Guidance

1. General queries

Updated 7 May 2025

1.1 Can contractors act on behalf of the MOD to award and manage Qualifying Defence Contracts (QDCs)?

Published April 2023, Updated May 2024.

Yes they can.

The rights and obligations under the single source regime, including pricing controls and transparency through reporting, operate by reference to whether a contract is a qualifying contract. A Qualifying Defence Contract (QDC) is defined in section 14 of the Act, and includes a condition that the contract be “a contract under which the Secretary of State procures goods, works or services wholly or substantially for defence purposes…”.

The definition of a QDC enables entities, other than the MOD, to award and manage QDCs, since section 14(2)(a) does not expressly require that the Secretary of State be a direct party to a QDC, but rather the contract must be one under which the Secretary of State procures.

That entities other than the MOD can award QDCs is supported by section 43(1), which defines an “authorised person” as “a person authorised by the Secretary of State”. This is a term relied upon throughout Part 2 of the Act (the provisions relating to single source contracts) and, where used, enables those entities so authorised to act as the MOD’s agent in awarding and managing QDCs.

1.2 In what circumstances would an amendment to an existing contract result in that contract becoming a QDC?

Published July 2023, updated May 2024.

Section 14 of the Defence Reform Act 2014 describes two circumstances in which an existing contract will become a QDC on amendment:

• Where the contract was entered into before 18 December 2014, the award was not the result of a competitive process, and the contract is amended on or after 18 December 2014; and
• Where the contract, regardless of when it was entered into, was awarded as a result of a competitive process, the contract is amended on or after 18 December 2014, and the amendment is not the result of a competitive process.

In both cases:

• in amending the contract the Secretary of State and the contractor must agree that the contract is to be a QDC; and
• the remaining conditions set out in section 14(2)(a) - (c) must also be satisfied in relation to the contract.

Section 14(5A), together with regulation 7A, describe the circumstances in which a contract which is being amended to include additional goods, works or services must, for the purposes of section 14, be treated as a new contract (and therefore within scope of section 14(3)) rather than one which is being amended (and which would otherwise be within scope of section 14(4) or (5)).

In very limited circumstances, an amendment to a contract may create a new contract under common law. Broadly, a new contract will arise when the effect of the amendment is to rescind the existing contract and this is an example of one of the regulation 7A circumstances described above (regulation 7A(3)). Paragraph 3.61 of our contract reporting guidance refers and parties are advised to take their own legal advice if they are unsure of the effect of amending a contract.

1.3 Do the Single Source Contract Regulations apply to overseas companies?

Published July 2023

Yes. There are no exclusions to the Single Source Contract Regulations 2014 which apply because a contract is awarded to an overseas contractor.

1.4 To what extent does a memorandum of understanding (MOU) between the UK government and another government affect the need for companies to comply with the transparency and other requirements set out in the Defence Reform Act and Single Source Contract Regulations?

Published July 2023

An MOU does not disapply UK domestic law. All contractors who are party to a QDC or QSC are subject to the requirements of the Defence Reform Act 2014 and the Single Source Contract Regulations 2014.

1.5 How does the SSRO handle confidential information and can it be requested under Freedom of Information?

Published July 2023

In the course of delivering its statutory functions, the SSRO receives confidential and commercially sensitive information. Schedule 5 of the Defence Reform Act 2014 and Part 10 of the Single Source Contract Regulations 2014 make unauthorised disclosures of certain such information a criminal offence. The SSRO has published a statement on its website about how it handles and safeguards confidential and commercially sensitive information.

Under the Freedom of Information Act 2000, the SSRO is obliged to publish certain information about its activities and external parties are entitled to request information held by the SSRO (FOI requests). The SSRO has published a document which provides guidance on the procedures that the SSRO will follow for dealing with FOI requests, including how we determine whether requested information is exempt from disclosure and how we engage with the contracting parties as part of determining the information to be disclosed when appropriate.

1.6 Is the SSRO involved in determining whether UK defence contracts should be single source?

Published July 2023

The SSRO does not have a role in determining whether defence contracts should be awarded through a competitive process or not. Decisions about the procurement strategy for individual defence contracts are made by the MOD.

