Ancillary Recommendations
Ancillary Recommendations – Independent Review of Single Source Pricing Regulations
Ancillary Recommendation 10:
The current adjustment to the profit allowance for intercompany trading should be removed, and contractors should be required to record costs charged to the MOD at their original cost to the group.
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The GACs should include the general provision that costs charged to the MOD should be both necessary and reasonable. This should be included in the contractors’ annual board certification (key recommendation 2).
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There are clear situations where certain constructs are not appropriate. There is limited guidance on this in MOD commercial policy. We recommend that the MOD should establish clear rules on the permitted commercial constructs in various situations, and that for large contracts the chosen model should be independently reviewed prior to contract signing.
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TCIF should be fixed to a 50/50 share between the MOD and contractors, mitigating the misuse of TCIF to meet unrealistic budgetary constraints, and balancing the incentivisation of efficiency with the benefit of value for money for the taxpayer.
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Review of the commercial construct, and the quantification of the risk that the MOD takes on, should be included in the independent commercial due diligence.
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In the specific area of concept, assessment, and design contracts, the MOD should reconsider its policy on not using cost-plus contracts. Use of cost-plus should be coupled with strong MOD oversight, supported by the contract, to ensure quality and mitigate the risk of waste.
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Long term capacity and capability contracts should be used sparingly and be under particularly close scrutiny. They should only be entered into if a strong case can be made that the strategic capability requirement will remain under all likely future scenarios for the full duration of the arrangement.
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The open book and Equality of Information provisions recommended in Part 1 should extend to rates agreements.
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If the MOD wishes to retain the current single source overhead recovery approach, it should continue strengthening the CAAS resource engaged in rates agreements and TCIF reconciliations.
→ Read moreAncillary Recommendation 19:
Large contracts should be subject to independent commercial due diligence and legal review prior to contract signing. There should also be an evaluation of the financial risk taken on by the MOD. The MOD should ensure that a realistic provision for this risk has been made within the department’s budget.
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