FOI release

RFI 119: Baseline profit rate

Published 24 February 2026

RE: Freedom of information request - Baseline profit rate

Thank you for your email received on 9 January 2026 in which you requested information which we have considered under the Freedom of Information Act 2000 (the FOI Act). Your email also presented your organisation’s proposal that an annual adjustment be made to the baseline profit rate (BPR) linked to the overall percentage of ‘correct first time’ submissions of statutory reports by contractors with reporting obligations under the Defence Reform Act 2014 (the Act) and the Single Source Contract Regulations 2014 (the Regulations). We address both matters below.

Freedom of information request

In your email you asked for the following information: “we request that you disclose the following under your duty of candour:

• The current internal policy document or Board guidance that sets out the criteria for declining to issue a Penalty Notice when a breach is identified.
• The minutes of the most recent Board meeting where the strategy regarding “Tier 1 Supplier Compliance” and the use of enforcement powers was discussed or ratified.”

We have considered your request under the FOI Act. Under the FOI Act, you have the right to:

• know whether the Single Source Regulations Office (‘SSRO’) holds the information you require; and
• be provided with that information (subject to any exemptions under the FOI Act which may apply).

We respond below in relation to each of the matters in your request.

Documents related to criteria for declining to issue a penalty notice

The power to issue penalty notices under the Defence Reform Act 2014 (the Act) rests with the Secretary of State (not the SSRO) under the provisions of section 32 of the Act. The decision whether to issue a penalty notice is the sole preserve of the Secretary of State.

As the SSRO is not empowered to undertake regulatory enforcement action under the Act or Regulations I can confirm the SSRO does not hold any internal policy document or Board guidance that sets out criteria for declining to issue a penalty notice when a contravention of the Regulations which may give rise to such a notice is identified.

Minutes of Board meeting

As the SSRO is not empowered to undertake regulatory enforcement action under the Act or Regulations I can confirm the SSRO does not hold the minutes of any Board meeting, including those of the most recent Board meeting, where a strategy regarding “Tier 1 Supplier Compliance” and the use of enforcement powers was discussed or ratified. You may be interested to know that the minutes of SSRO Board meetings are published on the SSRO’s website at: https://www.gov.uk/government/collections/ssro-board-meeting-minutes.

On account of the type of information you have requested, you may wish to submit your request to the Ministry of Defence (MOD). Information on how to request information from the MOD is available on its website at: https://www.gov.uk/government/organisations/ministry-of-defence/about/publication-scheme#how-to-make-an-official-request-for-information.

If you are dissatisfied with the handling of your request by the SSRO, you have the right to ask for an internal review. Internal review requests should be submitted within two months of the date of receipt of the response to your original letter and should be addressed to: enquiries@ssro.gov.uk.

If you are not content with the outcome of the internal review, you have the right to apply directly to the Information Commissioner for a decision. The Information Commissioner can be contacted at: Information Commissioner’s Office, Wycliffe House, Water Lane, Wilmslow, Cheshire, SK9 5AF.

Please remember to quote the reference number above in any future communications on this matter.

Your BPR proposal

The BPR is the first step of the four-step process set out in section 17 of the Act to determine the contract profit rate for a qualifying contract which uses one of the default pricing methods provided for by regulation 10 of the Regulations. The BPR is determined by the Secretary of State for Defence in March each year (informed by a recommendation from the SSRO) for application to qualifying contracts entered into on or after 1 April that year. The methodology which underpins the SSRO’s BPR recommendation is published on our website at: https://ssro.gov.uk/baseline-profit-rate-methodology/

In carrying out our functions under Part 2 of the Act, including our duty to make a BPR recommendation no later than 31 January each year to the Secretary of State, the SSRO must aim to ensure that:

• good value for money is obtained in government expenditure on qualifying defence contracts, and
• that persons (other than the Secretary of State) who are parties to qualifying defence contracts are paid a fair and reasonable price under those contracts.

It is unclear from your email whether you are proposing that:

1. the SSRO amends its BPR methodology in order that our annual BPR recommendation reflects in some pre-determined way the level of reporting compliance in a prior year by contractors with qualifying contracts (either individually or collectively); or

2. irrespective of the SSRO’s BPR recommendation, the Secretary of State determine a BPR which reflects in some way the level of reporting compliance in a prior year by contractors with qualifying contracts; or

3. the four-step process to determine the contract profit rate for a qualifying contract set out in the Act is amended to include an additional adjustment linked in some way to the level of reporting compliance in a prior year by contractors with qualifying contracts. In relation specifically to items 2 and 3 above, these are matters on which you would need to engage directly with the Ministry of Defence.

In relation to item 1 and the general proposal to reduce the BPR in a way that is linked to the level of reporting compliance in a prior year by contractors with qualifying contracts we make the following observations.

• The contract profit rate for a qualifying contract using a default pricing method is determined at the time that contract is entered into and applies for the duration of that contract (unless that contract is subject to a pricing amendment using a default pricing method in relation to which a new contract profit rate may be determined). It is unclear, therefore, how an adjustment to the BPR which would apply to contracts entered into in later years would incentivise existing contractors under qualifying contracts to improve their compliance with reporting obligations.
• We do not consider that penalising contractors who enter into qualifying contracts in a given year for the non-compliance of contractors who entered into qualifying contracts in prior years would support the SSRO’s statutory aims described above. In particular, the impact of any adjustment to the BPR would unfairly fall on all contractors who enter into qualifying contracts in a given year irrespective of their individual history of compliance with their statutory reporting obligations, including on those who have not previously held a qualifying contract.
• The SSRO’s BPR methodology has been developed following extensive engagement with stakeholders and provides the basis for stability and predictability in the SSRO’s BPR recommendation. This is a feature of the current approach which is much valued by both the MOD and its defence contractors. While we remain open to proposals for improving our BPR methodology, we consider it would be undesirable to introduce changes which might lead to volatility in the SSRO’s BPR assessment.
• On a practical point, given the timing of the SSRO’s BPR assessment and recommendation and the Secretary of State’s determination of the BPR to apply in the following financial year, there may be a significant time lag between the reporting which gives rise to a measure of compliance that informs an adjustment to the BPR and the application of that adjustment in determining the price payable under qualifying contracts.

We hope these observations are of assistance to you in your further consideration of this matter.

I would also like to take this opportunity to thank you for your interest in the operation of the regulatory framework and to assure you that the SSRO remains committed to working with the MOD and industry to support improvements in statutory reporting in order to help deliver value for money in defence procurement.

Yours sincerely

Joanne Watts

Chief Regulatory Officer