The current position
Under the Single Source Contract Regulations 2014 (“2014 Regulations”), contracts made within the framework of an international cooperative defence programme are excluded from the scope of a qualifying defence contract (“QDC”) or qualifying sub-contract (“QSC”). This means that any such contracts are outside the application of the single source regime.
Following a review of the 2014 Regulations by the Single Source Regulation Office (“SSRO”), the Single Source Contract (Amendment) Regulations 2018 (“2018 Regulations”) have been laid before Parliament and are awaiting approval. The 2018 Regulations are relatively short and do not pick up a large number of the recommendations made by the SSRO following the recent review of the single source regime. Amongst the amendments that are proposed, the 2018 Regulations will make some key changes to the regulation of QDCs and QSCs within the framework of an international cooperative defence programme.
What is the new position?
Following a consultation exercise in 2017, the SSRO published a review of the single source regulatory framework which recommended that the 2014 Regulations be amended in a number of ways. This included a recommendation to narrow the exclusion at regulation 7b of the 2014 Regulations which applies contracts made within the framework of an international cooperative defence programme. The SSRO recommended that only those components of a contract as are made within the framework of an international cooperative defence programme be excluded unless the parties agree that it should be a QDC or QSC. This recommendation was a step away from the more stringent requirement on which the SSRO initially consulted and that would have seen this exclusion only apply to contracts wholly made within the framework of an international cooperative defence programme.
The amendments proposed in the 2018 Regulations do not go as far even as those proposed in the SSRO recommendations. Under the proposal currently before Parliament, the only change to the international cooperative defence programmes exclusion is a qualification that will require the parties to agree that a contract (or part of it) made within the framework of an international cooperative defence programme will be a QDC or QSC.
This change is interesting in that it puts contracts made within the framework of international cooperative defence programmes in the same position as single source amendments to contracts that were not QDCs or QSCs when they were made. In its consultation and recommendations, the SSRO was critical of the requirement for the parties to agree that such an amendment would give rise to a QDC or QSC. The SSRO stated that this requirement was a barrier to application of the regulatory framework and considered that this barrier should be removed. Despite these comments, the 2018 Regulations do not propose any changes to the application of the regime to contract amendments. Therefore, whilst in theory the amendment proposed to the exclusion for contracts made within the framework of international cooperative defence programmes should see the regime apply to an increased number of contracts, in practice this may prove not to be the case.
What impact will this have in practice?
As the amendments are not yet in force, we can only speculate on their impact if they come into force without significant changes being made by Parliament. Assuming this to be the case, in its recommendations, the SSRO recommended that MoD investigate the extent to which contracts had been prevented from becoming QDCs or QSCs by the requirement for the parties to agree the application of the regime to contract amendments. If this investigation has already taken place then its conclusions (if they are published) may give some insight as to whether this change to the international cooperative defence programme exclusion will have any significant impact in practice. Any barriers highlighted by this information may only be exacerbated in the context of the international cooperative defence programme exclusion where international contracting parties will be asked to agree to the application of UK domestic legislation that would see costs scrutinised and an increased requirement for transparency. Obtaining their agreement to the application of the regime may therefore prove to be a significant challenge.
For more information, please contact a member of our team on 029 2039 1038.