Transparency data

Board minutes: 27 January 2022

Published 26 April 2022

Minutes of the 42nd Board Meeting

Finlaison House, Thursday 27 January 2022

10:00 to 13:00

Board members present:	Others present:
Hannah Nixon (Chair)	Tara Usher (MOD Representative)
Peter Freeman	Colin Hill
Alastair Groom	Mike Wetherell
Hugh Kelly	Malcolm Botting
David Johnston	Ben Johnson (item 6)
Claire Williams	Adrian Wallis (item 6)
Neil Swift	Anthony Bende-Nabende (item 6)
David Galpin	Peter Roche (item 6)
	Alan Brennan (item 7)
	Colin Sharples (item 7 and 8)
	Nick Ratcliffe (item 8)

1. Welcome, apologies, announcements and declarations of interest

1.1. The Chair welcomed members to the 42nd meeting of the SSRO Board.

1.2. It was Hannah Nixon’s first meeting as Chair of the SSRO Board, and she introduced the meeting by noting the importance of single source defence procurement and its contribution to the UK’s GDP, the SSRO’s role in adding value to the MOD’s procurement function and the ambitious mission that the organisation had. The SSRO had several newly appointed Board members, and the Chair intended to ensure that several site visits and meetings were arranged to bring Board members together and develop shared understanding and purpose. It was important that the Board continued to have open and constructive debates, as these led to robust decisions.

1.3. Apologies had been received from Andy Brittain.

1.4. The “MOD Representative Protocol” had recently been published on the SSRO’s website and it noted that the MOD Representative would recuse themself from Board discussions where there might be a conflict of interest relating to the SSRO’s statutory functions. As the meeting included an item regarding the methodology for assessing the appropriate baseline profit rate and the assessment itself, the MOD Representative would not be present for that item on the agenda.

1.5. No other declarations of interest were made.

2. Minutes of the 41st meeting of the Board, 15 December 2021, and action tracker

2.1. The Chair introduced the minutes of the Board meeting held on 15 December 2021. Four actions were recorded.

• Action 118 – the Chief Executive would submit to the May 2022 Board meeting a strategy for developing the referral panel and a community of experts. The May meeting of the Board had subsequently been cancelled, and the paper would instead be put to the June 2022 Board meeting.
• Action 119 – following the Board’s discussion, the Corporate Performance Report now included a chart setting out the number of log-ins to DefCARS by month for a 12 month period.
• Action 120 – SSRO staff had discussed with the MOD how to encourage a high response rate to the stakeholder survey. Board members requested that the 140 MOD contacts obtained in preparation for the survey could be used, with their consent, for other purposes. It was confirmed that the SSRO’s contact lists were being updated to include the contacts provided.
• Action 121 – the draft Corporate Plan for 2022-25 committed the SSRO to continuing sustainable working and considering its carbon footprint alongside future accommodation needs.

2.2. The minutes of the 41st meeting of the Board were approved as a correct record.

3. Chair’s introduction

3.1. The Chair discussed recent and forthcoming stakeholder engagement, including the introductory meetings that had been scheduled with senior stakeholders from the MOD and industry. She had met with Mark Preston (Director of Sponsorship and Organisational Policy) and Tara Usher (MOD Representative to the SSRO Board) on 19 January. This had been a constructive meeting at which they had agreed to continue an open dialogue. The Chair was due to meet with Andrew Forzani (Director General, Commercial) on 1 February and the Minister for Defence Procurement on 28 February.

3.2. The Chair had written to the prime contractors to propose introductory meetings and to suggest that Board members visit their facilities later in the year. Several meetings had subsequently been arranged for the Chair with the Chief Executives of defence contractors throughout February and March.

3.3. The Chair would be undertaking the annual review of Board effectiveness in February. In conducting the review, the Chair would meet individually with Board members and the MOD Representative and would analyse the results of the evaluation questionnaire that had been issued to Board members. In future years, the review would be undertaken at the end of the calendar year.

4. Chief Executive’s Report

4.1. Neil Swift, Chief Executive, presented his report to the Board. The report provided an overview of recent stakeholder engagement, including his meeting with Kevin Craven, Chief Executive of ADS, on 18 January 2022. They had discussed ongoing engagement and the Secretary of State’s review of legislation among other issues.

