Research and analysis

Contract pricing methods reported in Qualifying Defence Contracts 2015-16

The Single Source Regulations Office has published an analysis of the contract pricing methods used in qualifying defence contracts (QDCs) and qualifying sub-contracts (QSCs) entered into in 2015/16.

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The Single Source Contract Regulations 2014 introduced six regulated pricing methods that suppliers are permitted to use when pricing single source contracts with the Ministry of Defence. The profit earned on a QDC can be influenced by the pricing method used. For example, for firm and estimate-based fee pricing methods the profit within the price on the contract is based on the costs estimated at the start of the contract.

This report highlights the contract pricing methods used in 34 QDCs/QSCs entered into between 1 April 2015 and 31 March 2016.

The analysis shows almost three quarters of contracts agreed in 2015/16 use firm pricing either as the only method, or in combination with another pricing method. Firm pricing represents 7 per cent (£0.8 billion) of the total QDC/QSC value in 2015/16. The highest proportion (of total value) of QDCs/QSCs in 2015/16 used the estimate-based fee pricing method, at 51 per cent (£5.6 billion), and the target pricing method, at 41 per cent (£4.5 billion).

Published 13 July 2016