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The Single Source Contract Regulations 2014

Type Statutory-Instrument

Publication 2014-12-17

Last updated 2024-04-01

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Made: 17th December 2014

To come into force in accordance with Regulation 1.

A draft of these Regulations has been laid before Parliament and approved by a resolution of each House of Parliament.

The Secretary of State, in exercise of the powers conferred by sections 14(2)(b) and (c), (6) and (8), 15, 16(1), 17(1) and (2), 18(2)(c), (3) and (4), 21, 23(1), (4) and (5), 24(1) to (3) and (4)(a), 25(1), (2), (4) and (6), 27(1) and (3), 28(3)(c) and (d), (4)(c) and (d) and (5), 29, 30(2)(a) and (3) to (5), 31(3)(a) and (b) and (5), 32(5), 33(1) and (6), 35(1), 38, 41, 42(1) and (2), 43(2) of, and paragraph 1(1)(c) of Schedule 5 to, the Defence Reform Act 2014 , makes the following Regulations:

PART 1 — General

Citation and commencement

1

These Regulations may be cited as the Single Source Contract Regulations 2014 and come into force on the day after the day on which they are made.

Interpretation

2

(1) In these Regulations—

“the Act” means the Defence Reform Act 2014, and references to sections are to sections of that Act;

“alternative pricing method” means one of the contract pricing methods described in Chapter 3 of Part 3;

“business unit” means either—a unit—which carries on any activities for the purposes of an undertaking; andfor which separate financial accounting statements are produced; oran undertaking, or group of two or more undertakings, for which a single set of financial accounting statements is produced which is separate from the financial accounting statements of each of those undertakings;

“competed rate” means the competed rate or price in accordance with the terms of the relevant framework agreement;

“component”, in relation to a contract, has the meaning given by regulation 9A;

“component completion date” has the meaning given by regulation 4(1A);

“contract completion date” has the meaning given by regulation 4 (1);

“contract price” has the meaning given by regulation 4A;

“contract pricing method” means an alternative pricing method or a default pricing method;

“cost recovery base” means the unit of measure to which a cost recovery rate is applied in order to calculate a cost under a contract;

“cost recovery rate” means a rate calculated for a business unit that is used to determine a cost payable under a contract, being a rate per unit of a cost recovery base that is multiplied by the quantum of that cost recovery base to determine the cost;

“default pricing method” means one of the contract pricing methods described in Chapter 2 of Part 3;

“deliverable” means any goods, works or services which—are provided under a contract; andcan be described using an output metric;

“further group sub-contract” has the meaning given by regulation 13A(4);

“group sub-contract” has the meaning given by regulation 13A(3);

“output metric” means a quantifiable description of any goods, works or services (including a number, weight, dimension, time or physical capability, but not including a monetary value);

“parent undertaking” has the meaning given by section 1162 of the Companies Act 2006 ;

“SME” has the meaning given in Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises ;

“TCIF adjustment” means an adjustment made under section 16(1)(b);

“the time of agreement” means—in the case of a contract which is a qualifying defence contract by virtue of section 14(3), or a qualifying sub-contract—the date the contract is entered into; orif the price payable under the contract is re-determined in accordance with the Schedule, the date of that re-determination;in the case of a contract which is a qualifying defence contract by virtue of section 14(4) or (5)—the date of the amendment mentioned in section 14(4)(c) or (5)(b); orif the price payable under the contract is re-determined in accordance with the Schedule, the date of that re-determination; in the case of a component of a qualifying defence contract—the date the component is entered into; orif the price payable under the component is re-determined in accordance with the Schedule, the date of that re-determination;

“undertaking” has the meaning given by section 1161(1) of the Companies Act 2006;

“working day” means any day excluding—Saturday, Sunday, Christmas Day, Good Friday or a bank holiday under the Banking and Financial Dealings Act 1971 ; andwhere a person gives the Secretary of State and the SSRO no less than 30 days' written notice of its intention to treat a day as a holiday, that day.

(2) A reference to a report provided under Part 5 includes a contract pricing statement (regulation 23), a contract reporting plan (regulation 24), a contract costs statement (regulation 29), and information provided under regulation 30 (on-demand contract report).

(3) A reference to a report provided under Part 6 includes an estimated rates agreement pricing statement under regulation 38.

Meaning of “defence purposes”

3

(1) “Defence purposes” means the purposes of defence (whether or not of the United Kingdom), or related purposes.

(2) A contract will be substantially for defence purposes if the contract fulfils a requirement for goods, works or services for defence purposes and paragraph (3) or (4) applies.

(3) This paragraph applies if the value of the goods, works and services for defence purposes is more than £5,000,000 and more than 30% of the total value of the contract.

(4) This paragraph applies if the value of the goods, works and services for defence purposes is more than £25,000,000.

(5) For the purposes of paragraphs (3) and (4), the value of goods, works and services for defence purposes is the difference between the total value of the contract and the value of the contract if it did not contain a requirement for such goods, works or services.

Meaning of “contract completion date”

4

(1) The “contract completion date”, in relation to a contract, means—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) ... the date on which the contractor completes all obligations which entitle it to final payment under the contract;

(c) if the contract is terminated before the date described in sub-paragraph (1)(b), the date on which the contract is terminated.

(1A) The “component completion date”, in relation to a component of a contract, means—

(a) the date on which the contractor completes all obligations under that component which entitle it to final payment in respect of that component;

(b) if that component is terminated, but any other part of the contract is not terminated, before the date described in sub-paragraph (a), the date on which the component is terminated.

(2) For the purposes of paragraph (1)(b) and (1A)(a), final payment under a contract or in respect of a component does not include—

(a) any payment relating to the effect of specified indices or rates (regulation 10(5) or (10));

(b) any TCIF adjustment;

(d) any amount which is determined by the SSRO to be payable.

Calculating the value of a contract

5

(1) The value of a contract or component is to be determined—

(a) by the contracting authority; and

(b) in accordance with this regulation.

(2) For the purposes of the Act and these Regulations, the value of a contract or component means the consideration (net of value added tax) which the contracting authority expects will be payable under the contract or component.

(3) The contracting authority must determine the value of a contract or component—

(a) in the case of a proposed contract under regulation ... 61 (assessing whether a contract would be a qualifying sub-contract), either—

(i) at the date of the assessment under regulation 61, or

(ii) at any later date on which it is proposed to enter into the contract,

whichever is the higher;

(b) in the case of a contract which is a qualifying defence contract by virtue of section 14(4) or (5), at the date of the amendment mentioned in section 14(4)(c) or (5)(b);

(4) In making that determination, a contracting authority must—

(a) where appropriate, take account of—

(i) any option contained in the contract and the likelihood that it will be exercised;

(ii) any effect which changes in the value of money are likely to have on the allowable costs it expects to be included in the contract price;

(b) exclude the value of any land, buildings, equipment, information, personnel or other resource that is provided by the contracting authority;

(c) convert any amounts payable under the contract in a foreign currency to sterling, using a rate consistent with the contracting authority's... policies or where no such policies exist, a rate of exchange derived on a just and reasonable basis.

(5) Subject to paragraph (6), where—

(a) the purpose of the contract is to fulfil a requirement for goods, works or services, and

(b) the contracting authority has also entered into, or proposes to enter into, one or more other contracts which are not the result of a competitive process with the same person (or persons associated with that person) for the purpose of fulfilling that requirement,

the value of the contract is the aggregate of the consideration which the contracting authority has paid or expects to be payable under the contract and all of those other contracts or proposed contracts.

