The baseline profit rate and its adjustment
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Detail of outcome
The SSRO consulted on the following profit related matters:
- The impact of COVID-19 on the SSRO’s annual rates assessment.
- Updates to statutory guidance arising from the introduction of a new baseline profit rate for wholly UK government owned contractors: the government owned contractor rate, or GOCR.
- Potential adjustment of the SSRO’s annual rates assessment to incorporate a GOCR.
We received eight responses to the consultation. The summary of consultation responses explains how the feedback provided by stakeholders has informed our considerations. In response we are now publishing an update to our statutory guidance to ensure it supports the application of the GOCR as intended. The revised version of the guidance on the baseline profit rate and its adjustment (version 7.1) comes into force on 6 August 2021.
We are continuing to consider the following matters, on which we aim to reach a position in September 2021:
- incorporating a GOCR into our annual rates assessment; and
- the appropriate response in our annual rates assessment to the impact COVID-19 has had on commercial activity.
We received feedback on aspects of the SSRO’s BPR methodology which were not specifically consulted upon. Our aim is to continuously improve how we assess the rates that we recommend each year to the Secretary of State and we have responded to each of the issues raised. In the coming months, we will engage stakeholders in our corporate planning and seek to identify priority topics for future consideration.
Feedback received
Original consultation
Consultation description
The SSRO is today launching a consultation on the following profit related matters:
- Considering the impact of COVID-19 in the SSRO’s annual rates assessment
- Updates to statutory guidance arising from the introduction of a ‘net zero’ baseline profit rate
- Potential adjustment of the SSRO’s methodology to include a net zero baseline profit rate.
Impact of COVID-19
The data the SSRO uses in its profit assessment will cover a period of time where the comparators we use for our benchmarking may have been affected by the COVID-19 pandemic. The SSRO is asking stakeholders to provide evidence in relation to the impact of COVID-19 that is relevant to the SSRO assessment of the rates for 2022/23.
The net zero rate
On 15 March 2021 the Secretary of State announced that he had determined two baseline profit rates for 2021/22: a rate recommended by the SSRO; and an additional rate (a ‘net zero BPR’). The Secretary of State stated that the net zero rate “will only apply to qualifying defence contracts where:
i. the contract is between the Secretary of State and a company incorporated under the Companies Act that is wholly owned by the UK Government; and
ii. both parties to the contract agree that it should apply.”
The Secretary of State further stated that the intention of the net zero BPR is that this rate can be used to set Contract Profit Rates at a rate that does not result in such companies making a profit should it not be appropriate for them to do so.
On 15 March 2021 the SSRO published version 7 of its statutory guidance on the baseline profit rate and its adjustment (“profit rate guidance”). This version includes guidance on the rates determined by the Secretary of State for 2021/22.
The setting of the net zero BPR gives rise to BPR assessment and profit rate guidance considerations by the SSRO, which are the subject of this consultation:
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Whether the profit rate guidance requires further updating to reflect any implications of the net zero BPR for the application of the six steps.
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If there is a continuing need for a net zero BPR, whether the SSRO should incorporate a net zero BPR into its annual rates assessment, alongside the rate we recommend using our existing methodology.
Responding to the consultation
This consultation is open to all interested persons. We particularly welcome comments from individuals or organisations with an interest in single source defence procurement and ensuring that good value for money is obtained in government expenditure on qualifying contracts and that the prices paid under these contracts are fair and reasonable.
The consultation runs until 5.00 pm Friday 21 May 2021. Written responses should be sent:
By email to: consultations@ssro.gov.uk (preferred)
By post to:
Baseline profit rate consultation responses
SSRO
Finlaison House, 15-17 Furnival Street
London, EC4A 1AB
By telephone including arranging an appointment to speak to the SSRO about the consultation: 020 3771 4767
Documents
Last updated 5 August 2021 + show all updates
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Consultation outcome published
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First published.