1.7 Can an Intention to Proceed (ITP) arrangement constitute a valid QDC or QSC?

Published July 2023. Updated May 2024

An Intention to Proceed (ITP) communication or letter is not a term defined by the Defence Reform Act 2014 or the Single Source Contract Regulations 2014. The term is commonly used where a formal contract is under negotiation and work relating to the subject matter of the contract is to be carried out before that contract is entered into. Other terms used to describe such communications include “comfort letter” and “memorandum of understanding”, where work is generally carried out at risk.

ITPs that do not have effect as binding legal contracts will not constitute QDCs or QSCs under the Act and Regulations.

However, not all ITP arrangements are entirely at risk and a contract may arise in some cases, depending on the particular circumstances. This will be the case where the normal legal requirements of contract formation apply. As referred to in paragraph 3.31 of our contract reporting guidance, in order for a contract to be formed there must be an agreement which is reached by the process of offer and acceptance, an exchange of consideration (something of value); and an intention by the parties that the agreement be legally binding. Such ITP contracts may be QDCs or QSCs if the other requirements set out in sections 14 or 28 of the Act (as the case may be) are satisfied.

If an ITP arrangement is a contract and the ‘main’ contract is subsequently entered into, then a question may arise as to whether the ITP is subsumed into the main contract, or the main contract is treated as an amendment or extension to the ITP, or whether the two are entirely separate. If the contracts remain separate, the value of each may need to be determined by aggregation in accordance with Regulation 5. Paragraph 3.63 of our contract reporting guidance refers.

The parties are advised to take their own legal advice in circumstances where they are unsure of the effect of an ITP arrangement.

1.8 How should contract values be calculated where the contracting authority enters into more than one contract with the same organisation to fulfil a requirement for goods, works or services?

Published July 2023. Updated May 2024.

Regulation 5 of the Single Source Contract Regulations 2014 describes how the value of a contract is to be calculated, and what must be included and excluded from the calculation.

Regulation 5(5) refers to a requirement in certain cases to aggregate the value of the proposed contract being assessed with the value of other contracts and proposed contracts. Where the contracting authority:

• proposes to enter into a contract for the purpose of fulfilling a requirement for goods, works or services; and
• has also entered into, or proposes to enter into, one of more other single source contracts with the same person (or associated persons) for the purpose of fulfilling that requirement, then the value of the proposed contract being assessed is the aggregate of the consideration which the contracting authority has paid or expects to be payable under (i) the proposed contract being assessed; and (ii) all of those other contracts or proposed contracts.

Some contracts must or may be disregarded for the purposes of aggregation and these are described in Regulation 5(6) - (8A).

Paragraphs 3.60 – 3.64 of the SSRO’s contract reporting guidance covers how the value of a sub-contract is determined, and includes examples which illustrate how aggregation applies in that context.

1.9 What versions of SSRO issued statutory guidance should be used where a QDC/QSC is amended?

Published July 2023. Updated May 2024.

When determining the price of a QDC or QSC, the parties must have regard to statutory guidance (on Allowable Costs and adjustments to the baseline profit rate) issued by the SSRO. The SSRO has also issued guidance on Alternative pricing of contracts. The version of the relevant guidance that applies is the one in force at the time of agreement, which will usually be the date the contract is entered into or, for a QDC by amendment, the date of that amendment.

If an amendment is made to an existing QDC or QSC in a way that affects the price, then a re-determination of the price will be required in accordance with the Schedule to the Single Source Contract Regulations 2014. In that event, the time of agreement is the date of the re-determination.

The guidance in force at the relevant time will be the most up-to-date final version published by the SSRO on its website. Parties should ensure that they have used the correct versions of guidance, making sure they are aware of any ongoing or recent SSRO consultations on statutory guidance (also on the SSRO website), and the relevant publication dates for updated guidance.

1.10 What is the SSRO’s responsibility for the legislation?

Published October 2023

The legislation governing the single source regulatory framework consists of the Defence Reform Act 2014 and the Single Source Contract Regulations 2014. The SSRO’s role in relation to the legislation includes:

1. Assisting those subject to the regulatory framework in understanding and applying the legislation by issuing statutory guidance in relation to certain aspects of it;

2. Giving opinions and making determinations on specified matters relating to qualifying contracts or proposed qualifying contracts, which may clarify how the legislation is to be interpreted or applied; and

3. Keeping under review the provision made by the legislation and, as it considers appropriate, recommending changes to the legislation to the Secretary of State.

