Under the Defence Reform Act 2014 (the Act), the Single Source Regulations Office (SSRO) is required annually to review the figures used to determine the contract profit rate for pricing qualifying defence contracts (QDCs) and qualifying sub-contracts (QSCs). Section 19(2) of the Act requires us to provide the Secretary of State with an assessment of the appropriate baseline profit rate, SSRO funding adjustment and capital servicing rates for that year.
The Secretary of State for Defence announced on 15 March 2017 that, for 2017/18, the baseline profit rate for qualifying single source defence contracts will be 7.46 per cent. The profit rate was decided following a recommendation from the SSRO, and we welcome the Secretary of State’s decision to accept our recommendation.
In light of the responses to the consultation we held in the summer of 2016, the methodology for the 2017 contract profit rate increases further the level of transparency for stakeholders about the approach we take. This includes additional transparency on how we identify the comparable companies, how this data is analysed and includes additional information to aid those who may wish to replicate the approach taken. We are confident that the methodology is correct, and that our stakeholders will now consider it to be robust.
We have today published our methodology for the baseline profit rate and capital servicing rates, and funding adjustment, which were recommended to the Secretary of State in January this year.