I am today announcing that I have set the baseline profit rate for single source defence contracts at 8.29%, in line with the rate recommended by the Single Source Regulations Office (SSRO). This a decrease of 0.02 percentage points from 2022/23. I have accepted the methodology used by the SSRO to calculate these figures. The ‘underlying rate’ has risen 0.25 percentage points from 8.19% to 8.44%.
Last year, I removed financial year 2020/21 from the calculation of the profit rate to reduce the long term effect of COVID on our suppliers’ profit. The SSRO have taken the same approach this year. A full explanation of their methodology is published on their website.
I am also announcing the Capital Servicing Rates and a 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 2023.
Table 1: Recommended Rates agreed by the Secretary of State for Defence
Element | 2022 rates | 2023 rates |
Baseline Profit Rate (BPR) (% on contract cost) | 8.31% | 8.29% |
Baseline Profit Rate to apply to contracts between the Secretary of State and a company wholly owned by the UK Government and where both parties agree (% on contract cost) | 0.046% | 0.038% |
Fixed Capital Servicing Rate (% on Fixed Capital employed) | 3.27% | 2.9% |
Working Capital Servicing Rate (% on positive Working Capital employed) | 1.33% | 1.67% |
Working Capital Servicing Rate (% on negative Working Capital employed) | 0.65% | 0.51% |
SSRO Funding Adjustment | 0.046% | 0.038% |
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