Review of Legislation recommendations June 2021
The SSRO's recommendations to inform the Secretary of State's review of the Defence Reform Act 2014 and the Single Source Contract Regulations 2014
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The single source regulatory framework was introduced by the Defence Reform Act 2014 and the Single Source Contract Regulations 2014. It aims to strike a balance between achieving value for money on government expenditure and fair and reasonable prices for contractors, by subjecting qualifying contracts to price control and by requiring suppliers to provide an increased level of transparency.
The SSRO keeps the provision of the regulatory framework under review and this document presents its recommendations to inform the Secretary of State’s own review of the Act and Regulations. We have identified changes to optimise the operation of the framework, guided by our statutory aims of ensuring good value for money for the government in its expenditure on qualifying defence contracts and a fair and reasonable return for contractors.
Our recommendations cover key aspects of the framework, including contract pricing, transparency and the SSRO’s supporting role. They include:
- Better definition of the cost risk adjustment to emphasise the importance of who carries the risk.
- Amendments to the POCO adjustment so that it is dealt with through costs and captures the right situations where there are attributable profits.
- Enabling differential application of pricing controls to parts of contracts in circumstances where contracts become qualifying contracts following amendment and where more than one profit rate is sought to be applied in a contract.
- A threshold change so that contractors are not required to report trivial variances.
- Improved transparency over qualifying sub-contracts.
- Provision of information by the MOD to contractors so they can understand their reporting requirements.
- Expansion and simplification of the mechanisms provided in the legislation for the MOD and contractors to refer questions to the SSRO.
- Enabling the SSRO to provide statutory guidance on a broader range of questions.
The recommendations are based on the experience we have gained from supporting the regulatory framework, our analysis of statutory reports, extensive engagement with the MOD and industry, and public consultations. The recommendations are consistent with the aspirations set out in the Government’s Defence and Security Industrial Strategy.
We have identified evidence in our recommendations that the regulatory framework is delivering fair profits at a portfolio level. We have provided advice about how the Secretary of State may increase the focus on fairness at an individual contract level, if that is an objective.
We will continue working closely with the MOD and industry on the Secretary of State’s review. We aim to support implementation of any new legislation by updating our statutory guidance and developing DefCARS in due course.