Single-Source Contracting Regulations in Defence Industry
S
i
n
g
l
e
-
s
o
u
r
c
e
c
o
n
t
r
a
c
t
i
n
g
w
i
t
h
t
h
e
M
O
D
:
d
e
m
y
s
t
i
f
y
i
n
g
t
h
e
S
i
n
g
l
e
-
S
o
u
r
c
e
R
e
g
u
l
a
t
o
r
y
F
r
a
m
e
w
o
r
k
I
n
t
r
o
d
u
c
t
i
o
n
b
y
:
J
o
h
n
R
u
s
s
e
l
l
-
C
h
i
e
f
E
x
e
c
u
t
i
v
e
,
S
S
R
O
17 July 2024
I
n
t
r
o
d
u
c
t
i
o
n
b
y
J
o
h
n
R
u
s
s
e
l
l
F
o
u
r
s
t
r
a
t
e
g
i
c
t
h
e
m
e
s
f
o
r
t
h
e
S
S
R
O
•
Four areas of strategic focus
Relevance
Visibility
Accessibility
Trust
•
One of our core objectives looks at
how we engage with our
stakeholders
•
We work collaboratively with
industry and the MOD
•
We’re here and want to build on our
good relationship with ADS!
H
o
w
d
o
t
h
e
s
e
s
t
r
a
t
e
g
i
c
t
h
e
m
e
s
t
r
a
n
s
l
a
t
e
i
n
t
o
p
r
a
c
t
i
c
e
?
S
i
n
g
l
e
-
s
o
u
r
c
e
c
o
n
t
r
a
c
t
i
n
g
w
i
t
h
t
h
e
M
O
D
:
d
e
m
y
s
t
i
f
y
i
n
g
t
h
e
S
i
n
g
l
e
-
S
o
u
r
c
e
R
e
g
u
l
a
t
o
r
y
F
r
a
m
e
w
o
r
k
P
r
e
s
e
n
t
a
t
i
o
n
b
y
:
J
o
a
n
n
e
W
a
t
t
s
-
C
h
i
e
f
R
e
g
u
l
a
t
o
r
y
O
f
f
i
c
e
r
,
S
S
R
O
C
h
a
r
l
y
W
a
s
o
n
-
S
i
n
g
l
e
S
o
u
r
c
e
C
o
n
t
r
a
c
t
R
e
g
u
l
a
t
i
o
n
s
R
e
v
i
e
w
T
e
a
m
(
H
e
a
d
)
,
M
i
n
i
s
t
r
y
o
f
D
e
f
e
n
c
e
S
S
R
O
e
s
t
a
b
l
i
s
h
e
d
b
y
t
h
e
D
e
f
e
n
c
e
R
e
f
o
r
m
A
c
t
a
n
d
S
i
n
g
l
e
S
o
u
r
c
e
C
o
n
t
r
a
c
t
R
e
g
u
l
a
t
i
o
n
s
2
0
1
4
•
Legislation introduced in 2014
•
Regulatory framework with
controls on prices of qualifying
contracts and transparency
•
As of 30 April 2024: 615 single
source contracts, with an
estimated price c.£102 billion
•
The SSRO publishes statistical
bulletins regularly
Source:
Annual qualifying defence contract statistics 2023/24
(https://www.gov.uk/government/publications/annual-qualifying-defence-contract-statistics-202324)
Published 9 July 2024.
•
What is a QDC?
•
A QSC is a non-competitive contract between a primary contractor and
another contractor or between a sub-contractor and another contractor
(minimum value £25 million)**
•
There are exceptions which are set out in Regulation 7 (for example,
contracts with foreign governments) or Secretary of State exemption.
T
h
e
S
S
R
O
i
s
n
o
t
i
f
i
e
d
o
f
Q
u
a
l
i
f
y
i
n
g
D
e
f
e
n
c
e
C
o
n
t
r
a
c
t
s
(
Q
D
C
)
a
n
d
Q
u
a
l
i
f
y
i
n
g
S
u
b
-
C
o
n
t
r
a
c
t
s
(
Q
S
C
)
A QDC is a contract made by the Secretary of State for
goods, works or services for defence purposes from a
‘primary contractor’. The award of the contract is not the
result of a competitive process, and the value of the
contract is equal to or greater than £5 million
*
*Section 14(2) of the DRA provides the full definition of a QDC
**Section 28(2) of the DRA provides the full definition of a QSC
A
s
o
f
3
0
A
p
r
i
l
2
0
2
4
,
5
2
5
c
o
n
t
r
a
c
t
s
b
e
c
a
m
e
Q
D
C
s
a
n
d
9
0
b
e
c
a
m
e
Q
S
C
s
M
y
t
h
B
u
s
t
e
r
“The regime mostly
applies to the prime
defence
companies…few SMEs
are subject to the
regulatory framework”
31 of the 615
QDCs/QSCs were with
contracting companies
that identified as a small
or medium enterprise
(SME).
