Section 17(2) of the Defence Reform Act 2014 sets out the six steps to be used when determining the contract profit rate for a qualifying defence contract.
It is a legal requirement to have regard to this guidance. This document provides guidance on the adjustments to make to the baseline profit rate when determining the contract profit rate for all qualifying defence contracts and qualifying subcontracts.
The SSRO may issue guidance in relation to any of these steps and contractors and the MOD must have regard to it, as specified in Section 18(1) of the Act. The six steps are described in the SSRO’s guidance:
- Step 1 – baseline profit rate;
- Step 2 - cost risk adjustment;
- Step 3 - profit on cost once;
- Step 4 - SSRO funding adjustment;
- Step 5 - incentive adjustment; and
- Step 6 - capital servicing adjustment.
On 25 January 2016, the SSRO published a consultation on its Guidance on adjustments to the Baseline Profit Rate. The consultation closed on 29 February 2016.
The SSRO has considered all responses received, and has updated and published its final Guidance on adjustments to the Baseline Profit Rate following the consultation.