Corporate report

Newsletter May 2025

Published 2 May 2025

Introduction from the SSRO’s Chief Executive, John Russell

Since our last newsletter, the SSRO has been actively contributing to the national conversation about how to respond to the current period of geo-political change and instability. With an evolving defence landscape - and the Government’s commitment to defence expenditure increasing to 2.5% of GDP - growth, productivity, technological innovation and speed are becoming increasingly important​, and the regulatory framework must play the most effective role it can in support of these objectives.

We have engaged with the Government and the defence industry in supporting the ongoing development of the Strategic Defence Review (SDR) and Defence Industrial Strategy (DIS). The views of industry have also contributed to our thinking, and we have worked with membership bodies (such as ADS) to gauge sentiment.

This is an opportunity to support the first of the Government’s five national missions: growing the economy. The Government’s Modern Industrial Strategy named defence as one of the eight priority sectors for economic growth in the UK, stating that it is foundational for economic growth across the UK. Regulators and regulatory systems must play their part in supporting UK economic growth. There are opportunities to do so, for example by optimising the single source regulatory framework with stronger guiderails to ensure fast-paced contract delivery; stronger partnerships with industry; and increased industrial resilience and domestic onshore capability. The regulatory burden on defence contractors should remain proportionate, particularly for new entrants and SMEs who benefit from the regulatory framework’s protections and who could support wider economic growth.

The SSRO stands ready to support the implementation of the recommendations from the Government’s reviews.

I am pleased that the Secretary of State accepted our recommendation for the 2025 baseline profit rate and capital servicing rates, which act as the starting point for agreeing contract profit rates on crucial single source or non-competitive defence contracts.

The baseline profit rate for single source defence contracts in 2025/26 will be set at 8.56%, which represents an increase of 0.32 percentage points from 2024/25. The supporting materials that give detail on the profit rate are available on our website. 

We are continuing – and indeed enhancing – our work in several areas. This includes our:

• Ongoing programme of guidance optimisation, through which we are pursuing new ways of disseminating guidance and support.

• Non-Referral Advice Service which is being used extensively by both the MOD and defence contractors seeking help to apply the regulatory framework to current and proposed contracts. We have responded to requests for advice on: allowable costs, profit rate steps, the final price adjustment and use of the alternative pricing methods.

• Provision of high-quality support to the MOD and industry through our helpdesk, website, on-boarding meetings and training.

SSRO colleagues and I look forward to continuing to work with you in the months ahead.

Best wishes,

John

Engaging with our stakeholders

John Russell and Jo Watts (the SSRO’s Chief Regulatory Officer) enjoyed presenting at DPRTE on 26 and 27 March, about the single source regulatory framework and how the SSRO can support contracting parties.

It was pleasing to hear appreciation for the services and help that we provide, and there was discussion of how the regulatory framework is being used by SMEs. Questions from the audience focused on our onboarding and advice services; how our guidance aligns with other guidance issued by government; and when we can (and can’t!) become involved in the contracting process.

We also presented to techUK’s Defence Commercial Business Forum in February, and contributed to ADS’s workshop with the Minister for Defence Procurement and Industry in early March.  

The SSRO is taking part in a panel discussion at the UK Regulators Network’s annual conference on 21 May, primarily around the theme of growth.  

Placements with industry

As part of the exercise to create better collective understanding, our staff have been undertaking short placements with the defence industry – most recently with QinetiQ and Leonardo. These outward placements for our employees help to build mutual understanding, expand their knowledge and improve their skills. 

The SSRO is always keen to undertake placements – contact our Chief Regulatory Officer if you want to discuss how these might work for you: joanne.watts@ssro.gov.uk

Improving our web presence and online support

As part of improving our accessibility and visibility to stakeholders, we are improving our website and providing new ways of disseminating guidance and support.

The SSRO’s website is one of the key ways we communicate with our stakeholders. The MOD and defence contractors interact with our website as a source of information as well as to access guidance documents.

These improvements will take effect in early July 2025. We will ensure stakeholders are informed in the run up to this, and we will invite user feedback about the improvements.

Publications

Qualifying sub-contract guidance consultation

We are currently consulting on draft guidance relating to qualifying sub-contracts (QSCs) under the regulatory framework for single source defence contracts.
We prepared the draft guidance in response to stakeholder feedback for an accessible summary of the regulatory provisions related to QSCs. The consultation closes on 14 May 2025. We are particularly keen to get feedback on the draft guidance from the parties to existing QSCs and from the holders of qualifying contracts who have a statutory obligation to assess whether sub-contracts they propose to enter into would meet the requirements to be QSCs.

New guidance on the application of the Final Price Adjustment

Following consultation with stakeholders, we issued new guidance on the application of the Final Price Adjustment (FPA). This guidance supports contracting parties to swiftly resolve common issues encountered in the application of the FPA.
The FPA allows the contractor and the Ministry of Defence to share excess profits or losses arising under a qualifying defence contract, rather than having them fall solely on one of them.
The FPA is generally used after the contract has concluded, but may now also be applied where a contract has several pricing periods during its life. The guidance provides further detail as to when and how the FPA might be used.

This guidance has been well received by stakeholders who said it will help with the agreement of the FPA.

Statistical bulletins

We have published a range of insights into single source (non-competitive) defence contracting between the MOD and industry between 1 April 2015 and 31 December 2024.
 
We publish statistical bulletins once a quarter that provide facts and figures about single source defence procurement.  
 
The latest statistics show that the total estimated price of all the contracts entered into between 1 April 2015 and 31 December 2024 was £118.5 billion. This is based on 688 contracts (active and completed).

International perspectives on single source defence contracting

The SSRO is a member of the International Industrial Cost Analysis and Verification Community of Practice (ICOP). ICOP was formed in 2017 when, amongst others, European Space Agency and Defence Australia identified potential benefits of international agencies with cost expertise working more closely and sharing common knowledge and experience.
We’re delighted to be hosting the next meeting of ICOP members, which takes place on 9 and 10 September 2025 in London.

We are also planning to publish a discussion paper - drawing on ICOP members’ respective approaches to single source contracting - which will be launched at the meeting. The aims of the discussion paper are to:

• compile summary information about key features of international approaches to single source contracting; and
• consider the ways in which different single source procurement regimes are addressing common challenges.

Stakeholder survey

The SSRO’s fourth stakeholder survey closed at the beginning of April – many thanks to those of you who shared your views.

The survey will help us to: understand stakeholder perceptions; set the SSRO’s strategic direction; and plan stakeholder engagement.

The SSRO Board will consider the stakeholder survey report in June 2025, with a likely refresh of the SSRO’s Stakeholder Engagement Strategy after considering the results of the survey.