My right hon. Friend the Secretary of State for Defence (The Rt Hon Ben Wallace MP) has made the following Written Ministerial Statement.
I am today announcing that I have set the baseline profit rate for single source defence contracts at 8.22%, in line with the rate recommended by the Single Source Regulations Office (SSRO). The baseline profit rate is calculated on a three year rolling average of underlying profit rates. The underlying profit rate decreased from 8.50% for 2019-20 to 8.23% for 2020-21. I have accepted the methodology used by the SSRO to calculate these figures.
I am also announcing new Capital Servicing Rates and an SSRO funding adjustment as recommended by the SSRO, which can be found at Table 1 below. These rates have been published in the London Gazette, as required by the Defence Reform Act 2014.
All of these new rates will come into effect from 1 April 2020.
Table 1: Recommended Rates agreed by the Secretary of State for Defence
Element | 2019 rates | 2020 rates |
Baseline Profit Rate (BPR) (% on contract cost) | 7.63% | 8.22% |
Fixed Capital Servicing Rate (% on Fixed Capital employed) | 3.98% | 3.66% |
Working Capital Servicing Rate (% on positive Working Capital employed) | 1.18% | 1.22% |
Working Capital Servicing Rate (% on negative Working Capital employed) | 0.53% | 0.61% |
SSRO Funding Adjustment | -0.042% | -0.052% |
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