Source:
Annual qualifying defence contract statistics 2023/24
(
https://www.gov.uk/government/publications/annual-qualifying-defence-contract-
statistics-202324
). Published 9 July 2024.
T
h
e
f
o
r
m
a
l
r
e
l
a
t
i
o
n
s
h
i
p
b
e
t
w
e
e
n
t
h
e
S
S
R
O
a
n
d
M
O
D
i
s
s
e
t
b
y
t
h
e
D
e
f
e
n
c
e
R
e
f
o
r
m
A
c
t
a
n
d
S
S
R
O
F
r
a
m
e
w
o
r
k
D
o
c
u
m
e
n
t
*
The SSRO
is sponsored
by the MOD’s
Directorate of
Sponsorship
and
Organisation
al Policy
(DSOP)
SSRO
*
(c40 people, c£6m
budget)
Contractors with
QDCs
MOD Performance & Scrutiny
Team (ensures that MOD meets
it obligations)
MOD Delivery
Teams (manage
individual or
multiple QDCs)
Sub-contractors with
QSCs
MOD SSCR Review Team
(oversee the legislation)
M
y
t
h
B
u
s
t
e
r
“The regulatory framework means that contracting takes longer”.
The regulations require that contractors demonstrate costs charged to a contract are reasonable and the
profit fair. The MOD would usually require this information in any case.
The framework requires transparency on the part of defence contractors regarding prices. Larger suppliers
may have to provide details about their strategic operations – again likely requirement in competitive bidding.
M
O
D
r
o
l
e
i
n
r
e
g
u
l
a
t
o
r
y
f
r
a
m
e
w
o
r
k
The MOD periodically puts legislation to Parliament to update the regime to
ensure that it’s delivering the policy intent.
Specialist teams in MOD Head Office set the standards for implementation
of the SSCRs across MOD and ensure MOD’s obligations under the
legislation are met.
T
h
e
S
S
C
R
C
a
s
e
w
o
r
k
t
e
a
m
p
r
o
v
i
d
e
s
a
d
v
i
c
e
t
o
d
e
l
i
v
e
r
y
t
e
a
m
s
o
n
t
h
e
S
S
C
R
S
a
n
d
M
O
D
p
o
l
i
c
y
.
T
h
e
y
d
e
a
l
w
i
t
h
a
r
o
u
n
d
2
0
0
c
o
m
p
l
e
x
q
u
e
r
i
e
s
a
y
e
a
r
a
n
d
a
f
u
r
t
h
e
r
6
0
0
t
h
a
t
a
r
e
q
u
i
c
k
l
y
r
e
s
o
l
v
e
d
w
i
t
h
o
u
t
n
e
e
d
i
n
g
f
o
r
m
a
l
t
r
a
c
k
i
n
g
.
T
h
e
S
S
C
R
C
o
m
p
l
i
a
n
c
e
&
D
a
t
a
t
e
a
m
e
n
s
u
r
e
s
t
h
a
t
t
h
e
r
e
p
o
r
t
i
n
g
o
b
l
i
g
a
t
i
o
n
s
a
r
e
c
o
m
p
l
i
e
d
w
i
t
h
,
a
n
d
t
h
a
t
t
h
e
M
O
D
p
r
o
p
e
r
l
y
e
x
p
l
o
i
t
s
t
h
e
r
e
p
o
r
t
e
d
d
a
t
a
.
T
h
e
S
S
C
R
R
e
v
i
e
w
T
e
a
m
i
s
r
e
s
p
o
n
s
i
b
l
e
f
o
r
r
e
v
i
e
w
i
n
g
t
h
e
e
x
i
s
t
i
n
g
l
e
g
i
s
l
a
t
i
o
n
a
n
d
u
p
d
a
t
i
n
g
i
t
w
h
e
r
e
n
e
c
e
s
s
a
r
y
M
y
t
h
B
u
s
t
e
r
“The SSRO is not impartial and always sides with the MOD”
The SSRO is an arms’ length body, has its own budget / Board. The MOD is not involved in
SSRO day-to-day operations. The SSRO has ruled against the MOD on several occasions.
T
h
e
S
S
R
O
h
a
s
a
r
a
n
g
e
o
f
f
u
n
c
t
i
o
n
s
t
o
s
u
p
p
o
r
t
t
h
e
r
e
g
u
l
a
t
o
r
y
f
r
a
m
e
w
o
r
k
T
h
e
S
S
R
O
S
u
p
p
o
r
t
o
f
f
e
r
i
n
g
t
o
y
o
u
•
We are here to help you
•
There is a comprehensive
SSRO Support offering
•
Q&A document
receives good
feedback and is a helpful
reference source
(https://www.gov.uk/government/publications/response
s-to-commonly-asked-questions)
•
Encourage you to make early
contact if you are to become
subject to the regime
•
The SSRO is looking to engage
with you in your forums – please
do invite us if we can help!