(6) For the purposes of paragraph (5)(b)—

(a) the contracting authority may disregard a contract if conditions A and B are met in relation to it;

(b) the contracting authority may disregard a proposed contract if, were it entered into on the terms proposed, conditions A and B would be met in relation to it;

(c) the contracting authority must disregard a contract, or a proposed contract, which has a value of £250,000 or less where it is reasonably satisfied that the procurement has not been subdivided in order to avoid the requirements of the Act and these Regulations.

(7) Condition A is that the contract has a value of more than £250,000 but less than £1,000,000.

(8) Condition B is that the aggregate value of—

(a) that contract, and

(b) any other such contract within paragraph (5)(b), each of which has a value of more than £250,000 but less than £1,000,000,

is less than 20% of the aggregate of the consideration which the contracting authority has paid or expects to be payable under all contracts entered into, or to be entered into, for the purpose of fulfilling the requirement mentioned in paragraph (5)(a).

(8A) A contract which has a value of £1,000,000 or less shall not be treated as a qualifying defence contract by virtue of this regulation unless the contracting authority is reasonably satisfied that the procurement has been subdivided in order to avoid the requirements of the Act and these Regulations.

(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13) In this regulation, “the contracting authority” means the party to the contract which is, or would be, liable to pay the contract price.

PART 2 — Qualifying defence contracts

Threshold value for qualifying defence contracts

6

(1) In the case of a contract to which section 14(3) applies, the amount specified for the purposes of section 14(2)(b) (threshold value for qualifying defence contracts) is—

(a) if the contract is entered into before 31 March 2015, £500,000,000;

(b) otherwise, £5,000,000.

(2) In the case of a contract to which section 14(4) or section 14(5) applies, the amount specified for the purposes of section 14(2)(b) is £5,000,000.

Contracts that may not be qualifying defence contracts

7

The contracts specified for the purposes of section 14(2)(c) (contracts that may not be qualifying defence contracts) are contracts—

(a) to which the government of any country other than the United Kingdom is party;

(b) made within the framework of an international cooperative defence programme , except where the parties to any such contract agree that it is a contract which should be a qualifying defence contract; or

(i) the acquisition of land (including existing buildings or other structures, and land covered with water), and any estate, interest, easement, servitude or right in or over such land;

(ii) the management or maintenance of any land or buildings or other structures; or

(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) in relation to which compliance with Part 4, 5 or 6 of the Regulations (records and reports), or section 26 of the Act (duty to report relevant events, circumstances and information), would require disclosure of information which the Secretary of State considers would create a risk to national security; or

(e) falling within sub-paragraph (f) below;

(f) a contract (B) falls within this sub-paragraph if—

(i) B is a contract to which the Secretary of State is a party,

(ii) B replaced a contract (A),

(iii) the purpose of B is to ensure the performance of contractual obligations which were to be performed under A,

(iv) the Secretary of State was a party to A, but it was not a qualifying defence contract, and

(v) B is in all material respects (save for the identity of any party to the contract other than the Secretary of State) identical to A.

Competitive process for single contracts

8

(1) Where the Secretary of State enters into a contract with a primary contractor, the award of the contract is the result of a competitive process if—

(a) the Secretary of State either—

(i) published ... a notice of intention to seek offers in relation to a proposed contract; or

(ii) invited one or more persons other than the primary contractor, and not associated with the primary contractor, to negotiate or provide offers in relation to a proposed contract;

(b) the material terms of the contract are wholly or substantially the same as were offered by the primary contractor in its tender for, or in negotiations relating to, that proposed contract; and

(c) at the time of making its offer, the primary contractor did not consider it likely, or could not reasonably have considered it likely, that its offer would be the only offer reasonably capable of acceptance by the Secretary of State.

(2) Where the Secretary of State is party to a contract with a primary contractor the award of which is the result of a competitive process, any amendment to that contract is the result of a competitive process if—

(a) the Secretary of State either —

(i) published ... a notice of intention to seek offers in order to obtain the goods, works or services provided under the amendment or amended contract; or

(ii) invited one or more persons other than the primary contractor, and not associated with the primary contractor, to negotiate or provide offers in relation to those goods, works or services;

(b) the material terms of the amendment or amended contract are wholly or substantially the same as were offered by the primary contractor in its tender for, or in negotiations relating to, those goods, works or services; and

(c) at the time of making its offer, the primary contractor did not consider it likely, or could not reasonably have considered it likely, that its offer would be the only offer reasonably capable of acceptance by the Secretary of State.

Competitive process for contracts made under a framework agreement

9

(1) This regulation applies where ...—

(a) the Secretary of State or a person acting on behalf of the Secretary of State has either—

(i) published ... a notice of intention to seek offers in relation to a proposed agreement or other arrangement (“framework agreement”) which establishes terms under which a person (a “framework supplier”) would enter into one or more contracts with the Secretary of State in the period during which the framework agreement applies; or

(ii) invited two or more persons to negotiate or provide offers in relation to the terms of a proposed framework agreement;

(b) the Secretary of State or a person acting on behalf of the Secretary of State has entered into a framework agreement with one or more framework suppliers; and

(2) The award of a contract is the result of a competitive process if—

(a) the terms governing the price payable under the contract are determined by a framework agreement and the conditions in paragraph (3) are met; or

(b) the terms governing the price payable under the contract are determined by a competition between two or more framework suppliers and the conditions in paragraph (4) are met.

(3) The conditions mentioned in paragraph (2)(a) are—

(a) the material terms of the framework agreement are wholly or substantially the same as were offered by the primary contractor—

(i) in a tender submitted in response to the notice mentioned in paragraph (1)(a)(i); or

(ii) in negotiations following the invitation mentioned in paragraph (1)(a)(ii);

(b) at the time of making that offer, the primary contractor did not consider it likely, or could not have reasonably considered it likely, that its offer would be the only offer reasonably capable of acceptance by the Secretary of State or a person acting on behalf of the Secretary of State; and

(c) where this regulation applies by virtue of paragraph (1)(a)(ii), the persons mentioned in that paragraph included at least one person who was not the primary contractor (or a person associated with the primary contractor).

(4) The conditions mentioned in paragraph (2)(b) are—

(a) at least one of those framework suppliers was not the primary contractor (or a person associated with the primary contractor);

(b) the terms governing the price payable under the contract are wholly or substantially the same as were offered by the primary contractor in its tender for the contract or in negotiations during that competition; and

(c) the primary contractor did not consider it likely, or could not have reasonably considered it likely, that its offer in respect of the contract would be the only offer reasonably capable of acceptance by the Secretary of State.

PART 3 — Pricing of contracts

Pricing of contracts

10

(1) The price payable under a qualifying defence contract or component of such a contract to the primary contractor must be determined in accordance with the formula—

$$( C P R × A C ) + A C$where—“CPR” is the contract profit rate for the contract or component, determined in accordance with regulation 11; and“AC” means the primary contractor's allowable costs (see section 20), determined in accordance with one of the six default pricing methods described in paragraphs (4) to (11) below.$

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Firm pricing method4Under the firm pricing method, the allowable costs are the allowable costs as estimated at the time of agreement.

