I am today announcing that I have set the baseline profit rate for single source defence contracts at 8.95% in line with the rate recommended by the Single Source Regulations Office (SSRO). I am asking the SSRO further to develop the methodology used to calculate the baseline profit rate over the next year.
I am also announcing revised Capital Servicing Rates as recommended by the SSRO at Table 1 below. These rates will come into effect from 1st April 2016.
Table 1: SSRO’s Recommended Rates agreed by the Secretary of State for Defence
Element | 2015 rates | 2016 rates |
Baseline Profit Rate (BPR) (% on contract cost) | 10.6% | 8.95% |
Fixed Capital Servicing Rate (% on Fixed Capital employed) | 5.94% | 5.08% |
Working Capital Servicing Rate (% on positive Working Capital employed) | 1.72% | 1.40% |
Working Capital Servicing Rate (% on negative Working Capital employed) | 1.03% | 0.74% |
Taxpayers can be confident that we are getting value for money for single source defence contracts as we deliver our £178 billion equipment programme. This profit rate provides a fair return to industry while delivering savings that will be reinvested in defence.
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