S
S
R
O
S
u
p
p
o
r
t
h
e
l
p
d
e
s
k
@
s
s
r
o
.
g
o
v
.
u
k
o
r
0
2
0
3
7
7
1
4
7
8
5
S
u
p
p
o
r
t
f
r
o
m
t
h
e
M
O
D
M
y
t
h
B
u
s
t
e
r
“The MOD can be
inconsistent in the
way it applies the
SSCRs”
There are central
bodies within the
MOD who oversee
use of SSCRs to
ensure
consistency of
use.
I
f
y
o
u
t
h
i
n
k
t
h
i
s
i
s
n
o
t
t
h
e
c
a
s
e
,
p
l
e
a
s
e
d
o
l
e
t
u
s
k
n
o
w
–
y
o
u
r
D
e
l
i
v
e
r
y
T
e
a
m
w
i
l
l
b
e
a
b
l
e
t
o
d
i
r
e
c
t
y
o
u
.
•
The MOD teams provide support to delivery teams
rather than suppliers.
•
If you think that your delivery teams are not applying
the rules correctly, you can get in touch with the
SSCR casework team.
•
They will then form a view, and liaise with the
delivery team. They may be involved in any
subsequent discussions.
•
The SSCR Casework team are also the MOD lead
on referrals. They will usually attend any oral
hearings, and may take overall lead from the delivery
team.
U
p
d
a
t
e
s
t
o
t
h
e
S
i
n
g
l
e
S
o
u
r
c
e
C
o
n
t
r
a
c
t
R
e
g
u
l
a
t
i
o
n
s
•
Considerable changes to the
existing regulatory framework
•
Two steps removed from the
contract profit rate calculation
resulting in 4 not 6 steps
•
Flexibility introduced through use
of alternative pricing methods of
contracts; as well as introduction
of componentisation
•
The SSRO is supporting industry
and the MOD through these
changes: Teach-In sessions;
updating guidance; and training
M
y
t
h
B
u
s
t
e
r
“The legislation and Regulations have
been developed in isolation”.
MOD has led development alongside
stakeholder engagement.
The
legislation has been changed to
solve procurement problems that existed
– as reported by industry and MOD end
users
The Defence Reform Act specifies a four-
step process to determine the contract profit
rate for qualifying defence contracts:
T
h
e
D
e
f
e
n
c
e
R
e
f
o
r
m
A
c
t
a
n
d
t
h
e
S
i
n
g
l
e
S
o
u
r
c
e
C
o
n
t
r
a
c
t
R
e
g
u
l
a
t
i
o
n
s
r
e
q
u
i
r
e
t
h
a
t
t
h
e
p
r
i
c
e
p
a
y
a
b
l
e
u
n
d
e
r
a
q
u
a
l
i
f
y
i
n
g
c
o
n
t
r
a
c
t
b
e
E
I
T
H
E
R
d
e
t
e
r
m
i
n
e
d
i
n
a
c
c
o
r
d
a
n
c
e
w
i
t
h
t
h
e
f
o
r
m
u
l
a
:
P
r
i
c
i
n
g
Q
D
C
s
(Contract profit rate x Allowable
Costs) + Allowable Costs
SSRO guidance on the
baseline profit rate and
its adjustment can be
found
here
.
M
y
t
h
B
u
s
t
e
r
“Single sourcing and the
SSCRs = difficult &
laborious contracting”
Competitive contracting
must also be priced – this
is not single source
specific.
The SSCR can be
tailored: just ensure a fair
price and have regard to
SSRO guidance
O
R
i
n
l
i
m
i
t
e
d
c
a
s
e
s
t
h
e
p
r
i
c
e
c
a
n
b
e
d
e
t
e
r
m
i
n
e
d
u
s
i
n
g
p
r
e
s
c
r
i
b
e
d
a
l
t
e
r
n
a
t
i
v
e
p
r
i
c
i
n
g
m
e
t
h
o
d
s
a
s
s
e
t
o
u
t
i
n
t
h
e
R
e
g
u
l
a
t
i
o
n
s
:
e
.
g
.
w
i
t
h
r
e
f
e
r
e
n
c
e
t
o
a
p
r
e
v
i
o
u
s
l
y
a
g
r
e
e
d
p
r
i
c
e
o
r
c
o
m
m
e
r
c
i
a
l
l
y
p
r
i
c
e
d
i
t
e
m
s
.
