Guidance

Guidance provided by the SSRO

Published 3 April 2023

1. Introduction

The SSRO plays a key role in supporting the regulatory framework for single source defence contracts established by Part 2 of the Defence Reform Act 2014 (the Act) and the Single Source Contract Regulations 2014 (the Regulations). This document aims to provide the SSRO’s stakeholders with an overview of the guidance the SSRO issues for use by the Secretary of State for Defence and the parties to contracts which are regulated under this framework. It sets out:

• the different types of guidance the SSRO provides and the basis for doing so;
• how we develop and review our guidance, including how we engage with stakeholders to ensure our guidance is fit for purpose;
• how we promote understanding of our guidance; and
• how we measure our performance in providing guidance to inform ongoing improvements in our approach.

Anyone with questions related to this overview document or any of the guidance documents it refers to can contact the SSRO:

• by telephone on 020 3771 4785;
• by email to helpdesk@ssro.gov.uk; or
• by post to: Chief Regulatory Officer, Single Source Regulations Office, 100 Parliament Street, London, SW1A 2BQ.

2. Guidance provided by the SSRO

The regulatory framework specifies how contracts that meet the requirements for being qualifying defence contracts (QDCs) or qualifying sub-contracts (QSCs) must be priced and requires transparency about those contracts and from the contractors who hold them. It also provides for the issuing of penalty notices by the Secretary of State to contractors who fail to comply with certain obligations under the framework. The SSRO’s functions include giving guidance on each of these aspects of the regulatory framework. Our guidance plays an important role in supporting the Secretary of State and contractors to apply the regulatory framework and realise the benefits the Act and Regulations seek to achieve.

The table below sets out the different types of guidance we provide and the basis for doing so.

Topic	Basis for providing[footnote 1]
Contract pricing
Determining whether a contractor’s costs meet the requirements to be allowable costs under a QDC or QSC[footnote 2]	Section 20(1): The SSRO must issue guidance about determining whether costs are allowable costs under qualifying defence contracts
The adjustments that may be made to the baseline profit rate[footnote 3] to determine the contract profit rate for a QDC or QSC	Section 18(1): The Secretary of State or an authorised person, and the primary contractor, must have regard to guidance issued by the SSRO in relation to any of the steps set out in section 17(2).
Transparency
The preparation by contractors of statutory contract reports[footnote 4]	Regulation 22(9): In preparing a report, a contractor must have regard to any relevant guidance issued by the SSRO.
The preparation by the designated person[footnote 5] of statutory supplier reports[footnote 6]	Regulation 33(8): In preparing reports, the designated person must have regard to any relevant guidance issued by the SSRO.
Defence Contract Analysis and Reporting System (DefCARS)[footnote 7] functionality	Paragraph 14(1) of Schedule 4 to the Act: The SSRO may do anything which is calculated to facilitate the carrying out of its functions or which is incidental to or conducive to the carrying out of those functions.
Penalty notices
The penalties that may be applied by the Secretary of State in cases where a contractor fails to comply with certain obligations under the Act and Regulations.	Section 33(3): In determining the amount of a penalty under section 32 [Penalty notice], the Secretary of State must have regard to guidance issued by the SSRO.
Referrals
The SSRO’s procedures for giving opinions, making determinations, considering appeals against assessment as a QSC and notices of cessation as a QSC	Paragraph 14(1) of Schedule 4 to the Act: The SSRO may do anything which is calculated to facilitate the carrying out of its functions or which is incidental to or conducive to the carrying out of those functions.
The SSRO’s approach to deciding whether to require the payment of referral-related costs.	Paragraph 14(1) of Schedule 4 to the Act: The SSRO may do anything which is calculated to facilitate the carrying out of its functions or which is incidental to or conducive to the carrying out of those functions.

Where we consider it will aid users’ understanding of guidance, we include cross-references from one guidance document to others.

Links to the latest versions of the SSRO’s guidance on the topics shown above are provided in Appendix 1 of this document.

