The regulator for single source UK defence contracts has today published its first annual Compliance Report.
The key points include:
In 2015 the SSRO found almost £100,000 of agreed savings and identified over £20 million of potential savings. A further £5.7 million of possible savings are also currently under investigation on the first six QDCs. In addition, the existence of the regime itself has created unquantified savings by providing more opportunities for the MOD to act as an intelligent customer and seek efficiencies.
Whilst contractors have in some cases provided insufficient information that certain costs should be included in the contract, they have been willing to remove non-Allowable Costs identified by the SSRO once this information has been provided. Examples include charging to rectify faulty workmanship, contingency funding not actually used and marketing costs.
There is evidence of differing levels of knowledge and understanding of the Act and Regulations in the MOD and challenges in meeting the reporting and verification requirements. The SSRO expects, with the establishment of the MOD’s Single Source Advisory Team, the MOD’s compliance should increase significantly over 2016.
Jeremy Newman, Chair of the SSRO, said:
2015 was the first year for the SSRO and the new arrangements for single source contracts so, not surprisingly, we have seen differing levels of understanding of, and compliance with, the Regulations and the SSRO’s guidance both by the MOD and contractors.
Wherever possible, we will continue to help contractors and the MOD meet their obligations, rather than simply monitor compliance and report on it afterwards. We will therefore continue to devote resources to help build understanding of what is required.
It is already clear that the new regime has the potential to achieve substantial savings which can then be reinvested elsewhere in defence.
The SSRO was notified of 17 Qualifying Defence Contracts and one Qualifying Subcontract, signed with ten different defence contractors, during 2015.
The Compliance Report covers the period 18 December 2014 to 31 December 2015 and comments on compliance with the Defence Reform Act 2014 and the Single Source Contract Regulations 2014 by the Ministry of Defence and by defence contractors. It is available on the SSRO website.
Last week (21 January 2016) the SSRO announced changes to how it will calculate the profits that contractors will be allowed to make on qualifying contracts and signalled its intention for further reform in the coming year. The rate for 2016/17, due to be announced by mid-March, will be determined by a comparison with a more international and a more appropriate range of companies than previously. In 2017 the SSRO intends to move to a range of different profit rates depending upon the type of work being contracted for.