1.11 What is the role of the SSRO in negotiating contracts?

Published October 2023

The SSRO issues statutory guidance in relation to certain aspects of the regulatory framework, including that which the negotiating parties must have regard to when determining the price payable under a QDC or QSC. This guidance covers the agreement of allowable costs under the contract and contract profit.

The SSRO’s role does not extend to direct involvement in facilitating the agreement of the specific terms of individual QDCs or QSCs. However, where parties are unable to reach agreement, the SSRO may in some circumstances be asked to give an opinion or make a determination on matters related to the application of the legislation to the contract. Our website provides further information on referring a matter to the SSRO for an opinion or determination.

1.12 What changes have been made to the legislation since it was introduced in 2014?

Published October 2023. Updated May 2024

Since 2014 there has been one amendment to the Defence Reform Act 2014 and four amendments to the Single Source Contract Regulations 2014:

Defence Reform Act 2014 amendments

Schedule 10 of the Procurement Act 2023 modified the Defence Reform Act 2014. Part of Schedule 10 came into force on 19 January 2024, with the remaining provisions on 1 April 2024. The changes made are explained in the Explanatory Notes.

Single Source Contract Regulations 2014 amendments

1. The Single Source Contract (Amendment) Regulations 2018. These came into force on 1 August 2018 and the changes made are explained in the Explanatory Notes.
2. The Single Source Contract (Amendment) (No.2) Regulations 2018. Parts 1 & 2 came into force on 31 January 2019, and part 3 came into force on 1 April 2019 and the changes made are explained in the Explanatory Notes.
3. The Single Source Contract (Amendment) Regulations 2019. These came into force on 1 September 2019 and the changes made are explained in the Explanatory Notes.
4. The Single Source Contract (Amendment) Regulations 2024. These came into force on 1 April 2024 and the changes made are explained in the Explanatory Memorandum.

The latest publicly available consolidated versions of the Defence Reform Act 2014 and the Single Source Contract Regulations 2014 are available at www.legislation.gov.uk, but readers should exercise caution since these have yet to be updated to reflect the most recent legislative changes.

1.13 Does it impact whether a contract is a QDC if it is jointly funded by the contracting authority and the contractor?

Published October 2023. Updated May 2024.

Whether a contract is a QDC is determined by reference to section 14 of the Defence Reform Act 2014. This includes consideration of (a) the identity of the parties; (b) what is being procured; and (c) the value.

If the contracting authority is procuring goods, works or services wholly or substantially for defence purposes from a contractor, then conditions (a) and (b) would appear to be satisfied. The source of the funding is relevant in terms of determining whether condition (c) is met. Regulation 5 confirms that the value of a contract is the consideration (net of VAT) which the contracting authority expects will be payable under the contract.

If the contract is jointly or partly funded by the contractor, such that a portion of the contract cost is borne by the contractor (and therefore not part of the price “payable” under the contract), then this portion can be excluded from the value calculation. If that is the case, then only the consideration which the contracting authority expects to pay ought to be used to determine if the value of the contract is £5 million or above.

In respect of a contract which uses a pricing method which applies the pricing formula, in order to give effect to a joint funding arrangement there must be a facility for the contractor’s agreed ‘portion’ of the costs to fall outside of the definition of allowable costs, thereby not forming part of the contract price. Section 20 of the Act requires that all Allowable Costs must satisfy AAR, but it does not expressly provide that all costs which satisfy AAR are allowable costs.

The conclusion to this construction would be that: Allowable Costs must be AAR, but not all costs which are AAR must be Allowable Costs. The MOD (and contractor) could therefore determine that the costs that the contractor has agreed to fund are not Allowable Costs, irrespective of whether they would satisfy the AAR test. Alternatively, the parties could determine that the costs for which a contractor has contractually agreed to be responsible do not satisfy the AAR test and therefore are not Allowable Costs. The parties should ensure that any joint funding agreement is appropriately reflected in the calculating of any actual or outturn cost - for example, if a final price adjustment is contemplated.

The contractor will need to consider the particular circumstances of the jointly funded contract when complying with reporting requirements.

1.14 If I have a QDC with a value in excess of £50 million, but a large part of the price is attributable to a sub-contract which has been exempted from the regulatory framework, does that mean I will not be required to submit supplier reports as the sub-contract’s exclusion would mean that the threshold for supplier reporting is not met?