Fixed pricing method5Under the fixed pricing method, the allowable costs are the allowable costs as—aestimated at the time of agreement; andbadjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).

Cost-plus pricing method6Under the cost-plus pricing method, the allowable costs are the actual allowable costs determined during the contract or after the contract completion date or component completion date.

Estimate-based fee pricing method7Under the estimate-based fee pricing method, the allowable costs by which the CPR is multiplied are the allowable costs as—aestimated at the time of agreement; andbmay be adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).8The allowable costs which are added to the product of the CPR and the allowable costs determined in accordance with paragraph (7) are the actual allowable costs determined during the contract or after the contract completion date or component completion date.

Volume-driven pricing method9Under the volume-driven pricing method, the allowable costs are the allowable costs per unit of volume multiplied by the actual volume of output of the contract or component.10The allowable costs—amust be estimated at the time of agreement; andbmay be adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).

Target pricing method11Under the target pricing method, the allowable costs—amust be estimated at the time of agreement;bmay be, or may include, allowable costs per unit of volume multiplied by the actual volume of output of the contract or component; andcmay be adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).12In this regulation, “specified” means specified in the contract at the time of agreement.

Steps in determining contract profit rate

11

(1) The contract profit rate for any qualifying defence contract or component of such a contract must be calculated by taking the following ... steps.

Step 1 – baseline profit rate2Take the baseline profit rate in force at the time of agreement, which is—auntil 31 March 2015, 10.70%;bon or after 1 April 2015, the rate published in the London Gazette in accordance with section 19(4).

Step 2 – cost risk adjustment3Adjust the baseline profit rate by an agreed amount which is within a range of plus or minus 25% of the baseline profit rate, so as to reflect the financial risks to the primary contractor of entering into the contract or component, taking into account the particular type of activities to be carried out by the primary contractor under that contract or component.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Step 3 – incentive adjustment6Where the Secretary of State determines that the amount resulting from step 2 should be increased so as to give the primary contractor a particular financial incentive as regards the performance of provisions of the contract or component specified by the Secretary of State, increase that amount by an amount (“the incentive adjustment”) specified by the Secretary of State, that amount not to exceed two percentage points.

Step 4 – capital servicing adjustment7Take the amount resulting from step 3 and add to or subtract from it an agreed amount (“the capital servicing adjustment”), so as to ensure that the primary contractor receives an appropriate and reasonable return on the fixed and working capital employed by the primary contractor for the purposes of enabling the primary contractor to perform the contract or component.8In agreeing the capital servicing adjustment, the primary contractor and the Secretary of State—amust have regard to the capital servicing rates in force at the time of agreement;bmust not apply any adjustment in respect of any costs of the fixed and working capital employed by the primary contractor which are allowable costs under the contract or component; andcmay use an average fixed and working capital for any business unit which is likely to be performing the primary contractor's obligations under the contract or component.9The capital servicing rates are—auntil 31 March 2015—ifor fixed capital, 6.20%;iifor positive working capital, 2.07%;iiifor negative working capital, 1.25%;bon or after 1 April 2015, the rate published in the London Gazette in accordance with section 19(4).

Calculation of profit on cost once (“POCO”) adjustment

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rates agreed on a group basis

13

(1) This regulation applies where the Secretary of State proposes to enter into two or more qualifying defence contracts with the same primary contractor (“the prospective contractor”) within the period of one year (“the relevant year”).

(2) The prospective contractor and the Secretary of State may agree an amount which may be used as the cost risk adjustment (regulation 11(3)) for any qualifying defence contract entered into between the prospective contractor and the Secretary of State within the relevant year, so as to reflect the financial risks to the primary contractor of entering into the contracts mentioned in paragraph (1), taking into account the particular type of activities to be carried out by the primary contractor under those contracts.

(3) An amount agreed under paragraph (2) must be within a range of plus or minus 25% of the baseline profit rate.

(4) The prospective contractor and the Secretary of State may agree an amount which may be used as the deduction from costs associated with group profits (regulation 13A)) for any qualifying defence contract entered into between the prospective contractor and the Secretary of State within the relevant year, so as to ensure that profit arises only once in relation to those allowable costs under any such qualifying defence contract that relate to the price payable under any group-sub-contract (including any further group sub-contract).

(5) The prospective contractor and the Secretary of State may agree an amount which may be used as the capital servicing adjustment (regulation 11(7)) for any qualifying defence contract entered into between the prospective contractor and the Secretary of State within the relevant year, so as to ensure that the primary contractor receives an appropriate and reasonable return on the fixed and working capital employed by the primary contractor for the purposes of enabling the primary contractor to perform any such qualifying defence contract.

(6) In agreeing a capital servicing adjustment under paragraph (5), the prospective contractor and the Secretary of State must—

(a) have regard to the capital servicing rates in force at the date that the amount is agreed;

(b) not apply any adjustment in respect of any costs of fixed and working capital which are expected to be included as allowable costs under any qualifying defence contracts to which the amounts agreed under this regulation will apply; and

(c) use an average fixed and working capital for any business unit which is likely to be performing the primary contractor's obligations under any such qualifying defence contracts.

Re-determination of contract price

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Target cost incentive fee (“TCIF”) adjustment

15

The circumstances specified for the purposes of section 16(1) are that—

(a) the qualifying defence contract—

(i) contains provision to the effect that the total price payable under the contract or component is subject to adjustment in accordance with section 16(1)(b); and

(ii) specifies the matters which must be taken into account in determining the amount of that adjustment; and

(b) the price payable under the contract or component was determined using the target pricing method.

Procedure for determining final price adjustment

16

(1) The amount specified for the purposes of section 21(4)(b) (value of qualifying defence contract of or above which this regulation applies) is £5,000,000, and an adjustment may be made to the total price payable by the Secretary of State under a qualifying defence contract (“final price adjustment”) if either—

(a) the price payable under the contract—

(i) has been determined by the firm pricing method, the fixed pricing method or the volume-driven pricing method; and

(ii) the total value of the contract is of or above that amount; or

(b) the price payable under one or more ... components of the contract—

(i) has been determined by the firm pricing method, the fixed pricing method or the volume-driven pricing method; and

(ii) the total value of the ... component or components the price of which has been so determined is of or above that amount.

(2) The amount specified for the purposes of section 21(5)(b) (value below which direction excluding final price adjustment may be made) is £50,000,000.

(2A) Where the price payable under the contract includes one or more ... components which use a contract pricing method other than the firm pricing method, fixed pricing method, or volume-driven pricing method, the value of such component or components shall be disregarded for the purposes of paragraph (2).

(3) The matter specified for the purposes of section 21(6) (matters to which the Secretary of State must have regard in deciding whether to make such a direction) is the effect that making a direction might have on the terms of any subsequent contract that the Secretary of State expects to enter into with that primary contractor.

(4) A final price adjustment may only be made where the amount of the adjustment would be at least £250,000.

(5) The Secretary of State may, within—

(a) three months after receiving a contract costs statement (regulation 29), or

(b) 15 months after the contract completion date,

whichever is the sooner, notify the primary contractor that the Secretary of State intends to make a final price adjustment.

(6) The primary contractor may, within three months after providing a contract costs statement, notify the Secretary of State that it intends to make a final price adjustment.