B
a
s
e
l
i
n
e
P
r
o
f
i
t
R
a
t
e
•
The baseline profit rate is applied to QDCs
and QSCs
•
The SSRO recommends the baseline profit
rate to the Secretary of State on an annual
basis
•
Alongside the rate, the SSRO publishes
information on the methodology for
calculating the rate, and provides
information to aid those who may wish to
scrutinise or replicate the approach taken
•
The SSRO is confident that the methodology
is correct and robust
•
The rate for 2024/25 is 8.24 per cent
Our recommendation for 2024/25 can be found here:
https://www.gov.uk/government/news/2024-contract-profit-rate
M
y
t
h
B
u
s
t
e
r
“The profit rate is inflexible and stops
contracting freedom”.
BPR is not the CPR!
Your capital investment: Capital
Servicing Adjustment
Risk rewarded: Cost Risk Adjustment
ADS members did not support the
idea of increasing the available range
when the MOD floated it in 2022.
Geographic
location
Consolidate
d accounts
Functions
NACE code
Text terms
MOD
supplier
lists
Turnover
Defence
keyword
Databases:
Orbis, Bloomberg,
Bank of England
Objective
OECD: Transfer
Pricing principles
Replicable
Predictable
Stable approach
3 year rolling average
Reliable
Actual profit on actual
cost
IFRS / GAAP numbers
Calibrated
Stakeholder feedback
(including QA of
accounting data)
Completed contracts
Limited
liability
companies
Active
companies
Latest year
of accounts
Average
Independence
Assets /
liabilities
Operating
Profit
B
a
s
e
l
i
n
e
p
r
o
f
i
t
r
a
t
e
a
p
p
r
o
a
c
h
a
n
d
m
e
t
h
o
d
o
l
o
g
y
Activities
Manual review
Automated search
Company selection process
M
y
t
h
B
u
s
t
e
r
“Can’t make good level of
profit through single sourcing”
The evidence does not point
to companies with significant
exposure to the regulatory
framework performing
financially poorer than their
peers.
Overheads are an Allowable
Cost - if AAR
A
l
l
o
w
a
b
l
e
C
o
s
t
s
•
Allowable Costs make up the majority of
the contract price
•
C
o
s
t
s
m
u
s
t
b
e
a
p
p
r
o
p
r
i
a
t
e
,
a
t
t
r
i
b
u
t
a
b
l
e
t
o
t
h
e
c
o
n
t
r
a
c
t
,
a
n
d
r
e
a
s
o
n
a
b
l
e
i
n
t
h
e
c
i
r
c
u
m
s
t
a
n
c
e
s
t
o
b
e
a
n
A
l
l
o
w
a
b
l
e
C
o
s
t
•
The contracting parties must have regard
to the SSRO guidance in determining
whether costs are Allowable Costs
•
Current guidance
(v7) applies from
1 April 2024
https://assets.publishing.service.gov.uk/media/665f11ea16cf36f4d
63ebddc/Allowable_Costs_guidance_Version_7_4_June.pdf
M
y
t
h
B
u
s
t
e
r
“You can’t charge the MOD for bid costs”.
Bid costs, if AAR and agreed, are
allowable.
M
y
t
h
B
u
s
t
e
r
“The guidance only applies to the
contractor and not the MOD”.
The MOD is bound by the guidance as
much as the contractor.
O
u
r
r
e
p
o
r
t
i
n
g
g
u
i
d
a
n
c
e
i
s
t
h
r
e
e
d
o
c
u
m
e
n
t
s
•
The most recent reporting guidance
update was published on 20 March 2024.
•
Guidance is built into DefCARS via use of
links on each page to take users to the
relevant section and is sent to new users.
•
The guidance was developed in parallel
with the system and will continue to be
updated in line with future system
developments
•
The SSRO seeks and captures views of
stakeholders and users of DefCARS
through the Reporting and IT Sub-Group
of the SSRO’s Operational Working
Group
.
M
y
t
h
B
u
s
t
e
r
“Nothing is done with the data
that is collected under the
regime”
The SSRO uses it to undertake
analysis and provide the MOD
with MI to inform their
procurement. The MOD also
uses the data for a wide range
of purposes.
T
h
e
S
S
R
O
i
s
e
m
p
o
w
e
r
e
d
t
o
g
i
v
e
o
p
i
n
i
o
n
s
o
r
m
a
k
e
d
e
t
e
r
m
i
n
a
t
i
o
n
s
o
n
m
a
t
t
e
r
s
r
e
f
e
r
r
e
d
t
o
i
t
b
y
t
h
e
c
o
n
t
r
a
c
t
o
r
s
o
r
t
h
e
M
O
D
•
The legislation identifies:
•
the range of matters that may be referred
•
who may refer them
•
the circumstances in which referrals may be made
•
whether the SSRO
may
or
must
provide an opinion or
determination
•
Referrals can:
•
make legally binding changes to the price of an existing
contract.
