Key Recommendations
Key Recommendations – Independent Review of Single Source Pricing Regulations
Key Recommendation 1:
Open book accounting (as defined in the report, see Annex E, paragraph E.152) should be mandated on all single source contracts as a supplement to the Equality of Information provisions that exist under the current single source arrangements.
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All contracts above a threshold value of £50m should be reported on regularly by the contractor, using a standardised format, with annual certification by the contractor’s Board.
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DEFCON 648A should be modified from what is currently an overly protective regime to one that more strongly encourages contractors to reduce their cost base. We propose that the current 5% threshold, above which MOD receives automatic sharing, should be increased to 10% or 15%. We also recommend that the 75% MOD sharing arrangement might [...]
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An Overhead Report should be submitted annually by all contractors with aggregate single source contracts in excess of £100m total value. The report should have two distinct sections: Forward Planning, detailing planned overhead expenditure that will impact the prices of single source contracts; and Overhead Recovery, detailing under/over recovery of overheads on single source work [...]
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The implicit starting point for the contract profit allowance should be a ‘risk free’ profit rate. Commercial leads should have to justify and movement away from the ‘risk free’ rate using an assessment of the contractor’s risk. The MOD should develop guidance for commercial negotiators to follow in assessing the extent of the allowance that [...]
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The Single Source Regulations Office (SSRO) should provide an independent review of the realism of budgets allocated to single source contracts to provide assurance to the MOD that single source contracts are in financial control.
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The Review Board should be replaced by a SSRO with a remit to scrutinise single source defence procurement. The SSRO would define and maintain a framework that encourages efficiency and value for money in MOD single source procurement. It should be an independent Non-Departmental Public Body, sponsored by the MOD. After appropriate consultation, the SSRO [...]
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Single source contracts in excess of £5m in value but less than £50m should be exempt from a number of SSPR reporting requirements, for example, Quarterly Contract Reports. Below £5m, no specific SSPR reporting should be required, minimising the administrative burden for SMEs.
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Contractors with single source contracts totalling above £100m in value should produce an annual statement on their contracting with SMEs. It should explain how relationships with SMEs are managed and the processes that the prime contractors have in place to support and foster SMEs in their role as subcontractors.
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