(7) Where a notice is given under paragraph (5) or (6), the Secretary of State and the primary contractor must attempt to agree the amount of the final price adjustment, but if they are unable to reach an agreement either the Secretary of State or the primary contractor may refer the matter to the SSRO for determination.

(8) A reference under paragraph (7) may be made—

(a) after the contract completion date or, where the reference relates to a component, after the component completion date; but

(b) no later than two years after the contract completion date or, where the reference relates to a component, after the component completion date.

(9) In making a determination, the SSRO must have regard to—

(a) the information that was available to each party at the time of agreement;

(b) whether the parties disclosed, in a timely manner, the facts and assumptions they used to determine the allowable costs or the contract profit rate;

(c) efforts made by the parties to determine whether any allowable cost included in the price payable under the contract met the requirements set out in section 20(2)(a) to (c);

(d) any evidence that reductions in the actual costs under the contract are due to efficiency measures taken by the primary contractor.

Calculation of final price adjustment

17

(1) Where the outturn profit rate exceeds the contract profit rate, the final price adjustment is to be calculated in accordance with whichever of paragraphs (2) to (4) applies.

(2) Where the difference is at least 5 percentage points but less than 10 percentage points, the contract price is decreased by an amount equal to 25% of the outturn profit which exceeds excess level 1.

(3) Where the difference is at least 10 percentage points but less than 15 percentage points, the contract price is decreased by an amount equal to the total of—

(a) 50% of the outturn profit above excess level 2; and

(b) 25% of the outturn profit above excess level 1 (but excluding the outturn profit which is above excess level 2).

(4) Where the difference is at least 15 percentage points, the contract price is decreased by an amount equal to the total of—

(a) 75% of the outturn profit above excess level 3;

(b) 50% of the outturn profit above excess level 2 (but excluding the outturn profit which is above excess level 3); and

(5) Where the outturn costs exceed the contract price, the contract price is increased by the total of—

(a) an amount equal to 25% of that excess up to the loss level; and

(b) an amount equal to 50% of any such excess above the loss level.

(5A) For each component of a qualifying defence contract that is not subject to an agreement in accordance with paragraph (5B), the final price adjustment is to be calculated in relation to that component alone.

(5B) The parties may agree to treat two or more components as aggregated for the purpose of calculating the final price adjustment in relation to those components.

(6) In this regulation—

(a) “excess level 1” means the contract profit which would have been achieved under the contract or component (before the application of the final price adjustment) if—

(i) “AC” in the formula in regulation 10(1) were the outturn costs; and

(ii) the contract profit rate were 5 percentage points higher;

(b) “excess level 2” means the contract profit which would have been achieved under the contract or component (before the application of the final price adjustment) if—

(i) “AC” in the formula in regulation 10(1) were the outturn costs; and

(ii) the contract profit rate were 10 percentage points higher;

(c) “excess level 3” means the contract profit which would have been achieved under the contract or component (before the application of the final price adjustment) if—

(i) “AC” in the formula in regulation 10(1) were the outturn costs; and

(ii) the contract profit rate were 15 percentage points higher;

(d) “loss level” means the loss which the primary contractor would have made under the contract or component (before the application of the final price adjustment) had the outturn costs been 5% higher than the contract price;

(e) “outturn costs” means the amount of the primary contractor's actual costs under the contract or component which meet the requirements set out in section 20(2)(a) to (c);

(f) “outturn profit” means the difference between the contract price and the outturn costs;

(g) “outturn profit rate” means the outturn profit, expressed as a percentage of the outturn costs;

(h) references to “the difference” are to the difference between the outturn profit rate and the contract profit rate;

(i) references to the contract profit rate or contract price exclude any amount resulting from step 3 of regulation 11 (incentive adjustment);

(j) references to actual costs or the contract price exclude any liquidated damages or interest on overdue payments payable under the terms of the contract.

(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(l) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of contract profit rate adjustments

18

(1) This regulation applies to—

(a) any baseline profit rate identified under step 1 of regulation 11 in relation to a contract or a component of such a contract;

(b) any adjustment agreed under step 2 or 4 of regulation 11 (including an adjustment agreed on a group basis under regulation 13);

(2) The SSRO may, on an application by the Secretary of State or the primary contractor made within two years after the contract completion date or, where the application is made in respect of a component, the component completion date—

(a) determine whether the baseline profit rate mentioned in paragraph (1)(a) is correct in relation to the contract or component;

(b) determine whether the amount of any adjustment mentioned in paragraph (1)(b) is appropriate;

(3) In making a determination, the SSRO must have regard to—

(a) the information that was available to each party, and

(b) the statutory guidance in place,

at the time of agreement.

(4) In making a determination that relates to the amount of an adjustment agreed under step 2 (cost risk adjustment), the SSRO must have regard to the terms of the contract.

(5) If the SSRO determines that—

(a) the baseline profit rate mentioned in paragraph (1)(a) is incorrect;

(b) any adjustment mentioned in paragraph (1)(b) is inappropriate; or

it may determine that the contract price is to be adjusted by a specified amount.

Determination of allowable costs

19

(1) The Secretary of State may not make an application under section 20(5) for a determination of the extent to which a particular cost is an allowable cost unless—

(a) the Secretary of State has sent the primary contractor a written notice requiring the primary contractor to show that the requirements set out in section 20(2)(a) to (c) are met in relation to that cost;

(b) at least 20 working days have elapsed since the date of that notice; and

(2) An application must be made within two years after the contract completion date or, where the application is made in respect of a component, the component completion date.

(3) In making a determination, the SSRO must have regard to—

(a) the information that was available to each party at the time of agreement;

(b) the statutory guidance in place at the time of agreement;

(c) in the case of a contract which contains provision of the kind described in regulation 15 (TCIF adjustment), those provisions;

(d) whether the parties disclosed, in a timely manner, the facts and assumptions they used to determine the allowable costs or the contract profit rate.

PART 4 — Records

Duty to keep relevant records

20

(1) Each of the following must keep relevant records, from the recording date—

(a) in relation to a qualifying defence contract (including any report provided under Part 5 (reports on qualifying defence contracts) in relation to that contract), the primary contractor;

(b) in relation to any report provided under Part 6 (reports on overheads and forward planning etc), the designated person which is required to make that report.

(2) In the case of a qualifying defence contract to which section 14(4) or (5) applies, the recording date is the earliest of—

(a) the date the primary contractor received written notice from the Secretary of State that amendment negotiations had commenced;

(b) the date the contractor was invited to provide an offer to amend the contract;

(d) the date of the amendment.

(3) References in paragraph (2) to the amendment of the contract are to the amendment mentioned in section 14(4) or (5).

(4) Where the award of a qualifying defence contract was the result of a process in which a notice of intention to seek offers was published ..., the recording date is the date of the publication of that notice.

(5) For all other qualifying defence contracts, the recording date is the earliest of—

(a) the date the primary contractor received written notice from the Secretary of State that contract negotiations had commenced;

(b) the date the Secretary of State last published a transparency notice or a voluntary transparency notice in relation to the contract;

(d) the date the primary contractor made an offer;

(e) the date on which the qualifying defence contract was entered into.

(6) In the case of a report under Part 6, the recording date is the first day of the designated person's accounting period relating to the relevant financial year for which that report is provided.