•
support the agreement of contract prices that are VFM as
well as fair and reasonable
•
help to resolve disagreements on individual contracts
•
clarify how the regulatory framework should be applied
•
generate insights that inform subsequent improvements in
the regulatory framework
•
Referral investigations are funded on a case-by-case basis
M
y
t
h
B
u
s
t
e
r
“Referrals are
complex”.
Referrals can help
resolve complex
contract issues.
The SSRO offers pre-
referral support and is
continuing to enhance
the services in this area
(see next slide on Non
Referral Advice Service)
W
e
h
a
v
e
l
a
u
n
c
h
e
d
a
n
e
w
‘
N
o
n
-
r
e
f
e
r
r
a
l
a
d
v
i
c
e
s
e
r
v
i
c
e
’
f
o
r
c
o
m
p
l
e
x
c
o
n
t
r
a
c
t
-
s
p
e
c
i
f
i
c
q
u
e
r
i
e
s
t
h
a
t
c
a
n
n
o
t
b
e
d
e
a
l
t
w
i
t
h
b
y
t
h
e
S
S
R
O
H
e
l
p
d
e
s
k
o
r
a
r
e
i
n
a
p
p
r
o
p
r
i
a
t
e
f
o
r
r
e
f
e
r
r
a
l
R
e
s
p
o
n
s
i
v
e
s
e
r
v
i
c
e
s
Further information on the service is available
here
.
M
y
t
h
B
u
s
t
e
r
“Referrals are time
intensive”.
NRAS aim to help speed
up contract negotiations
and enable the parties to
qualifying contracts to
resolve disagreement
without the need for a
formal opinion or
determination
General enquiries on
applying the regulatory
framework
M
o
r
e
c
o
m
p
l
e
x
q
u
e
r
i
e
s
o
n
a
p
p
l
y
i
n
g
t
h
e
r
e
g
u
l
a
t
o
r
y
f
r
a
m
e
w
o
r
k
t
o
s
p
e
c
i
f
i
c
c
o
n
t
r
a
c
t
s
Matters which the legislation
provides may be referred to the
SSRO for a formal opinion or
legally-binding determination.
Consider proportionality in choosing service
C
o
n
t
r
a
c
t
r
e
p
o
r
t
s
r
e
l
a
t
i
n
g
t
o
Q
D
C
s
o
r
Q
S
C
s
a
r
e
r
e
q
u
i
r
e
d
b
y
t
h
e
S
i
n
g
l
e
S
o
u
r
c
e
C
o
n
t
r
a
c
t
R
e
g
u
l
a
t
i
o
n
s
2
0
1
4
M
y
t
h
B
u
s
t
e
r
“There is a reporting burden associated with being subject to the regulatory framework”.
Frequency of reports can be tailored to value of the contract.
This is information that a contractor should already be collecting: should involve a minimal increase in additional
information required. Can build in the cost of reporting to contract bid, as an Allowable Cost.
S
u
p
p
l
i
e
r
r
e
p
o
r
t
s
r
e
l
a
t
i
n
g
t
o
b
u
s
i
n
e
s
s
u
n
i
t
s
t
h
a
t
h
o
l
d
Q
D
C
s
o
r
Q
S
C
s
o
v
e
r
a
c
e
r
t
a
i
n
v
a
l
u
e
a
r
e
r
e
q
u
i
r
e
d
b
y
t
h
e
R
e
g
u
l
a
t
i
o
n
s
M
y
t
h
B
u
s
t
e
r
“There is a reporting burden associated with being subject to the regulatory framework”.
Many contractors will not have to provide any supplier reports at all. Those that do will often
have to provide information through the MOD’s rate setting process.
T
h
e
D
e
f
e
n
c
e
C
o
n
t
r
a
c
t
s
A
n
a
l
y
s
i
s
a
n
d
R
e
p
o
r
t
i
n
g
S
y
s
t
e
m
(
D
e
f
C
A
R
S
)
i
s
t
h
e
c
e
n
t
r
a
l
s
y
s
t
e
m
f
o
r
t
h
e
c
a
p
t
u
r
e
,
s
t
o
r
a
g
e
a
n
d
a
n
a
l
y
s
i
s
o
f
a
l
l
d
a
t
a
s
u
b
m
i
t
t
e
d
i
n
a
c
c
o
r
d
a
n
c
e
w
i
t
h
s
t
a
t
u
t
o
r
y
r
e
p
o
r
t
i
n
g
r
e
q
u
i
r
e
m
e
n
t
s
•
All queries and comments on reports are within the system, rather than via email
correspondence.
•
The SSRO monitors the extent to which reporting requirements are met.
•
As well as the live system there is a potential QDC and training environment available
M
y
t
h
B
u
s
t
e
r
“Using DefCARS is
complicated”.
You will need training
to use the system, but
the SSRO provides
this and its Helpdesk
can assist throughout
the life of the contract.