Published October 2023, amended April 2025

A sub-contract being exempted is not relevant for the purposes of determining whether supplier reports are required to be submitted by the QDC holder.

The requirement to submit supplier reports arises for a financial year if a contractor or someone in the contractor’s group is party to at least one QDC or QSC with a value at or above the prescribed value threshold of £50 million and the ongoing contract condition (OCC) is met in relation to that financial year. The OCC will be met if, at any time in that financial year, obligations for the supply of goods, works or services under any one of the contractor’s QDCs or QSCs (as the case may be) that meet the prescribed value threshold are outstanding. This will trigger the requirement for the contractor or the ultimate parent undertaking of that contractor (should there be one) to submit the strategic level supplier reports (the Strategic Industry Capacity Report (SICR) and the Small and Medium Enterprise (SME) report).

In addition, if the total value of anything that any business unit provides for any QDC or QSC in the relevant period is at least £10 million, the unit becomes a Qualifying Business Unit (QBU) and overhead supplier reports for that QBU become due.

Further information on supplier reporting and threshold requirements can be found in the SSRO’s reporting guidance on the preparation and submission of supplier reports.

1.15 What makes a single source contract a QDC and can a framework contract or contracts let under it be a QDC?

Published October 2023. Updated May 2024.

A contract will be a QDC if it satisfies the criteria set out in section 14 of the Defence Reform Act 2014 (and supplemented by the Single Source Contract Regulations 2014). Such contracts could include framework agreements which are contracts and also contracts let under a framework agreement.

Broadly, a contract will be a QDC if the following conditions are satisfied:

• It is a contract under which the Secretary of State procures goods, works or services wholly or substantially for defence purposes;
• The value of the contract is at least £5m (or £500m if entered into prior to 31 March 2015);
• It is not an excluded contract, being one which:
  • is entered into with the government of another country;
  • is made within the framework of an international cooperative defence programme;
  • is made wholly for the purposes of the acquisition of land (and other rights or interests over that land), the management or maintenance of any land, buildings or structures;
  • would, by complying with parts 4-6 of the Regulations or section 26 of the DRA, require the contractor to disclose information which would create a risk to national security; or
  • is a novation of a non-qualifying defence contract.
• The contract was entered into:
  • On or after 18 December 2014, having not been subject to a competitive process, and the Secretary of State has not exempted the contract by giving a direction under section 14(7) of the Act;
  • Before 18 December 2014, having not been subject to a competitive process, and amended after that date and in amending the contract the parties agreed it would be a QDC; or
  • Before or after 18 December 2014, having been subject to a competitive process, and amended after that date other than by a competitive process, and in amending the contract the parties agreed it would be a QDC.

1.16 What is an international cooperative defence programme?

Published July 2024

An international cooperative defence programme is a collaborative initiative established or mandated between more than one government, typically for the purposes of enhancing their collective defence capabilities and addressing common security challenges.

These programmes tend to be jointly funded, managed and executed by the participating parties with risks and benefits shared equitably. Benefits could be improved interoperability, economies of scale and enhanced global competitiveness.

Regulation 7(b) of the Single Source Contract Regulations 2014 provides that a contract which is made within the framework of an international cooperative defence programme will not be a QDC, except where both parties to the contract agree that it should be.

Examples of international cooperative defence programmes are the NATO Eurofighter and Tornado Management Agency (NETMA) which was established in 1996 and the MQ-98 Cooperation Memorandum of Understanding between the UK and Belgium for the Protector UAV signed in April 2023.

1.17 Does a contractor holding a qualifying contract which is then novated to another legal entity, submit completion reports after the novation occurs?

Published July 2024

Contract novation is used for the purposes of replacing one or more parties to a contract. The effect of a novation is to bring to a close the original contract and replace it with another, under which the incoming party takes up the rights and obligations which replicate in all material respects those of the outgoing party. This can occur in different situations, including when a company undergoes a merger, acquires another company, or is itself acquired.

Where a contract novation occurs the price of the new contract does not need to be re-determined, since it will be the same as the price payable under the original contract which it replaces. This is provided for under the novated contract pricing alternative pricing method, the application of which is explained in section 6 of the SSRO’s guidance on alternative pricing.