3. Guidance development and review

The SSRO may introduce new guidance or make changes to its existing guidance for a variety of reasons, for example:

• to reflect changes in the regulatory framework which the guidance supports;

• to better support achievement of the SSRO’s statutory aims, which are to ensure that:

  • good value for money is obtained in government expenditure on QDCs and QSCs, and
  • persons (other than the Secretary of State) who are parties to QDCs and QSCs are paid a fair and reasonable price under those contracts;
• to enhance the clarity or comprehensiveness of the guidance, taking account of feedback provided by stakeholders about its usefulness and our learning from the consideration of referred matters;
• to align with improvements in the functionality of DefCARS; or
• to reflect changes in the operational context for regulated single source defence contracting.

When deciding where to focus our efforts in response to guidance-related issues we engage with stakeholders to identify priorities for improvement.

3.1 Proportionate approach

The SSRO aims to take a flexible and proportionate approach to the development of new and revised guidance. We address guidance-related issues quickly when appropriate but recognise that some issues require detailed consideration and a level of stakeholder engagement that necessarily takes more time.

The main factors that inform our approach to engagement with stakeholders on new or updated guidance are:

• Urgency – When is the (new/updated) guidance needed?
• Complexity – How well does the SSRO understand the issue/subject?
• Impact on stakeholders – How does the issue/subject affect stakeholders? Does it affect many or few?
• Consensus – Do stakeholders agree on the issue/subject? Will they agree with the SSRO?
• Resource constraints – How much time and resource can the SSRO devote to this issue/subject given other priorities?

Where the impact of changes or new guidance is clearly minor and uncontroversial there will usually be no or very limited stakeholder engagement before new guidance is issued. For more significant changes or developments, our approach to engagement will be tailored to the circumstances of the case.

We engage with stakeholders in a variety of ways to identify and resolve guidance-related matters including through:

• SSRO Support activities, such as our Helpdesk, onboarding and training;
• bilateral meetings;
• topic-specific working groups;
• discussion with the SSRO’s Operational Working Group and Reporting and IT Sub-Group;^{[footnote 8]}
• issuing and seeking responses to working papers; and
• public consultation on significant changes.

Further information on the SSRO’s approach to stakeholder engagement is available in our Stakeholder Engagement Strategy. Information on the SSRO’s forward programme of engagement on guidance is available on the SSRO’s website.

3.2 Frequency of updates

The Allowable Costs guidance and contract profit rate guidance are updated on a periodic basis usually following a subject-specific review or to reflect the annual update of the rates to be used to determine contract profit rates for the financial year commencing 1 April. These updates are informed by proportionate engagement with stakeholders, notably the SSRO’s Operational Working Group, and public consultation on significant changes during the course of the preceding 12 months. Changes are typically the result of major, multi-year projects.

Contract reporting guidance is, typically, updated twice per year with a mix of minor and significant changes. There is a rolling programme of guidance development in response to identified issues. Engagement with stakeholders on changes is principally via the SSRO’s Reporting and IT Sub Group and, for significant changes, through public consultation.

Other guidance is reviewed and updated when considered necessary with appropriate levels of stakeholder engagement before changes are implemented.

3.3 Governance

In line with the Corporate Governance Framework, the SSRO’s Regulatory Committee has overall responsibility for approving new or updated guidance. Minor and uncontroversial changes to guidance may be approved by the Chief Regulatory Officer or one of the following Heads of function:

• Head of Pricing and Economics – Allowable Costs and contract profit rate guidance;
• Head of Compliance and Reporting – guidance on reporting and penalties; and
• Head of Policy, Referrals and Support – guidance on referrals procedures.

4. Promoting understanding of SSRO guidance

The SSRO aims to support stakeholders to understand and apply its guidance. We see this as critical to achieving the SSRO’s statutory aims and improving the speed of regulated single source defence procurement.

We routinely brief stakeholders on the guidance we publish as part of our onboarding and training activities. Following the publication of new or updated guidance we will provide written and face-to-face briefings for stakeholders to assist them to understand the intent of the guidance and provide opportunities to discuss questions related to interpretation and implementation.

The SSRO responds to day-to-day queries on its guidance through its Helpdesk helpdesk@ssro.gov.uk. Routine analysis of the guidance-related queries received provides useful intelligence on areas where additional or improved guidance may be beneficial.