A
n
n
u
a
l
C
o
m
p
l
i
a
n
c
e
R
e
p
o
r
t
2
0
2
3
Link
to report
M
y
t
h
B
u
s
t
e
r
“SSRO is there to
catch you out”.
SSRO is there to
help you comply
with the regulatory
framework.
M
y
t
h
B
u
s
t
e
r
“MOD is there to
catch you out”.
MOD wants to get
high quality data /
information that is
useful
•
65 per cent of contract reports
and 68 per cent of supplier
reports were received on time in
2022/23.
•
62 per cent of contract reports
and 7 per cent of supplier
reports were submitted right first
time.
•
89 per cent of contract report
submissions and 82 per cent of
supplier overhead report
submissions are received,
however often this is post the
report due dates.
•
The MOD issued 82 compliance
notices against late reports
since the last compliance
report. This is a significant
increase to the 12 notices
issued the previous year and
resulted in 68 (83 per cent of
those with a notice) providing
additional submissions
S
S
R
O
S
u
p
p
o
r
t
–
a
v
a
r
i
e
t
y
o
f
w
a
y
s
t
o
h
e
l
p
y
o
u
Over 1000
queries a
year, from
simple to
complex
c. 2 or 3
sessions a
month
Sessions
based on
user need
Improvements
underway
Five set
meetings a
year
h
e
l
p
d
e
s
k
@
s
s
r
o
.
g
o
v
.
u
k
o
r
0
2
0
3
7
7
1
4
7
8
5
A growing
interest in
this from
stakeholders
Date: Arial 12pt
Version: x
PRESENTATION TITLE
DATE
Any questions?
Image: The UK has completed its 11th airdrop into Gaza today (09/05/24), reaching the milestone of over 100 tonnes of life-saving aid delivered by air. Over the course of 11 Royal Air Force flights, the UK has delivered ready-to-eat meals, water, rice, tinned goods and flour, with a total of 12 tonnes dropped into Northern Gaza today. The UK began conducting airdrops in late March, as part of the Jordanian international initiative. The Royal Air Force has used A400Ms, flying from Amman, Jordan, where aid pallets attached to parachutes are collected and loaded by RAF and British Army personnel. The aid is dropped along the northern coastline of Gaza, with drop zones regularly surveyed to ensure civilians are not harmed. Each flight takes around one hour and British personnel work closely with the Royal Jordanian Air Force to plan and conduct each mission.
Delve into the intricacies of single-source contracting regulations within the MOD through insights from key industry players like John Russell and Joanne Watts. Explore the pivotal role of the SSRO in ensuring fair pricing and value for money, while navigating global challenges and strategic themes to enhance industrial resilience.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
E N D
Presentation Transcript
Single-source contracting with the MOD: demystifying the Single-Source Regulatory Framework Introduction by: John Russell - Chief Executive, SSRO 17 July 2024
Introduction by John Russell SSRO role The SSRO plays a vital role in helping the Government to ensure that good value for money is obtained for the UK taxpayer, and that suppliers are paid a fair and reasonable price In common with many countries that have a defence industry the UK has strict rules about how Single Source Contracts must be priced Size of the regulatory framework The contracts we regulate equal roughly half of all UK defence spending each year on equipment and support ( 102 billion in the regime since 2015) Global challenges Volatile and challenging international environment: the SSRO can play a full and effective role in enabling swift and efficient delivery of defence capabilities that also enhance UK industrial resilience Support We want to further support the effective use of the single source procurement framework by industry and the MOD
How do these strategic themes translate into practice? Out on the ground meeting stakeholders and speaking at industry & MOD conferences Assisting in solving contract disputes: offering advice and support and publishing our findings Making it easier to upload data and driving better insight from it Stakeholder Teach Ins & to support Procurement Act and new guidance Making our guidance and webpages easy to use Our training offer: tailored to user need All contribute to increasing our visibility, accessibility, relevance and trust among stakeholders
Single-source contracting with the MOD: demystifying the Single-Source Regulatory Framework Presentation by: Joanne Watts - Chief Regulatory Officer, SSRO Charly Wason - Single Source Contract Regulations Review Team (Head), Ministry of Defence
SSRO established by the Defence Reform Act and Single Source Contract Regulations 2014 Legislation introduced in 2014 Regulatory framework with controls on prices of qualifying contracts and transparency As of 30 April 2024: 615 single source contracts, with an estimated price c. 102 billion The SSRO publishes statistical bulletins regularly 102 billion Source: Annual qualifying defence contract statistics 2023/24 (https://www.gov.uk/government/publications/annual-qualifying-defence-contract-statistics-202324) Published 9 July 2024.