When a contract is novated, completion reports for that contract should be submitted by the outgoing contractor and the initial reports should be submitted by the incoming contractor who is taking on the new contract. The outgoing contractor will need to identify the contract completion date to know when completion reports are due. The new contract is normally entered into on the same date and will be used by the incoming contractor to determine when the initial reports are due.

1.18 Does the legislation apply prospectively only or can it apply retrospectively and prospectively to my contract?

Published October 2024

This response relates to both QDCs and QSCs. The Single Source Contract Regulations 2014 (and subsequent statutory instruments which amend those Regulations) apply prospectively rather than retrospectively. This means that they do not operate prior to their coming into force. For example, when a QDC (this equally applies to QSCs in this response) is entered into, the Regulations in force on that date will govern how the QDC must be priced and any subsequent amendments to those Regulations would not require the parties to re-price the QDC. Similarly, subsequent changes to reporting obligations within the Regulations would not require a contractor to revise or re-submit reports that were due before those changes came into force in order to comply with the new reporting obligations.

However, the prospective effect of legislation will mean that, even for QDCs entered into prior to those changes to the Regulations coming into force, this will effect the future rights and obligations of the contracting parties and may modify these as a result.

This is the case in relation to the Single Source Contract (Amendment) Regulations 2024, which came into force on 1 April 2024. Subject to certain transitional provisions contained in regulation 44 (which provide for a delayed or altered effect for existing contracts in a limited number of cases - see query response 4.15), those Regulations will apply from 1 April 2024 to all QDCs and QSCs, even those entered in to prior to 1 April 2024.

One of the key changes arising from the Single Source Contract (Amendment) Regulations 2024 is the broadening of the use of components, which enable parts of a QDC to be priced differently in more circumstances. The Regulations now contain a definition of “component” which mean that, for QDCs entered into prior to 1 April 2024 and which had been priced in a way that now satisfies that definition, the Regulations introduce rights and obligations which previously did not exist. This includes additional reporting obligations.

When a contractor submits a report after 1 April 2024, they must comply with the reporting obligations in force when the report is due, and this may include reporting on components of the contract price even if the QDC was entered into before those reporting requirements came about.

1.19 Who is responsible for notifying the SSRO about a QDC or QSC?

Published October 2024

There are no requirements in the legislation for the SSRO or a contractor to a QDC to be notified when a QDC is to be, or has been, entered into. In practice the SSRO can be notified by the contractor or the MOD when a QDC is entered into. However, we would expect that, as the MOD in most cases is the contracting authority and should have assessed that a contract is a QDC, the MOD would notify the SSRO once they have completed this assessment.

Regulation 61 specifies the circumstances in which an assessment must be carried out of whether a proposed sub-contract would be a QSC (a QSC assessment). A QSC assessment must be carried out by the primary contractor or other person who proposes to enter into a sub-contract if the proposed sub-contract involves the provision of anything for the purposes of a QDC or QSC to which the contractor or other person is a party. Regulation 61 also specifies that the person carrying out the assessment must keep a record of that assessment, give written notice to the MOD and the sub-contractor if it considers the contract would be a QSC, and in all cases give written notice that an assessment has been made to the MOD and the SSRO. By providing written notice of a positive QSC assessment to the SSRO, the contractor is notifying the SSRO that a QSC has been, or is proposed to be, entered into.

1.20 If I have DEFFORM 815 in my contract do I have a QDC?

Published October 2024

Whether a contract is a QDC is determined by reference to the criteria in section 14 of the Defence Reform Act 2014 rather than any DEFFORMs contained in the contract (see query response 1.15). DEFFORM 815 requires a contractor to provide the MOD with a Contract Pricing Statement for their single source defence contract. However, this should be distinguished from a Contract Pricing Statement which is a statutory report required for QDCs and QSCs in accordance with regulation 23 of the Single Source Contract Regulations 2014 and which must be submitted in DefCARS. If the contract contains DEFFORM 815 then it is unlikely (although not impossible) that the single source defence contract is a QDC. If there is any doubt about the qualifying status of a contract, a contractor should speak to their MOD contacts in the first instance.   