4.2. The SSRO’s recent publications had included the announcement of the closure of the SSRO’s investigation of the appropriate cost risk adjustment to be used in calculating the contract profit rate for two amendments to a QDC. The SSRO had also announced that it had accepted an application for a determination on the extent to which research and development costs are allowable, including consideration of Research and Development Expenditure Credit.

4.3. The SSRO had contracted with Risual Ltd to provide DefCARS. The project was now in the service design phase and, subject to the SSRO’s agreement of the design and associated costs, the transition to the new DefCARS system would take place in time for the end of the current contract in July 2022.

4.4. A recruitment panel had been convened for the appointment of a Chief Regulatory Officer, comprising the Chair, Peter Freeman, the Chief Executive and Mark Preston. The panel had now reviewed and issued the job description and advert. The role was being advertised in several newspapers and on LinkedIn, and the UK Regulators Network had shared the notice with its members. The vacancy was due to close on 21 February and the interviews would take place in the week commencing 7 March. The Chief Executive confirmed that equality and diversity considerations had been factored into the advertising and sifting process and that the role had been advertised on the Vercida website.

4.5. The SSRO continued to receive requests for information from MOD and had accepted a request under section 37 of the Defence Reform Act to provide analysis that would assist the SSAT in monitoring MOD’s compliance review activity. The information would be provided by the end of February.

4.6. Board members were asked to provide feedback on whether any aspects of the existing Accommodation Strategy should be amended. The SSRO’s intention was to relocate to an outer London strategic hub, with reduced workstation requirements and increased shared space use, at the time the Finlaison House lease ended in June 2023. An updated strategy would be submitted to the Board’s next meeting, and any views from Board members would be factored into development of that document.

4.7. The results from the latest staff survey would be shared with Board members in the coming days. The results were largely positive, with an improvement in scores in most areas including engagement, which had increased by more than 10 per cent since the previous year’s survey. There were some areas still to work on and the executive would engage with the team on these directly and via the staff group. A fuller update would be provided to the Board, along with any planned actions in response, at its March meeting.

4.8. The Cabinet Office and Treasury had launched a consultation on its proposed Arm’s-Length Body Sponsorship Code of Good Practice. The aim of the Code was to improve the consistency and delivery of sponsorship by departments across government. Sponsor departments would be supported by the Code, tools and an assurance process, which would be based on a maturity model. The Code did not provide a uniform approach to sponsorship, but instead provided a risk-based, proportionate approach. As the closing date for responses was 6 February 2022 the executive would draft and submit a response directly, in consultation with the Chair. Action: Neil Swift.

The Board

• commented on the SSRO’s existing Accommodation Strategy at Appendix 2; and
• noted the information provided in the report.

5. Corporate Performance Report

5.1. Neil Swift, Chief Executive, introduced the Corporate Performance Report, which provided an update on how the SSRO was performing against its corporate priorities as set out in the Corporate Plan. All Directors then discussed issues arising within their work areas.

5.2. In the Corporate Resources area, no data breaches had been reported. There had been two recent staff resignations and recruitment activity had commenced to cover those roles. The Board discussed the reduction in expenditure on training, which had partly resulted from fewer in-person training days being utilised during the pandemic. The training budget also included travel, which had similarly been affected.

5.3. In Operations, the SSRO had received a referral for a determination, and an oral hearing had been held during the week. An update to the SSRO’s reporting guidance had been published on the previous day. Work was being paused on business digitisation. Board members asked for further information, and it was confirmed that this was because resources were being reprioritised to focus on supporting the Secretary of State’s review of legislation.

5.4. The Board discussed whether lessons had been learnt from the annual Compliance Report, which had been published in November 2021. The SSRO was considering how to develop its compliance reporting to make it more efficient. Anonymised information was currently shared with selected suppliers about the timeliness and quality of their report submissions in comparison with other suppliers. Several contractors found this helpful, and steps were being taken to improve interactions in all cases.

5.5. The Board discussed trends in the number of active and inactive DefCARS users. The number of inactive users had varied by about 100 users over a period of six months, which could be for several reasons including that the users had left the company or the company no longer had a qualifying defence contract. Board members stated that it would be helpful to obtain a better understanding of how people were using the system and suggested that conversations could take place with super users. It was noted that there was a proposal in the draft Corporate Plan to consider use of DefCARS by various groups of users, and this would be coordinated through existing groups that included both industry and MOD representatives, such as the Reporting and IT Sub-Group and the Data Board. It was suggested that communications could be issued to encourage wider use of DefCARS within the MOD, including for example case studies.

