Defence Reform Act 2014

Defence Reform Act 2014

2014 CHAPTER 20

Commentary on Sections

Part 2: Single Source Contracts

Section 19: Rates etc relevant to determining contract profit rate

67. Certain standard rates will be used in the determination of the CPR. These are:

a)

Step 1 - the baseline profit rate, which is the starting point for the CPR of all QDC and is expected to be in the order of 10%;

b)

Step 4 - the SSRO funding adjustment, which reflects industry’s share of the costs of the SSRO and is expected to be a reduction in the order of 0.05%; and

c)

Step 6 - the capital servicing allowance, which is the adjustment allowing contractors a fair and reasonable return on their capital costs (typically between 0%-3%). There are two capital servicing rates: one for fixed capital such as buildings, and the other for working capital such as cash.

68. All of these standard rates will be set annually by the Secretary of State (subsection (1)), and will be set for each financial year (beginning on 1 April).

69. To support the Secretary of State in determining these standard rates, the SSRO has a duty to recommend these annually to the Secretary of State (subsection (2)). In making its assessment, the SSRO must have regard to guidance issued by the Secretary of State (subsection (3)(b)).

70. Having received the assessment of the SSRO, subsection (4) requires the Secretary of State to publish the rates in the London Gazette no later than 15 March of the preceding financial year, along with (subsections (5) and (6)) reasons for any differences from the SSRO’s assessment.