(7) Subject to paragraph (8), the duty to keep a relevant record for a qualifying defence contract (including any report under Part 5 which relates to that contract) ends —

(a) two years after the contract completion date, or

(b) six years after the end of the accounting period of the contractor in which the duty first arose,

whichever is the earlier.

(8) If at the time mentioned in paragraph (7) a reference, application or appeal to the SSRO in relation to the contract has been made but not yet determined, the duty to keep relevant records ends three months after the reference, application or appeal is determined.

(9) The duty to keep a relevant record in relation to any report provided under Part 6 ends—

(a) two years after the end of the designated person's accounting period relating to the last relevant financial year in relation to which the ongoing contract condition is met, or

(b) six years after the end of the designated person's accounting period in which the duty first arose,

whichever is the earlier.

(10) In paragraph (9)(a), the reference to the ongoing contract condition being met has the meaning given in regulation 31(3) (application of Part 6).

(11) In this regulation—

(a) “transparency notice” means a notice published pursuant to section 44 of the Procurement Act 2023;

(b) “voluntary transparency notice” has the meaning given by regulation 60(4) of the Defence and Security Public Contracts Regulations 2011.

Examination of relevant records

21

(1) The Secretary of State is entitled to examine relevant records where reasonably required for a purpose listed in section 23(3).

(2) The Secretary of State must give written notice to the person which is required to keep relevant records (“P”) which describes the purposes for which the examination is required.

(3) P must permit the Secretary of State to examine the records—

(a) on any working day between the hours of 9 a.m. and 5 p.m.; and

(b) at least 20 working days after the date on which P receives the notice described in paragraph (2).

(4) The Secretary of State may require P to make available a copy of any specified relevant records (in hard or electronic form) for the purpose of enabling those records to be examined.

(5) The Secretary of State may request P to provide further information or explanation relating to any relevant records (whether after the examination of those relevant records or otherwise).

(6) An application under section 23(6) (review by SSRO of exercise of functions in relation to records) may not be made more than three months after P's duty to keep relevant records has ended.

PART 5 — Reports on qualifying defence contracts

General requirements and interpretation

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(1) In relation to any qualifying defence contract, the primary contractor must provide the reports specified in this Part.

(2) Every report provided under this Part must contain the following information—

(a) the name, position and contact details of—

(i) the individual submitting the report;

(ii) an individual to be notified if any compliance notice or penalty notice is given in relation to the contract to which the report relates; and

(iii) the civil servant who is responsible for managing the contract on behalf of the Secretary of State;

(b) the date the report is due;

(d) any unique identifying number allocated to the contract by the contractor;

(e) any unique identifying number allocated to the contract by the Secretary of State;

(f) any contract title set out in the contract;

(g) a brief description of the goods, works or services that are to be provided under the contract;

(h) the date on which the contract was entered into;

(i) the expected contract completion date (or, if the contract completion date is known, that date);

(j) the date and reference number of the most recent amendment which affects the price payable under the contract (if any);

(k) the contract pricing method or methods used in determining the price payable under the contract, and the amount of the price resulting from each method (if known); and

(l) any business unit in relation to which a cost recovery rate has been used in determining the price payable under the contract.

(2A) Where the qualifying defence contract contains components, every report provided under this Part must contain the following information in relation to each component except where the information is the same in relation to that component as it is in relation to the contract—

(a) the name, position and contact details of—

(i) the individual submitting the information in relation to the component;

(ii) the civil servant who is responsible for managing the component on behalf of the Secretary of State;

(b) any unique identifying number allocated to the component by the contractor;

(d) any title for the component set out in the contract;

(e) a brief description of the goods, works or services that are to be provided under the component;

(f) the date on which the component was entered into;

(g) the expected component completion date (or, if the component completion date is known, that date);

(h) the date and reference number of the most recent amendment which affects the price payable under the component (if any);

(i) the contract pricing method used in determining the price payable under the component;

(j) any business unit in relation to which a cost recovery rate has been used in determining the price payable under the component.

(3) Every report provided under this Part by a contractor which is a registered company must contain the following information—

(a) the registered name and company number of the contractor, and the address of its registered office;

(b) any trading name which the contractor uses (if that is different from its registered name);

(d) the registered name and company number of any immediate parent undertaking of the contractor, and the address of its registered office.

(4) Every report provided under this Part must—

(a) be provided in electronic form; and

(b) be provided to the Secretary of State and to the SSRO.

(5) Where a regulation requires an annual profile, that annual profile must be presented in a tabular format, with columns representing a continuous range of financial years from that in which the contract was entered into until that in which the contract completion date falls or is expected to fall.

(6) Subject to regulation 29(3) and (4), where a regulation requires a statement of actual costs , actual price payable or actual volumes, nevertheless—

(a) up to 5% of the costs , price payable or volumes may, without any explanation, be estimated costs , price payable or volumes;

(b) 5% or more of the costs , price payable or volumes may be estimated costs , price payable or volumes, if an explanation is given of—

(i) why it is not possible to provide actual costs , price payable or volumes at the time the report is provided; and

(ii) when actual costs , price payable or volumes will be available.

(6A) Where estimated costs, price or volumes are provided in accordance with paragraph (6)(b), the primary contractor must provide the actual costs, price or volumes as soon as reasonably practicable after that information becomes available.

(7) Where a regulation requires a breakdown of costs by defined pricing structure, that breakdown must be presented as a list of cost categories describing key components of the deliverables to be provided under the contract.

(7A) Where a regulation requires reporting of the costs or profit of a component which was created because of a pricing amendment to which paragraph 7 of the Schedule applied, the parties may agree that the costs or profit are to be reported as the costs or profit originally determined in accordance with that paragraph (irrespective of any variance to the costs or profit which has occurred since).

(7B) Any requirement to report information split by defined pricing structure does not apply in relation to a contract or component the price of which was determined entirely in accordance with a contract pricing method under which costs are indistinguishable from profits.

(8) Except where otherwise provided in this Part, any reference to money in a report must be expressed in sterling.

(9) In preparing a report, a contractor must have regard to any relevant guidance issued by the SSRO.

(10) In this Part—

(a) a reference to a contract reporting plan includes any information which has been provided in response to a written direction made under regulation 30(3)(b);

(aa) a reference to a contract pricing method under which costs are indistinguishable from profits is a reference to a contract pricing method described in regulation 19A, 19B(3), 19C or 19E;

(ab) where the price of a contract or component was determined in accordance with a contract pricing method under which costs are indistinguishable from profits, a reference to the costs of the contract or component is to be treated as a reference to the price of the contract or component;

(b) “calendar quarter” means any of the following periods—

(i) 1 January to 31 March;

(ii) 1 April to 30 June;

(iii) 1 July to 30 September; and

(iv) 1 October to 31 December;

(i) in the case of a contract which is a qualifying defence contract by virtue of section 14(4) or (5), the date of the amendment mentioned in section 14(4)(c) or (5)(b);

(ii) in all other cases, the date the contract was entered into.

Contract pricing statement

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(1) The primary contractor must provide—

(a) a contract pricing statement for the qualifying defence contract within one month of the initial reporting date; and

(b) if the contract is amended so as to create a new component under the contract or if the contract or a component of the contract is repriced in accordance with regulation 19F, a revised contract pricing statement—

(i) where the amendment has a value of £10,000,000 or more, within one month of the amendment;

(ii) where the amendment has a value of less than £10,000,000, at the same time as the next report is provided in relation to the contract under regulation 26 (quarterly contract report), regulation 27 (interim contract report) or regulation 28 (contract completion report).

