Single Source Contract Pricing Blog

Pricing under the UK MoD Single Source procurement regulatory framework

The new single source procurement regulatory framework has now been running for in excess of 18 months hence its worth looking at the extent to which the new framework is working for industry.

SSRO Guidance on Profit Formula for financial year 2017/2018: The SSRO did recommend to the UK MoD the adoption of a framework that uses multiple baseline profit rates for 2017/2018 however the MoD at this time wished to maintain a single baseline profit rate and instructed the SSRO to follow that approach. The latest issued guidance by the SSRO for 2017/2018 reflects a single baseline profit rate that is subject to adjustment in a similar manner as for 2016/2017.

SSRO Guidance on Allowable Costs: The revised SSRO Single Source Cost Standards document issued in July 2016 is a major improvement and step forward in terms of identifying and segregating the statutory guidance that the Contractor must adhere to. Note however that a significant number of cost elements are only allowable if these costs meet the AAR tests and have also been agreed with the MoD and hence the need for the Contractor to maintain a NAPNOC approach to contracting remains as essential as it was under the prior "Yellow Book" pricing framework. 

The treatment of sales and marketing costs remains a major issue of contention. The guidance in this area issued by the SSRO appears to deny the Contractor the ability to achieve a fair and reasonable price for the single source work and I suspect the average layman under the Clapham omnibus test would have a similar view. The SSRO have yet to demonstrate how they are meeting their obligation under the Defence Reform Act to have a framework that delivers a fair and reasonable price to the Contractor and not just a lower procurement cost for Government.  

Future additional material

We have developed a dedicated web-site to address the subject of Pricing of UK MoD single source contracts under  the new single source procurement regulatory framework. This is hosted at Defcon Training Ltd's dedicated website for UK MoD single source contract pricing and is now live.