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Defence Reform Act 2014

Section 14: Regulations relating to qualifying defence contracts

54.This section identifies the primary contracts which will be subject to Part 2 and permits the Secretary of State to make regulations in relation to them. Such contracts are called qualifying defence contracts (“QDCs”) (sub-contracts of QDCs may themselves be subject to Part 2 - this is dealt with under sections 28 to 30 below). These regulations are to be called single source contract regulations (“SSCRs”) and it is intended that they will come into force no later than 6 April 2015. The date that the first SSCRs come into force is called the “relevant date”.

55.The criteria for a contract to be a QDC are set out in subsections (2) to (5). They are:

a)

that it is a contract under which the Secretary of State procures goods, works or services for defence purposes. “Defence purposes” will be defined in the SSCRs;

b)

that the contract value is of or above an amount to be specified in the SSCRs. It is intended that the threshold of a QDC will be set at £5m, but some requirements will only apply to QDCs at a higher level of value;

c)

that the contract is not of a sort described in the SSCRs. It is intended that this power will be used to exclude contracts which do not require regulation under Part 2 because they are subject to other market pressures or pricing benchmarks (for example, contracts for the maintenance of buildings, which are contracts for services but for which prices may be determined with reference to market prices); and

d)

the contract falls within any of the three cases described below.

56.There are three cases where contracts which meet these criteria will be QDCs:

a)

contracts entered into on or after the relevant date (subsection (3)(a)), which are not the result of a competitive process (subsection (3)(b)). These will be the majority of QDCs;

b)

by agreement between the parties, a contract entered into before the relevant date and amended on or after that date, and which is not the result of a competitive process, may become a QDC (subsection (4)); and

c)

by agreement between the parties, a competitive contract entered into before the relevant date but amended on a non-competitive basis after that date (subsection (5)) may become a QDC. Such contracts will only be included when the non-competitive amendment to a competitive contract is not considered to be a new contract in its own right (these will be dealt with under case (a) above).

57.Subsection (7) enables the Secretary of State to exempt contracts that would otherwise be QDCs. This power will be exercised on a case-by-case basis.

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