1.21 What management information on DefCARS data is the SSRO producing for the Ministry of Defence?

Published October 2024

Section 36(3) of the Defence Reform Act 2014 requires the SSRO, when requested by the Secretary of State for Defence, to analyse reports provided to it under section 24 or 25 of the Act and to provide the results of this analysis to the Secretary of State or an authorised person. The SSRO publishes details about the management information which it is producing for the Ministry of Defence so that contractors are aware of this should it be shared with them in contract management discussions. Examples of this information is available on the reporting guidance page of the SSRO’s website and is updated when new products are produced.

1.22 My contract is single-source but has a value which is below £5 million, can I still get support from the SSRO?

Published October 2024

The SSRO provides support to a large number of contractors who have, or are intending to have, QDCs and QSCs. The support the SSRO provides is to assist contractors to understand and meet their obligations under the Single Source Contract Regulations 2014. It therefore cannot provide support to contractors whose contracts, or proposed contracts, will not be governed by the Regulations.

We are happy to assist with any questions about interpretation or application of the Regulations, particularly where contractors think that they may in future have a QDC or QSC and we have a comprehensive onboarding process for contractors who are entering into their first QDC or QSC.

1.23 Where the Defence Reform Act 2014 and Single Source Contract Regulations 2014 refer to ‘the Secretary of State’, does this mean ‘the Secretary of State for Defence’?

Published January 2025

There is no express reference to ‘the Secretary of State for Defence’ in Part 2 of the Defence Reform Act 2014 or in the Single Source Contract Regulations 2014. We consider references to ‘the Secretary of State’ in the Act and Regulations are not restricted to ‘the Secretary of State for Defence’.

There are certain provisions of the Act and Regulations where references to ‘the Secretary of State’ readily lend themselves to being construed as referring to the Secretary of State for Defence, for example, section 19(1) of the Act which requires the Secretary of State to determine the baseline profit rate and capital servicing rates for each financial year. Conversely, there are other provisions where references to ‘the Secretary of State’ do not necessarily lend themselves to being construed as referring solely to ‘the Secretary of State for Defence’, but rather to any Secretary of State, for example, regulation 19A(4), which provides that the commercial pricing method may not be used for a contract for goods, works or services if the Secretary of State has made any direct payment for the development of those goods, works or services.

1.24 Is componentisation applicable to Qualifying Sub-Contracts (QSCs)?

Published January 2025

The disapplication of regulation 9A for QSCs (which is the effect of the modification made under regulation 65(3)), does not mean that a QSC cannot be subject to componentisation, on account of the price of part of a QSC being determined distinctly from another part of the contract.  

Section 30 of the Act provides that the Act and Regulations “apply to qualifying sub-contracts (and to sub-contractors) as they apply to qualifying defence contracts (and to primary contractors)” subject to modifications set out in the Regulations. Section 15 of the Act makes provision for the pricing of QDCs and QSCs, which includes the pricing of components of those contracts. Section 15(6) defines a component as being “a part of the contract that is to be treated distinctly from other such parts in determining the price payable under the contract”. Section 15(7) explains that, for the purposes of section 15(6), a part of a contract is to be treated distinctly if either (a) the regulations contain provision to that effect; or (b) the parties to the contract agree that it should. The discretion being given to the parties under (b) is discretion to agree whether the determination of the price to apply to part of the contract is distinct from the determination of the price of another part of the contract.

Regulation 65(3) disapplies regulation 9A in its application to QSCs. However, importantly, regulation 64 contains no modifications to section 15 for the purposes of its application to QSCs. This leaves section 15(7)(b) unmodified, and this means that a part of a QSC will be treated distinctly from another part (and will therefore be a component) if the parties to the contract agree that it should. Irrespective of regulation 9A, if the parties agree to price their contract in such a way that one part is treated distinctly from another part then a component will be formed – and this will be the case for QSCs as much as for QDCs.

It should be noted that the discretion of the parties to agree whether the determination of the price of one part of the contract is distinct from the determination of the price of another part under section 15(7)(b) is not a discretion to otherwise dispense with associated reporting obligations.

1.25 What is the impact of the Procurement Act 2023 on the regulatory framework?

Published April 2025

The Procurement Act 2023 has little interaction with the regulatory framework. Schedule 10 of the Act was used as a vehicle to amend the Defence Reform Act 2014, but the Defence Reform Act 2014 and the Single Source Contract Regulations 2014 (as now amended) is the legislation that governs the framework and qualifying contracts awarded under it.