Whenever possible, we will provide tailored support to assist the Secretary of State or a contractor to understand how our guidance should be interpreted. For more complex questions concerning the application of the SSRO’s guidance to particular circumstances, including those which require consideration of a significant volume of evidence from one or both parties to a contract, it may be necessary, subject to the provisions of the Act and Regulations, for one or other party to a contract (or both) to refer a detailed question to the SSRO for an opinion or determination.

We will publish on our website anonymised responses provided to guidance-related queries and referrals where we consider these will provide useful clarification for stakeholders on the application of SSRO guidance.

5. Measuring performance

The SSRO measures its performance on the provision of guidance through the feedback it receives from stakeholders. A biennial survey of stakeholders gathers feedback on a range of guidance-related metrics.

We continue to explore other ways to measure, on a more frequent basis, the perceptions of stakeholders about our guidance.

6. Continuous improvement

The SSRO aims to deliver continuous improvement in its guidance by:

• improving how we engage with stakeholders in developing the SSRO’s guidance;
• improving our processes to enable us to respond to issues and exploit opportunities more quickly and efficiently; and
• ensuring our guidance is of consistently high quality, i.e.:
  • clear – easy to understand by those who need to apply it;
  • comprehensive – covering the normally expected range of circumstances faced by those who need to apply it;
  • authoritative – being both evidence-based and reliable; and
  • accessible – available to users when they need it in a form that meets their requirements.

Delivering better guidance requires us to understand how stakeholders are using our existing guidance. We welcome feedback at any time on the accessibility, usefulness and applicability or our guidance and the ways in which we engage with stakeholders on guidance development. Comments and proposals for improvement will be considered as part of our periodic review processes and can be sent:

• by email to consultations@ssro.gov.uk; or
• by post to: Chief Regulatory Officer, Single Source Regulations Office, 100 Parliament Street, London, SW1A 2BQ.

7. Appendix 1: Links to SSRO guidance

The latest versions of the SSRO’s guidance can be found on the SSRO’s website using the links below.

Guidance	Version	Published	Applies from	Link
Allowable Costs	6.0	7 Nov 2022	7 Nov 2022	Link
Baseline Profit Rate and its Adjustment	7.3	16 Mar 2023	1 Apr 2023	Link
Reporting and DefCARS:
- Contract reports	11.1	28 Sep 2022	28 Sep 2022	Link
- Supplier reports	9.0	28 Jul 2022	28 Sep 2022	Link
- DefCARS functionality	11.1	23 Feb 2023	23 Feb 2023	Link
Penalties	1.0	27 Mar 2015	27 Mar 2015	Link
Referral procedures:
- Opinions	1.1	27 Oct 2021	1 Nov 2021	Link
- Determinations	1.1	27 Oct 2021	1 Nov 2021	Link
- Appeals against assessment as a QSC	1.1	27 Oct 2021	1 Nov 2021	Link
- Notices of cessation as a QSC	1.1	27 Oct 2021	1 Nov 2021	Link
- Requiring the payment of costs when giving an opinion or making a determination	1.0	27 Oct 2021	1 Nov 2021	Link
Topic-related:
- Costs affected by COVID-19	1.0	20 Jul 2020	20 Jul 2020	Link
- Inflation	1.0	7 Mar 2023	7 Mar 2023	Link

8. Appendix 2: Versions of this document

This is version 1 of this document. The change log for this document is shown below.

Version	Date published	Comment
1.0	03 April 2023	First publication

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1. References are to sections of the Defence Reform Act 2014 and Single Source Contract Regulations 2014. ↩

2. Under section 20(2) of the Act, costs are allowable under a QDC when they are appropriate, attributable to the contract and reasonable in the circumstances. ↩

3. A rate determined each year by the Secretary of State which provides the starting point for calculating the contract profit rate to be applied to the allowable costs to determine the price of a qualifying contract. ↩

4. Those reports contained in Part 5 of the Regulations. ↩

5. The designated person is defined in section 25(3) of the Act. ↩

6. Those reports contained in Part 6 of the Regulations. ↩

7. The system provided by the SSRO for collecting, storing, managing and providing secure access to the information submitted in statutory reports. ↩

8. The SSRO’s Operational Working Group and Reporting and IT Sub-Group are comprised of representatives of the Ministry of Defence, ADS Group Ltd and individual defence contractors. ↩