Corporate report

Newsletter November 2024

Published 12 November 2024

Dear Stakeholder,

This newsletter provides an update on the SSRO’s recent work, our plans and priorities. We are keen to hear your views, so please get in touch if you wish to discuss any of the content. We hope you will find this short newsletter informative.

1. Strategic Defence Review

In July, the Government launched the Strategic Defence Review to ensure the United Kingdom is both secure at home and strong abroad – now and for the years to come. It will determine the roles, capabilities and reforms required by UK Defence to meet the challenges, threats and opportunities of the twenty-first century. As part of this it will look at the approach to be taken to acquisition and support in order to deliver the required capabilities in a timely way, and how to secure the best possible value for money and rapidly changing technology. As part of this vital work the SSRO is engaging with the Review Team to explore how we and the single source regulatory framework can best support these objectives.

2. Consultations on pricing and reporting guidance

The Defence Reform Act was amended in April 2024 to allow the SSRO to issue guidance in relation to the application or interpretation of the law governing the single source defence contracts.

As the first use of this new power we are currently consulting on new guidance covering the Final Price Adjustment (FPA). The FPA allows excessive profits or losses arising from cost over- or under-runs to be shared between the contracting parties to a Qualifying Defence Contract (QDC) or Qualifying Sub Contract (QSC), rather than falling entirely on the contractor or the MOD.

This guidance is being issued in response to feedback from both defence contractors and the MOD who have told us that it is an area where they would appreciate additional support. The guidance we are consulting on will be used by parties to resolve common issues and enable swifter and easier resolution which should improve the overall value for money of contracts. The consultation closes on 14 November. We encourage all interested parties to respond to our consultation.

We have also published the outcome of the SSRO’s recent consultation on our annual profit rate assessment methodology. As part of determining the annual baseline profit rate, we use benchmark profit data of companies who undertake activities that are comparable to those that contribute to the delivery of single source contracts.

In July, we consulted on proposals for changes to the way we select those companies. Stakeholders responded and we have updated our methodology to rationalise the activity types and refine the scope of the activities used in our analysis. We appreciate the participation in the consultation and the feedback which was shared with us. We continue to gratefully receive any feedback and comments on further suggestions to enhance the baseline profit rate assessment process.

The improvements (detailed in the consultation response document)) further strengthen the robustness of our assessment methodology. The updated methodology applies to this year’s assessment of the baseline profit rate.

In October we published updated guidance for pricing and reporting on qualifying defence contracts in support of the implementation of changes made to the single source regulatory framework, which came into force on 1 April 2024. The guidance built on stakeholder feedback following initial use of the guidance and covers:

• Alternative pricing types, which allows non-competitive defence contracts to be priced in new ways. For example, an item can be priced by reference to competitive markets: simplifying and speeding up procurement.
• What “Allowable Costs” can be claimed in contracts awarded without competition.
• A rationalisation of how the contract profit rate is calculated, removing two steps from the previous six-step process and simplifying the agreement of contract profit rates.
• Updated reporting guidance, which helps contractors submit statutory reports.
• How we have enhanced the functionality of the Defence Contracts Analysis and Reporting System (DefCARS).

3. Compliance Bulletin

The Compliance Bulletin) we published recently presents compliance statistics relating to reports expected between 1 May 2023 and 30 April 2024 and some historical compliance information going back to May 2018.  

The bulletin shows that while the majority of the reports expected from defence contractors are submitted, there is still scope for improvement in the data quality of initial submissions. The MOD also could consider and use the information it receives more extensively, by ensuring that more submissions are accessed and reviewed in DefCARS.

4. Recent site visits

We are always grateful when defence contractors invite us to visit their facilities. Through these visits and meetings, we gain a good understanding of each business and single source procurement more generally.

Since the previous stakeholder newsletter, we were pleased to accept invitations and our Chair (Hannah Nixon); Chief Executive (John Russell); Jo Watts (Chief Regulatory Officer); Colin Hill (Defence Advisor); and other SSRO staff have so far visited:

• Thales at Templecombe.
• Boeing Defence UK at RAF Lossiemouth.
• Serco at Portsmouth.

Such site visits provide a great opportunity for SSRO staff and Board members to gain an overview of each company, its structure, capabilities and business, and to hear its perspective. It also allows us to engage in discussion about a company’s experience of working with the single source procurement framework and how the SSRO can further support them and the MOD.