5.6. The number of reporting issues was increasing, and the executive intended to submit a report to a later meeting of either the Board or a Board sub-committee exploring such trends and related issues. Action: David Galpin.

5.7. The Defence Advisor informed the Board that SSRO staff now had access to the defence learning environment.

The Board reviewed and commented on the Corporate Performance Report.

6. Baseline Profit Rate

6.1. David Galpin, Chief Operating Officer, introduced a report regarding the SSRO’s recommendation of the baseline profit rate (BPR), capital servicing rates, SSRO funding adjustment and government owned contractor rate (the “rates”) to apply for 2022/23. The report set out the supporting analysis that would be provided to the Secretary of State to assist in determining the rates and included a publication plan for the SSRO’s recommendation and supporting analysis.

6.2. The Chair introduced the item by focusing initial discussion on the report’s proposal that there should be an amendment to the methodology used to calculate the BPR. The amendment had been proposed in view of the ongoing pandemic. While the existing methodology had stabilising features that limited the impact of any given economic effect, the report proposed that the current three-year average should be increased to a four-year average for the 2022/23 assessment, to reduce the influence of the 2021/22 underlying rate on the BPR to be recommended. This change to the methodology required Board approval.

6.3. The Regulatory Committee had considered the issue at its January meeting, and the Chair of the Committee informed the Board of the Committee’s discussion. The Committee had previously encouraged the team to be creative in reflecting on the impact of the pandemic. The Committee was satisfied that extending from three to four years provided suitable recognition that 2021/22 had been exceptional, while ensuring that the SSRO’s two statutory aims were met and that the methodology remained robust. The Committee’s recommendation to the Board was unanimous that the change to the methodology should be approved.

6.4. Board members considered the amendments proposed to the BPR methodology. The Board discussed the volatility of in-year profit rates within the comparator group in 2021 and the relative impact of attrition in the comparator group. It was noted that there had been a drop in the “provide and maintain” benchmark, which had fallen by over 2 percentage points partly as a result of the pandemic. The methodology included stabilisation measures that provided protection against volatility, such as a three-year underlying rate average, the exclusion of loss makers and the use of the median in setting the rate. The change to a four-year average would increase that stability further.

6.5. Board members discussed other potential options for changing the methodology to reduce the impact of the 2021/22 underlying rate. The arguments in favour of additional stabilisation through a four-year average, as set out in Appendix 2 of the report, were discussed and agreed. Further consideration about the future direction of the methodology would be provided for in the following year. The SSRO was not required to consult on the BPR methodology, but it was likely to consult on aspects of the future methodology in the coming year. The Board noted however that the arguments for stability and predictability remained strong, and that the current methodology had been developed through consultation over a period of several years.

6.6. Board members would send additional detailed comments to the team. It was agreed that cover papers for lengthy Board reports should be specific about where key information was located. Action: Neil Swift.

6.7. A cover letter from the Chair would be sent to the Secretary of State alongside the recommendation. The Board discussed the messages that would be drawn out in the letter [REDACTED]. The letter would also signal a willingness to consider the methodology in more detail in future.

The Board:

• agreed that the BPR is based on a four year average of underlying rates for 2022/23 (see 4.4 and appendix 2);
• approved the recommendation of the 2022/23 rates;
• approved the supporting analysis that the SSRO would provide to the Secretary of State to assist in their determination (appendix 4);
• agreed that the Chair of the SSRO Board would write to the Secretary of State with the SSRO’s recommendation and supporting materials;
• approved the publication of the SSRO’s rates recommendation and some of the supporting analysis (appendix 4, except for 4e) after the Secretary of State had announced the 2022/23 rates; and
• delegated to the Chief Executive authority to make minor revisions to, and approve, the final documents for provision to the Secretary of State by 31 January 2022, for publication in March 2022 after the Secretary of State’s announcement, and for updating the SSRO’s Guidance on the baseline profit rate and its adjustment to include the new rates.

7. Review of legislation

7.1. David Galpin, Chief Operating Officer, provided an update on the Secretary of State’s review of legislation, including the latest position with regard to potential legislation and the timing of the Command Paper that would precede it.

7.2. The SSRO was engaging with MOD officials to plan and prioritise the SSRO’s programme of work in support of new legislative proposals; this would include potential changes to guidance and DefCARS. Planning assumptions remained fluid, but it was likely that a paper prioritising the work to be undertaken would be submitted to the March Board meeting.