The SSRO is notified of Qualifying Defence Contracts (QDC) and Qualifying Sub-Contracts (QSC) A QDC is a contract made by the Secretary of State for goods, works or services for defence purposes from a primary contractor . The award of the contract is not the result of a competitive process, and the value of the contract is equal to or greater than 5 million* *Section 14(2) of the DRA provides the full definition of a QDC **Section 28(2) of the DRA provides the full definition of a QSC
As of 30 April 2024, 525 contracts became QDCs and 90 became QSCs Myth Buster The regime mostly applies to the prime defence companies few SMEs are subject to the regulatory framework 31 of the 615 QDCs/QSCs were with contracting companies that identified as a small or medium enterprise (SME). Source: Annual qualifying defence contract statistics 2023/24 (https://www.gov.uk/government/publications/annual-qualifying-defence-contract- statistics-202324). Published 9 July 2024.
The formal relationship between the SSRO and MOD is set by the Defence Reform Act and SSRO Framework Document MOD SSCR Review Team (oversee the legislation) SSRO * Contractors with QDCs (c40 people, c 6m budget) MOD Performance & Scrutiny Team (ensures that MOD meets it obligations) * The SSRO is sponsored by the MOD s Directorate of Sponsorship and Organisation al Policy (DSOP) MOD Delivery Teams (manage individual or multiple QDCs) Sub-contractors with QSCs Myth Buster The regulatory framework means that contracting takes longer . The regulations require that contractors demonstrate costs charged to a contract are reasonable and the profit fair. The MOD would usually require this information in any case. The framework requires transparency on the part of defence contractors regarding prices. Larger suppliers may have to provide details about their strategic operations again likely requirement in competitive bidding.
MOD role in regulatory framework The MOD periodically puts legislation to Parliament to update the regime to ensure that it s delivering the policy intent. Specialist teams in MOD Head Office set the standards for implementation of the SSCRs across MOD and ensure MOD s obligations under the legislation are met. The SSCR Casework team provides advice to delivery teams on the SSCRS and MOD policy. They deal with around 200 complex queries a year and a further 600 that are quickly resolved without needing formal tracking. The SSCR Compliance & Data team ensures that the reporting obligations are complied with, and that the MOD properly exploits the reported data. The SSCR Review Team is responsible for reviewing the existing legislation and updating it where necessary
The SSRO has a range of functions to support the regulatory framework Myth Buster The SSRO is not impartial and always sides with the MOD The SSRO is an arms length body, has its own budget / Board. The MOD is not involved in SSRO day-to-day operations. The SSRO has ruled against the MOD on several occasions.
The SSRO Support offering to you SSRO Support Helpdesk Engagement Onboarding Website Training helpdesk@ssro.gov.uk or 020 3771 4785
Support from the MOD Myth Buster The MOD can be inconsistent in the way it applies the SSCRs There are central bodies within the MOD who oversee use of SSCRs to ensure consistency of use. If you think this is not the case, please do let us know your Delivery Team will be able to direct you.
Updates to the Single Source Contract Regulations Myth Buster The legislation and Regulations have been developed in isolation . MOD has led development alongside stakeholder engagement. The legislation has been changed to solve procurement problems that existed as reported by industry and MOD end users
Pricing QDCs OR in limited cases the price can be determined using prescribed alternative pricing methods as set out in the Regulations: e.g. with reference to a previously agreed price or commercially priced items. The Defence Reform Act and the Single Source Contract Regulations require that the price payable under a qualifying contract be EITHER determined in accordance with the formula: (Contract profit rate x Allowable Costs) + Allowable Costs Myth Buster Single sourcing and the SSCRs = difficult & laborious contracting The Defence Reform Act specifies a four- step process to determine the contract profit rate for qualifying defence contracts: Competitive contracting must also be priced this is not single source specific. The SSCR can be tailored: just ensure a fair price and have regard to SSRO guidance SSRO guidance on the baseline profit rate and its adjustment can be found here.
