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Defence Reform Act 2014

Summary and Background

3.The Act is intended to improve the procurement and support of defence equipment by the MOD and to strengthen the reserve forces. The Act contains four Parts and seven Schedules.

4.Part 1 relates to the reform of the Defence Equipment and Support (DE&S) organisation. This is the part of the MOD which is responsible for the procurement and support of defence equipment and the supply of logistics to the Armed Forces. The Part makes provision in relation to certain arrangements made by the Secretary of State for a company to provide defence procurement services under contract with the Secretary of State. The Act makes provision in relation to transfer of employees to that contractor, the provision of financial assistance to the contractor, financial claims against the contractor, exemptions relating to premises used by the contractor, jurisdiction of the MOD Police, “transfer schemes” (provisions for the transfer of property, rights and liabilities where the contractor is in breach of contract or where the contract has come to an end) and disclosure and use of information and intellectual property rights.

5.Part 2 creates a regulatory framework for “single source contracts” (that is, contracts which are not subject to a legal obligation to be advertised and competed) in the defence area. This framework will apply both to primary contracts (those to which the Secretary of State is party) and to non-competed sub-contracts resulting from those primary contracts. EU law requires most government contracts to be procured via an open process that involves publicly advertising the fact that the contract is available for tender, and then a competitive process to select the successful contractor. There is an exemption in Article 346 of the Treaty of the Functioning of the EU for measures which a Member State considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions or war materiel. Currently, there is no legal framework regulating defence single source contracts, although there are voluntary arrangements in place contained in a document called the Government Profit Formula and its Associated Arrangements (usually referred to as the “Yellow Book”1). Much of the statutory framework will be set out in regulations made by the Secretary of State, to be known as the single source contract regulations (SSCRs).

6.Part 2 creates a new Non-Departmental Public Body (NDPB), called the Single Source Regulations Office (SSRO), to oversee that regulatory framework. The SSRO will replace an existing NDPB, the Review Board for Government Contracts, which currently monitors the Yellow Book arrangements. Part 2 sets out how the SSRO will support the regulatory framework, advise the Secretary of State on setting key rates to be used in pricing contracts (including the baseline profit rate), monitor single source procurement, undertake analysis, and keep the regulatory framework under review and recommend changes to it.

7.Part 2 creates a civil compliance regime to ensure compliance with key aspects of the regulatory framework, and the SSRO will have an important role in overseeing this. The SSRO will have the power to determine whether contractors have committed particular contraventions relating to the provisions of Part 2, and to review any penalties imposed in relation to these contraventions. Part 2 also creates a new criminal offence relating to unauthorised disclosure of information, to deal with the possibility of any person releasing commercially sensitive information obtained under this Part without proper authorisation.

8.Part 3 makes changes to reserve forces by extending the powers to “call out” members of the reserve forces; giving the Secretary of State a new power to make regulations to provide for the making of payments by him to employers whose reservist employees are called out, undertake certain training or perform certain other duties of members of the reserve forces; requiring reserve associations to report annually to the Secretary of State on the state of the volunteer reserve forces; and disapplying the statutory qualification period for the purposes of claiming unfair dismissal from civilian employment where the reason for dismissal is connected with the employee’s membership of a reserve force. It also renames the Territorial Army and the Army Reserve.

9.A green paper on reserve forces (Future Reserves 2020: Delivering the Nation’s Security Together, Cmd 8475) was published in November 2012. The reform of DE&S was the subject of a major report by Bernard Gray(2) (the current head of DE&S) that was published in October 2009. The need for reform was confirmed by Lord Levene in his review of the structure and management of the MOD, which was published in June 2011. Single source contracting was the subject of an independent report by Lord Currie of Marylebone published in October 2011 (Review of Single Source Pricing Regulation). A white paper on DE&S reform and single source contracting (Better Defence Acquisition: Improving how we Procure and Support Defence Equipment, Cm 8626) was published on 10 June 2013, and a white paper on reserves reform (Reserves in the Future Force 2020: Valuable and Valued, Cm 8655) was published on 3 July 2013.

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Text created by the government department responsible for the subject matter of the Act to explain what the Act sets out to achieve and to make the Act accessible to readers who are not legally qualified. Explanatory Notes were introduced in 1999 and accompany all Public Acts except Appropriation, Consolidated Fund, Finance and Consolidation Acts.


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