As well as site visits, we have continued to meet with senior staff of defence contractors individually. We have also been out and about over the summer, attending the Farnborough International Airshow, Royal International Air Tattoo, and the Lockheed Martin and Thales “One Government” events, all of which provided us with a great opportunity to talk with our stakeholders.

5. Working with our international partners

In early October we attended the International Industrial Cost Analysis and Verification Community of Practice (ICOP).

ICOP was formed in 2017 when, amongst others, the European Space Agency (ESA) and Defence Australia identified potential benefits of international agencies with cost expertise working more closely and sharing common knowledge and experience.
This is the third year that the SSRO has attended ICOP, which continues to be a valuable forum for international engagement, providing insight and learning into other non-competitive regulatory frameworks. Public Services and Procurement Canada kindly hosted delegates in Ottawa.

During our participation in ICOP we discussed the handling of allowability of overhead costs and how this varies from country to country. We also talked about the approach taken to contract profit rates among our international counterparts; as well as how contract pricing in different regimes takes account of risk and inflation. There was a keen interest among members as to how the UK framework is being used, and in particular recent developments on alternative pricing methods, stemming from the Procurement Act.

Membership of ICOP is a great way for the SSRO to develop our understanding of how rules and regulations relating to non-competitive defence contracting are applied outside of the UK. By participating in ICOP we learn from other agencies and share our expertise. We have previously developed aspects of our guidance, such as on Allowable Costs, with our thinking informed by these international partner agencies.

The next ICOP meeting will take place in 2025 and the SSRO is delighted to be hosting this event in London, and to welcome our international partners to Government Office Great George Street and to the UK.

6. Non-Referral Advice Service – update and awareness raising

Our non-referral advice service was formally launched in April 2024. It provides independent and authoritative advice to the MOD and contractors on any matter related to the interpretation and application of the regulatory framework for QDCs and QSCs. The service supplements the support that we already provide through the SSRO Helpdesk, and is focused on more involved or complex questions or issues that require additional consideration.

The requests for advice we have received since April have covered a range of matters including: the profit on cost once adjustment, the implications of agreeing a contract extension for the FPA, and the allowability of sales & marketing and bid costs under a manufacturing contract.

It is encouraging to see a demand for the advice service, and our average time taken to respond to requests is currently 14 working days (against a published target of 10 to 15 working days). The insights generated through this service are being shared internally to inform other activities, for example, the development of guidance on the final price adjustment.

More information about the service can be found on our website at: https://www.gov.uk/government/publications/the-ssros-non-referral-advice-service. You can also make contact either by email to referrals@ssro.gov.uk or by telephone to 020 3771 4785.

7. Industry placements

We are continuing our programme of short-term placements for our staff within the defence industry and the MOD. Placements enhance and maintain the SSRO’s knowledge, skills, and understanding of real-life commercial practices in defence contracting. They are also an opportunity for us to promote and enhance understanding of our guidance and systems and help address our stakeholders’ issues and questions.

Earlier this year we had two successful industrial placements for our staff at BAE Systems in Barrow on Furness, and Thales in Crawley: thanks to both companies for providing these opportunities.

If you would like to discuss hosting an SSRO staff member for a short placement of a week please contact our Helpdesk on 020 3771 4785 or by email at helpdesk@ssro.gov.uk

8. Increasing the visibility of our work

We are making our services easier for stakeholders to find and use. We want to make sure that the value we bring to the sector and defence procurement outcomes are clearly communicated.

There are many ways we are doing this: through our engagement at operational and senior level in both industry and the MOD, and through being more visible on the ground. We are increasing our accessibility: making our services, support, and guidance easier to engage with. We have taken steps to make our pricing and reporting guidance more straightforward to use, and are making the DefCARS interface more intuitive.

We have also taken a look at our website and have reformatted the way our guidance is accessed by users, with a streamlining of the web journey to better reflect the user needs and to improve their experience.

We plan to undertake a survey of our stakeholders during January and February next year. The purpose of the survey is to understand stakeholder perceptions about us and our performance, inform our strategic direction, and enhance how we engage with you. You will be able to share your views as to how the enhancements we have made across our work have landed with you. We hope you will take part and we look forward to hearing your views.

We have increased our presence on LinkedIn: https://www.linkedin.com/company/single-source-regulations-office/posts/?feedView=all

If you use this platform, please do follow us for up-to-date information about our work.