Under the Defence Reform Act, the Secretary of State for Defence has a legal obligation to announce whether he will accept the Single Source Regulations Office recommendation for the Baseline Profit Rate to be used in single source defence contracts for 2024-25. He must make and publish this decision by 15 March 2024.
In making their recommendation, the Single Source Regulations Office must aim to ensure that a) good value for money is obtained in government expenditure on qualifying defence contracts and b) that suppliers who are party to qualifying defence contracts are paid a fair and reasonable price under those contracts.
This year, I, the Minister of State for Defence Procurement (on behalf of the Secretary of State), have agreed with the recommendation from the Single Source Regulations Office.
Therefore today I am announcing that I have set the baseline profit rate for single source defence contracts at 8.24%, in line with the rate recommended by the Single Source Regulations Office (SSRO). This a decrease of 0.05% from 2023/24. I have accepted the methodology used by the SSRO to calculate these figures. The ‘underlying rate’ has fallen 0.35 percentage points from 8.44% to 8.09%. A full explanation of the SSRO methodology is published on their website.
I am also announcing the Capital Servicing Rates and the removal of the 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 2024.
Table 1: Recommended Rates agreed by the Secretary of State for Defence
Element | 2023/24 rates | 2024/25 rates |
Baseline Profit Rate (BPR) (% on contract cost) | 8.29% | 8.24% |
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) | 0.038% | 0% |
Fixed Capital Servicing Rate (% on Fixed Capital employed) | 2.9% | 3.26% |
Working Capital Servicing Rate (% on positive Working Capital employed) | 1.67% | 3.1% |
Working Capital Servicing Rate (% on negative Working Capital employed) | 0.51% | 1.61% |
SSRO Funding Adjustment | 0.038% | N/A |