(2) For every qualifying defence contract or component of such a contract, a contract pricing statement must—

(a) set out the date and version of any statutory guidance made under section 18(1), 20(1) or 35A in force at the time of agreement;

(b) describe any known deviation from that statutory guidance made in determining the contract price; and

(3) If the contract price for the contract or component is determined in accordance with regulation 10 (default pricing of contracts) a contract pricing statement must—

(a) set out any allowable costs and the contract profit rate used to determine the contract price;

(b) describe the calculation that was made under regulation 11 to determine the contract profit rate, including all factors that were determined under each of the steps of that regulation; and

(i) the contractor's facts, assumptions and calculations relevant to each element of the allowable costs (including those relevant to any risk or contingency included in the allowable costs); and

(ii) any facts or assumptions provided by the Secretary of State and used by the contractor in those calculations.

(4) If the contract price for the contract or component is determined in accordance with regulation 19A (commercial pricing) a contract pricing statement must—

(a) explain—

(i) the circumstances that allow the application of the commercial pricing method; and

(ii) how the commercial price used was demonstrated to be reasonable; and

(b) describe the facts, assumptions and calculations relevant to the pricing of the item including—

(i) the basis on which each market price was determined; and

(ii) any adjustment made under regulation 19A(6)(b).

(5) If the contract price for the contract or component is determined in accordance with regulation 19B (prices determined in accordance with law) a contract pricing statement must—

(a) state a citation for the relevant legal provision and explain how that provision affects the price;

(b) state which of regulation 19B(3) or 19B(4) applies; and

(c) where regulation 19B(4) applies, explain the approach used to secure that the price is as close as possible to the price which would have been agreed between the parties in compliance with the Act and these Regulations but for the application of the relevant law.

(6) If the contract price for the contract or component is determined in accordance with regulation 19B (prices determined in accordance with law) and regulation 19B(4) applies, the contract pricing statement must—

(a) explain the justification for using the price determined in accordance with law method;

(b) explain how the price used was demonstrated to be reasonable; and

(i) the basis on which the price was determined; and

(ii) the facts, assumptions and calculations on which any variation was made.

(7) If the contract price for the contract or component is determined in accordance with regulation 19C (previously agreed price) the contract pricing statement must describe any element that enables a variance in price and any mechanism put in place to prevent excessive profit or loss.

(8) If the contract price for the contract or component is determined in accordance with regulation 19D (novated contracts), a contract pricing statement for contract B must contain the same information as was required in respect of contract A.

(9) If the contract price for the contract or component is determined in accordance with regulation 19E (competed rates applied to uncompeted volumes) a contract pricing statement must—

(a) describe—

(i) the contractor's facts, assumptions and calculations relevant to each element of the allowable costs (including those relevant to any risk or contingency included in the allowable costs); and

(ii) any facts or assumptions provided by the Secretary of State and used by the contractor in those calculations; and

(b) the facts referred to in paragraph (b)(i) must set out the volumes that are applied to the competed rates to arrive at the contract price.

(10) If the contract price for the contract or component is determined in accordance with more than one contract pricing method, the contract pricing statement must comply with all of the requirements in this regulation that apply to the contract pricing methods that have been used.

(11) Where the contract contains components, the contract pricing statement must—

(a) set out any cost risk adjustment determined under step 2 of regulation 11 or incentive adjustment determined under step 3 of regulation 11 in relation to the contract and each component;

(b) include an explanation of how—

(i) the total of all cost risk adjustments in relation to the contract and each component remain within the limit for the cost risk adjustment for the contract; and

(ii) the total of all incentive adjustments in relation to the contract and each component remain within the limit for the incentive risk adjustment for the contract; and

(c) where a component uses a contract pricing method under which costs are indistinguishable from profits, treat the costs under that component as the price of the component.

Contract reporting plan

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(1) The primary contractor must provide—

(a) a contract reporting plan for the qualifying defence contract within one month of the initial reporting date; and

(b) if the contract is amended so as to create a new component under the contract, a revised contract reporting plan—

(i) where the amendment has a value of £10,000,000 or more, within one month of the amendment;

(ii) where the amendment has a value of less than £10,000,000, at the same time as the next report is provided in relation to the contract under regulation 26 (quarterly contract report), regulation 27 (interim contract report) or regulation 28 (contract completion report).

(2) Subject to paragraphs (3) to (6), for every qualifying defence contract, the contract reporting plan must contain the following information—

(a) the price that the contracting authority is committed to paying for the contract and, where known, the value of the contract and each component calculated in accordance with regulation 5 (calculating the value of a contract);

(b) a list of—

(i) every quarterly contract report (regulation 26), interim contract report (regulation 27), contract completion report (regulation 28) and contract costs statement (regulation 29) which will be required for the contract;

(ii) where the contract contains components, the information that will be required to be provided separately for each of the components in each of the reports mentioned in paragraph (i); and

(iii) the dates on which those reports will be due;

(c) if the contractor has agreed that it will provide any of the information described in regulation 30(3) (on-demand contract reports) without a written direction, a description of what it has agreed to provide;

(d) a description of the defined pricing structure that the contractor will use in providing the reports required by this Part;

(e) a list of the output metrics that will be used to describe deliverables in the reports required by this Part, together with a description of which component or components the deliverables relate to; and

(f) a list of the cost recovery bases—

(i) that were used, or are expected to be used, in the determination of the contract price; and

(ii) that the contractor will use in making the reports required by this Part,

together with a description of which cost recovery bases relate to which component or components.

(3) If the contract price is determined in accordance with regulation 19A (commercial pricing) for—

(a) the contract, the contract reporting plan need not contain the information referred to in paragraph (2)(d) or (f);

(b) a component of the contract, the contract reporting plan need not contain the information referred to in paragraph (2)(d) or (f) in respect of that component.

(4) If the contract price is determined in accordance with regulation 19B(3) (prices determined in accordance with law) for—

(a) the contract, the contract reporting plan need not contain the information referred to in paragraph (2)(d) or (f);

(b) a component of the contract, the contract reporting plan need not contain the information referred to in paragraph (2)(d) or (f) in respect of that component.

(5) If the contract price for the contract or component is determined in accordance with regulation 19C (previously agreed price) the contract reporting plan need not contain the information referred to in paragraph (2)(d), (e) or (f).

(6) If the contract price is determined in accordance with regulation 19E (competed rates applied to uncompeted volumes) for—

(a) the contract—

(i) the contract reporting plan need not contain the information referred to in paragraph (2)(d);

(ii) paragraph (2)(f) has effect as if for “cost recovery bases” there were substituted “competed rates”;

(b) a component of the contract—

(i) the contract reporting plan need not contain the information referred to in paragraph (2)(d) in respect of that component;

(ii) paragraph (2)(f) has effect in respect of that component as if for “cost recovery bases” there were substituted “competed rates”.

Contract notification report

25

(1) The primary contractor must provide a contract notification report for the qualifying defence contract within one month of the initial reporting date.