7.3. Board members discussed the resulting issues and risks for the SSRO. It agreed that the SSRO should continue to provide constructive support to the MOD and engage on the work being undertaken. It should seek to be clear on timetables and the programme for the work required. Some of the proposals being discussed would require significant input, at a time when ongoing SSRO projects were at a critical point. The SSRO’s input would therefore have to be carefully considered to mitigate resource challenges. The Regulatory Committee would keep this area under observation.

The Board noted the update.

8. Corporate Plan

8.1. David Galpin, Chief Operating Officer, introduced a report presenting the SSRO’s draft Corporate Plan 2022-2025. Should the Board approve the draft, it would be sent for consultation to the MOD, ADS and all defence contractor members of the Operational Working Group on 1 February. Stakeholder feedback would be sought over a period of four weeks, with the final version of the plan presented to the Board for approval on 30 March.

8.2. The plan had been developed through engagement with the Board, stakeholders and SSRO staff. It was aligned at a high level with the relevant defence outcomes within the draft Defence Plan 2022. It also reflected the views expressed by Board members at workshops in November and December 2021, which had included presentations from MOD and industry. Following those discussions, there was now a more evident link between the vision, key performance indicators (KPIs) and activities.

8.3. The draft plan set out the SSRO’s three main priorities: supporting the Secretary of State’s review of the regulatory framework; data use and the DefCARS technology strategy; and a focus on allowable costs. It included additional activities from those in the current plan, including the continuous improvement of pricing guidance and the development of the statistics bulletin and annual compliance report.

8.4. The Board was asked to agree the corporate budget for 2022/2023 of £6,385,000. Further information would be provided to Board members regarding the resources allocated to specific SSRO functions. Action: Neil Swift.

8.5. The KPIs in the draft Plan had been refined and developed with input from members, staff, the MOD and industry. Board members discussed specific KPIs and sought to raise the aspirational targets in several areas. These included the KPIs on “responses to questions provided within target timeframes”, “stakeholders are satisfied with assistance provided by the SSRO” and “percentage of stakeholders who agree the SSRO’s pricing guidance is clear and applicable”. Commentary would be included on the background and reasoning behind these indicators. A distinction was made between the targets related to the SSRO’s direct activities that the SSRO controlled, and those it did not. The SSRO did not have direct control but had some influence over the “percentage of reports submitted that are complete and meet the requirements of the legislation at the first attempt”, which had been included as a KPI within several previous Corporate Plans. It was agreed that the target should be raised to 70 per cent. Action: David Galpin.

8.6. Board members discussed the SSRO’s measurement of its two statutory aims. Several KPIs were directly seeking to measure whether the SSRO had, in carrying out its statutory functions, ensured good value for money and fair and reasonable prices. Board members discussed whether there could be further linkages between the two aims and the indicators.

8.7. Board members considered that measuring the impact of the SSRO and the single source regulatory framework should be considered as a future aspiration. This could be done jointly with the MOD and industry, and utilise data gathered by the Department, data from completed qualifying defence contracts and case studies. Action: David Galpin.

The Board:

• agreed that Objective Two should be retitled “Maintain a pricing system that supports value for money and fair prices, and offers solutions to difficult pricing problems”;
• agreed the draft Corporate Plan set out in Appendix 4 for consultation with key stakeholders;
• authorised the Chair of the SSRO, after consultation with the Chief Executive, to agree minor changes to the draft Corporate Plan before circulation to stakeholders accompanied by a cover letter from the Chair;
• agreed the consultation plan in Section 5, which included a four-week consultation period; and
• approved the 2022/23 budget set out in Table 1.

9. Minutes from Regulatory Committee meeting of 19 January 2022

9.1. Peter Freeman presented the minutes of the meeting of the Regulatory Committee on 19 January 2022. The Committee had discussed the BPR methodology and recommendation at length, as reported earlier in the Board meeting. It had also considered further ongoing SSRO work including the Amendments and Variance project.

The Board noted the minutes.

10. Future agendas and any other business

10.1. The Chair introduced a two-page document showing the business of all Board and sub-committee meetings for the next year.

10.2. The next meeting would take place on 30 March 2022 at 9:00am.

11. Reflections on meeting

11.1. The Chair led a discussion on Board members’ reflections from the meeting, and drew out actions and learning points for future meetings.