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23 March 2018 | Comment |

Key recommendations on amendment of the single source contract regime

The Single Source Regulation Office (SSRO) has recommended a number of changes to the legislation and regulations governing single source contracts. The recommendations follow on from an initial review by the SSRO, and subsequent consultation.

The recommendations consist of changes proposed by the SSRO itself, as well as by the interested parties who were consulted during the review process. The proposals seek to address issues in the regime relating to pricing, transparency and coverage.

In addition to those identified in our previous blog, the SSRO recommended to the Secretary of State the following key amendments:

  • The redefinition of Qualifying Sub Contracts (QSCs) which, under the current regime, are dependent on there being a pre-existing Qualifying Defence Contract (QDC). The SSRO recommends that the QSC definition be amended so that a contract may still be a QSC if it is entered into before the QDC to which it relates;
  • The introduction of a levy to shift the burden of funding the SSRO onto the industry. This would involve the removal of the current SSRO funding adjustment provisions in the legislation. The SSRO proposes to insert new funding provisions into the Defence Reform Act 2014 following further consultation, subject to final determination by the Secretary of State;
  • Greater transparency of the supply chain through more stringent assessment of QSCs. Currently, assessments are carried out to determine whether a sub-contract is a QSC. However, there are no deadlines for carrying out such an assessment. The SSRO has also identified incomplete reporting and a lack of clarity as problems with the current assessment regime. The SSRO recommends a 30-day deadline for completing a QSC assessment, which must be reported to the Secretary of State and SSRO within a further 30 days. Further obligations in respect of assessments are also recommended, the applicability of which are dependent on the value of the contract. These include specifying reasons why a sub-contract is deemed not to be a QSC, and specifying whether the contract is a result of the competitive process;
  • Removing provisions in the Single Source Contract Regulations 2014 that require the whole of the contract price to be re-determined where there is an amendment to the contract. The SSRO recommends that, if an amendment affects the contract price, the costs attributable to the amendment should be priced. The contract price should be the sum of the original price payable plus/less the price of the amendment.

In addition to the SSRO’s formal recommendations, there have been a number proposals raised by stakeholders which have been identified as requiring further consideration. These include amendments regarding the determination contract profit rates, and changes to the regulation of incentive adjustment and cost-risk adjustment. The SSRO has identified specific points requiring further consideration before it is in a position to make formal recommendations on these issues.

The Secretary of State is yet to comment on the recommendations put forward by the SSRO. It remains to be seen which, if any, of the SSRO’s recommendations are adopted.

For more information, please contact a member of our team on 029 2039 1038.

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