(2) Subject to paragraphs (3) to (6), the report must contain the following information—

(a) a list of the key deliverables specified in the contract, with a brief description of each;

(b) the estimated quantum of those deliverables, expressed using the output metrics set out in the contract reporting plan;

(ba) where the contract contains components, an explanation of which of those deliverables relate to which component;

(c) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters which have been taken into account in determining the contract price—

(i) any risk contingency element included in the allowable costs and where the contract contains components, an explanation of which parts of any risk contingency element relate to which component;

(ii) planned amounts of profit for the contract and, where the contract contains components, for each component, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the maximum amount of profit resulting from an adjustment determined under step 3 of regulation 11 and where the contract contains components, the maximum amount of profit in relation to each component resulting from such an adjustment;

(d) an annual profile of any estimated costs for the contract and, where the contract contains components, for each component of the contract at the initial reporting date (split by the defined pricing structure);

(e) the total amount of non-recurring allowable costs (split by the defined pricing structure) for the contract and, where the contract contains components, for each component of the contract, except where the contract or component was priced using a contract pricing method under which costs are indistinguishable from profits;

(f) an annual profile of the estimated amount of each cost recovery base set out in the contract reporting plan;

(g) a list of all payments exceeding £100,000 or 1% of the contract price (whichever is the greater) expected to be made by the Secretary of State under the contract, including—

(i) the expected amount of each payment;

(ii) the date on which each payment is expected to fall due; and

(iii) if the contract requires the payment to be made in any currency other than sterling, the currency in which the payment is to be made;

(h) if the contract requires payment to be made in sterling, an annual profile of all such payments which the contractor expects the Secretary of State will make;

(i) if the contract requires payment to be made in any currency other than sterling, an annual profile for each such currency of all payments which the contractor expects the Secretary of State will make;

(j) a list of—

(i) all delivery milestones set out in the contract , together with an explanation of whether, and if so how, each milestone relates to any component of the contract; and

(ii) where the contract sets an expected date for a delivery milestone to be completed, that date;

(k) a description of any actual or intended sub-contracts which the primary contractor has entered into, or intends to enter into, for the purposes of enabling it to perform its obligations under the qualifying defence contract (including the total proportion of the contract price of the qualifying defence contract which the primary contractor expects to sub-contract); and

(l) in relation to each such sub-contract into which the primary contractor has entered or intends to enter, and which has or is expected to have a value of not less than £1,000,000 ...—

(i) if the sub-contractor is a registered company, its registered name and company number, and the address of its registered office;

(ii) if the sub-contractor is not a registered company, its name;

(iii) whether the sub-contractor is associated with the primary contractor;

(iv) whether the sub-contractor is an SME;

(v) a brief description of the goods, works or services that will be provided under the sub-contract;

(vi) the date on which the sub-contract was, or is expected to be, entered into;

(vii) the contract completion date (or, if that date is not known, the expected contract completion date);

(viii) the (actual or estimated) price payable under the sub-contract; and

(ix) if an assessment has been made under regulation 61(1) or (4), the outcome of that assessment.

(m) in relation to each sub-contract which the primary contractor has entered into, or intends to enter into, and which has or is expected to have a value of not less than £15,000,000, if the primary contractor has made an assessment that the contract would not be a qualifying sub-contract—

(i) the outcome of the negative assessment;

(ii) confirmation of whether the award of the contract is not, or would not be, the result of a competitive process; and

(iii) confirmation of whether the contract enables the performance of contracts other than a qualifying defence contract or qualifying sub-contract.

(3) If the contract price for the contract or component is determined entirely in accordance with regulation 19A (commercial pricing) the requirements in paragraph (2) are modified in respect of the contract or component as follows—

(a) the estimated quantum of deliverables required by paragraph (2)(b) need not be expressed using the output metrics set out in the contract reporting plan;

(b) the contract notification report need not contain the information specified in paragraphs (2)(c) to (f) and (k) to (m).

(4) If the contract price for the contract or component is determined entirely in accordance with regulation 19B(3) (prices determined in accordance with law), the estimated quantum of deliverables required by paragraph (2)(b) need not be expressed in respect of the contract or component using the output metrics set out in the contract reporting plan.

(5) If the contract price for the contract or component is determined entirely in accordance with regulation 19C (previously agreed price), the contract notification report need not contain the information specified in paragraphs (2)(a) to (f) and (j) to (m) in respect of the contract or component.

(6) If the contract price for the contract or component is determined entirely in accordance with regulation 19E (competed rates applied to uncompeted volumes), paragraph (2)(f) has effect in respect of that contract or component as if for “cost recovery base” there were substituted “competed rates”.

Quarterly contract report

26

(1) Subject to paragraphs (2) to (5), the primary contractor must provide a quarterly contract report for the qualifying defence contract within one month of the end of each calendar quarter from the initial reporting date until the contract completion date.

(2) No report is required for the calendar quarter in which the initial reporting date falls.

(3) The first report must be for the period from the initial reporting date to the end of the next calendar quarter.

(4) No report is required for the calendar quarter in which the contract completion date falls.

(5) No report is required for a contract if the value of the contract is less than £50,000,000.

(6) Except where the price of the contract is determined entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the report must contain the following information—

(a) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters which have been, or are expected to be, taken into account in determining the contract price—

(i) any risk contingency element included in the allowable costs;

(ii) planned amounts of profit, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the maximum amount of profit resulting from an adjustment determined under step 3 of regulation 11;

(b) an annual profile of the estimated costs (split by the contractor reporting structure) at the time of agreement;

(c) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters—

(i) any risk contingency element,

(ii) planned amounts of profit, excluding any amount resulting from an adjustment determined under step 3 of regulation 11, and

(iii) the expected maximum amount of profit resulting from an adjustment determined under step 3 of regulation 11,

that reflect the costs already incurred and the forecast costs which are expected to be incurred, indicating for each year whether those costs have been incurred, are forecast, or a combination of both;

(d) an annual profile of the costs already incurred and the forecast costs which are expected to be incurred, split by the contractor reporting structure and indicating for each year whether those costs have been incurred, are forecast, or a combination of both;

(e) a breakdown of the costs already incurred and the forecast costs by reference to the calendar quarters of each of—

(i) the financial year in which the calendar quarter to which the report relates falls,

(ii) the previous financial year, and

(iii) the next financial year,

split by the contractor reporting structure;

(f) a quantified analysis of the causes of variance (explaining not less than 90% of the total variance) between any estimated costs used to determine the contract price and the total actual and forecast costs;

(g) a forecast of any TCIF adjustment or any final price adjustment (regulation 16) which the contractor expects will be made;

(h) a description of any event that has occurred, or circumstances which have arisen, since the contract was entered into, that have had or are likely to have a material effect in relation to the contract, including—

(i) the date on which the contractor became aware of the event or circumstances;

(ii) whether the event or circumstances are covered by any contingency element of the contract price;

(iii) the effect that the event or circumstances have had on the costs already incurred; and

(iv) the forecast effect that the event or circumstances will have on the forecast costs which it is expected will be incurred;

(i) a list of—

(i) all delivery milestones set out in the contract;

(ii) where the contract sets an expected date for a delivery milestone to be completed, that date; and

(iii) the actual or expected delivery date for each delivery milestone;

(j) a description of any actual or intended sub-contracts which the primary contractor has entered into, or intends to enter into, for the purposes of enabling it to perform its obligations under the qualifying defence contract (including the total proportion of the contract price of the qualifying defence contract which the contractor expects to sub-contract); and

