oriented system of public service delivery. In conclusion we assert that there is a new ‘advisory and benchmarking’ state evolving based on a soft-market view of industrial relations, and that this mitigates (but is also in tension with) the harder market view within the state concerned with transforming the public sector.