Baseline Profit Rate The baseline profit rate is applied to QDCs and QSCs The SSRO recommends the baseline profit rate to the Secretary of State on an annual basis Alongside the rate, the SSRO publishes information on the methodology for calculating the rate, and provides information to aid those who may wish to scrutinise or replicate the approach taken Myth Buster The profit rate is inflexible and stops contracting freedom . BPR is not the CPR! Your capital investment: Capital Servicing Adjustment Risk rewarded: Cost Risk Adjustment ADS members did not support the idea of increasing the available range when the MOD floated it in 2022. The SSRO is confident that the methodology is correct and robust The rate for 2024/25 is 8.24 per cent Our recommendation for 2024/25 can be found here: https://www.gov.uk/government/news/2024-contract-profit-rate
Baseline profit rate approach and methodology Myth Buster Can t make good level of profit through single sourcing The evidence does not point to companies with significant exposure to the regulatory framework performing financially poorer than their peers. Overheads are an Allowable Cost - if AAR Predictable Calibrated Objective Reliable Stable approach Stakeholder feedback (including QA of accounting data) OECD: Transfer Pricing principles Actual profit on actual cost 3 year rolling average Replicable IFRS / GAAP numbers Completed contracts Company selection process Databases: Orbis, Bloomberg, Bank of England Consolidate d accounts Latest year of accounts Limited liability companies Active companies Independence Turnover Assets / liabilities Operating Profit Geographic location Functions NACE code Text terms Defence keyword Activities Average MOD supplier lists Automated search Manual review
Allowable Costs Allowable Costs make up the majority of the contract price Myth Buster You can t charge the MOD for bid costs . Bid costs, if AAR and agreed, are allowable. Costs must be appropriate, attributable to the contract, and reasonable in the circumstances to be an Allowable Cost The contracting parties must have regard to the SSRO guidance in determining whether costs are Allowable Costs Appropriate Current guidance (v7) applies from 1 April 2024 https://assets.publishing.service.gov.uk/media/665f11ea16cf36f4d 63ebddc/Allowable_Costs_guidance_Version_7_4_June.pdf AAR Test Myth Buster The guidance only applies to the contractor and not the MOD . Reasonable in the circumstances Attributable to the contract The MOD is bound by the guidance as much as the contractor.
Myth Buster Our reporting guidance is three documents Nothing is done with the data that is collected under the regime The SSRO uses it to undertake analysis and provide the MOD with MI to inform their procurement. The MOD also uses the data for a wide range of purposes. Contract reports Supplier reports DefCARS functionality
The SSRO is empowered to give opinions or make determinations on matters referred to it by the contractors or the MOD Myth Buster Referrals are complex . Referrals can help resolve complex contract issues. The SSRO offers pre- referral support and is continuing to enhance the services in this area (see next slide on Non Referral Advice Service)
We have launched a new Non-referral advice service for complex contract-specific queries that cannot be dealt with by the SSRO Helpdesk or are inappropriate for referral Responsive services Myth Buster Referrals are time intensive . General enquiries on applying the regulatory framework Helpdesk NRAS aim to help speed up contract negotiations and enable the parties to qualifying contracts to resolve disagreement without the need for a formal opinion or determination More complex queries on applying the regulatory framework to specific contracts Non-referral advice service Referrals Matters which the legislation provides may be referred to the SSRO for a formal opinion or legally-binding determination. Further information on the service is available here.
Contract reports relating to QDCs or QSCs are required by the Single Source Contract Regulations 2014 Myth Buster There is a reporting burden associated with being subject to the regulatory framework . Frequency of reports can be tailored to value of the contract. This is information that a contractor should already be collecting: should involve a minimal increase in additional information required. Can build in the cost of reporting to contract bid, as an Allowable Cost.
Supplier reports relating to business units that hold QDCs or QSCs over a certain value are required by the Regulations Myth Buster There is a reporting burden associated with being subject to the regulatory framework . Many contractors will not have to provide any supplier reports at all. Those that do will often have to provide information through the MOD s rate setting process.
The Defence Contracts Analysis and Reporting System (DefCARS) is the central system for the capture, storage and analysis of all data submitted in accordance with statutory reporting requirements Myth Buster Using DefCARS is complicated . You will need training to use the system, but the SSRO provides this and its Helpdesk can assist throughout the life of the contract. All queries and comments on reports are within the system, rather than via email correspondence. The SSRO monitors the extent to which reporting requirements are met. As well as the live system there is a potential QDC and training environment available
Annual Compliance Report 2023 65 per cent of contract reports and 68 per cent of supplier reports were received on time in 2022/23. 62 per cent of contract reports and 7 per cent of supplier reports were submitted right first time. 89 per cent of contract report submissions and 82 per cent of supplier overhead report submissions are received, however often this is post the report due dates. The MOD issued 82 compliance notices against late reports since the last compliance report. This is a significant increase to the 12 notices issued the previous year and resulted in 68 (83 per cent of those with a notice) providing additional submissions Link to report Myth Buster SSRO is there to catch you out . SSRO is there to help you comply with the regulatory framework. Myth Buster MOD is there to catch you out . MOD wants to get high quality data / information that is useful
SSRO Support a variety of ways to help you Non-Referral Advice Service OWG & R&ITSG Helpdesk Website Training Onboarding Over 1000 queries a year, from simple to complex A growing interest in this from stakeholders c. 2 or 3 sessions a month Improvements underway Five set meetings a year Sessions based on user need SSRO Support is a key engagement mechanism for the organisation Multiple points of contact for stakeholders The SSRO first looks to help the stakeholder but will also use the nature of stakeholder information / insight to improve SSRO Support Stakeholder satisfaction with what the SSRO offers is high helpdesk@ssro.gov.uk or 020 3771 4785 26
Date: Arial 12pt Version: x Any questions? PRESENTATION TITLE DATE 27