(k) in relation to each such sub-contract into which the primary contractor has entered in the period covered by the report, or intends to enter in the calendar quarter following the period covered by the report, and which has or is expected to have a value of not less than £1,000,000 ...—

(i) if the sub-contractor is a registered company, its registered name and company number, and the address of its registered office;

(ii) if the sub-contractor is not a registered company, its name;

(iii) whether the sub-contractor is associated with the primary contractor;

(iv) whether the sub-contractor is an SME;

(v) a brief description of the goods, works or services that will be provided under the sub-contract;

(vi) the date on which the sub-contract was, or is expected to be, entered into;

(vii) the contract completion date (or, if that date is not known, the expected contract completion date);

(viii) the (actual or estimated) price payable under the sub-contract; and

(ix) if an assessment has been made under regulation 61(1) or (4), the outcome of that assessment;

(l) in relation to each sub-contract which the primary contractor has entered into, or intends to enter into, and which has or is expected to have a value of not less than £15,000,000, if the primary contractor has made an assessment that the contract would not be a qualifying sub-contract—

(i) the outcome of the negative assessment;

(ii) confirmation of whether the award of the contract is not, or would not be, the result of a competitive process; and

(iii) confirmation of whether the contract enables the performance of contracts other than a qualifying defence contract or qualifying sub-contract.

(6A) Where the contract contains a component which was not priced in accordance with a contract pricing method under which costs are indistinguishable from profits, the report must also contain the relevant component information.

(6B) Where a component mentioned in paragraph (6A) has a value of less than £50,000,000, the report need only contain the relevant component information—

(a) on each of—

(i) a date agreed between the primary contractor and the Secretary of State at the time of agreement which is no more than five years following the time of agreement; and

(ii) such further dates before the expected contract completion date as may be agreed between them, each date to be no more than five years after the date agreed under paragraph (i); or

(b) if no agreement is made under sub-paragraph (a)—

(i) on the date which is three years after the last day of the calendar quarter during which the initial reporting date fell; and

(ii) on the date which is each third anniversary of that date.

(6C) In paragraphs (6A) and (6B), “relevant component information” means the following information in relation to the component so far as it is different from the information provided in relation to the contract in accordance with paragraph (6)—

(a) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters which have been, or are expected to be, taken into account in determining the contract price of the component—

(i) any risk contingency element included in the allowable costs of the component;

(ii) planned amounts of profit in respect of the component, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the maximum amount of profit in respect of the component resulting from an adjustment determined under step 3 of regulation 11;

(b) an annual profile of the estimated costs of the component (split by the contractor reporting structure) at the time of agreement;

(c) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters—

(i) any risk contingency element in respect of the component;

(ii) planned amounts of profit in respect of the component, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the expected maximum amount of profit in respect of the component resulting from an adjustment determined under step 3 of regulation 11,

that reflect the costs already incurred in respect of the component and the forecast costs which are expected to be incurred in respect of the component, indicating for each year whether those costs have been incurred, are forecast, or a combination of both;

(d) an annual profile of the costs already incurred in respect of the component and the forecast costs which are expected to be incurred in respect of the component, split by the contractor reporting structure and indicating for each year whether those costs have been incurred, are forecast, or a combination of both;

(e) a breakdown of the costs already incurred in respect of the component and the forecast costs of the component by reference to the calendar quarters of each of—

(i) the financial year in which the calendar quarter to which the report relates falls;

(ii) the previous financial year; and

(iii) the next financial year,

split by the contractor reporting structure;

(f) a quantified analysis of the causes of variance (explaining not less than 90% of the total variance) between any estimated costs used to determine the contract price for the component and the total actual and forecast costs of the component;

(g) a forecast of any TCIF adjustment or any final price adjustment (regulation 16) which the contractor expects will be made in respect of the component;

(h) a description of any event that has occurred, or circumstances which have arisen, since the component was entered into, that have had or are likely to have a material effect in relation to the component, including—

(i) the date on which the contractor became aware of the event or circumstances;

(ii) whether the event or circumstances are covered by any contingency element of the contract price of the component;

(iii) the effect that the event or circumstances have had on the costs already incurred in respect of the component; and

(iv) the forecast effect that the event or circumstances will have on the forecast costs of the component which it is expected will be incurred; and

(i) an explanation of whether, and if so how, each delivery milestone set out in the contract relates to the component.

(6D) Where the price of the contract or a component of the contract is determined entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the report must contain the following information in relation to the contract or component—

(a) the current estimate of the price; and

(b) details of any variance between the current estimate of the price and previous estimates of the price, and the reasons for that variance.

(7) In this regulation, “contractor reporting structure” means the breakdown of contract or component costs into the categories used by the contractor for its own internal contract management purposes.

Interim contract report

27

(1) The primary contractor must provide an interim contract report for the qualifying defence contract within two months after each reporting date.

(2) If the value of the qualifying defence contract is less than £50,000,000, the reporting dates are—

(a) either—

(i) a date agreed between the primary contractor and the Secretary of State at the time of agreement which is no more than five years following the time of agreement; and

(ii) such further dates before the expected contract completion date as may be agreed between them, each date to be no more than five years after the previous reporting date; or

(b) if no agreement is made under sub-paragraph (a)—

(i) the date which is three years after the last day of the calendar quarter during which the initial reporting date fell; and

(ii) the date which is each third anniversary of that date.

(3) Otherwise, the reporting dates are—

(a) either—

(i) a date agreed between the primary contractor and the Secretary of State at the time of agreement which is no more than three years following the time of agreement; and

(ii) such further dates before the expected contract completion date as may be agreed between them, each date to be no more than three years after the previous reporting date; or

(b) if no agreement is made under sub-paragraph (a)—

(i) the date which is 12 months after the last day of the calendar quarter during which the initial reporting date fell; and

(ii) the date which is each anniversary of that date.

(3A) Where the contract contains components—

(a) the primary contractor and the Secretary of State may agree different reporting dates for each component in accordance with whichever of paragraph (2)(a) or (3)(a) applies to the contract;

(b) where no different reporting dates are agreed in accordance with sub-paragraph (a) in relation to a component, the reporting dates for that component are the same as the reporting dates for the contract under paragraph (2) or (3) (as the case may be).

(4) Subject to paragraphs (4B) to (4E), the report must contain the following information—

(a) a list of the key deliverables specified in the contract, with a brief description of each;

(b) the estimated quantum of those deliverables, expressed using the output metrics set out in the contract reporting plan;

(c) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters which have been, or are expected to be, taken into account in determining the contract price—

(i) any risk contingency element included in the allowable costs;

(ii) planned amounts of profit, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the maximum amount of profit resulting from an adjustment determined under step 3 of regulation 11;

(d) an annual profile of any estimated costs (split by the defined pricing structure) at the time of agreement;

(e) except where the component is priced using a contract pricing method under which costs are indistinguishable from profits, the total amount of non-recurring costs at the time of agreement (split by defined pricing structure);

(f) an annual profile of the estimated amount of each cost recovery base set out in the contract reporting plan;

(g) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters—

(i) any risk contingency element,

(ii) planned amounts of profit, excluding any amount resulting from an adjustment determined under step 3 of regulation 11, and

(iii) the expected amount of profit resulting from an adjustment determined under step 3 of regulation 11,

(h) an annual profile of the costs already incurred and the forecast costs which are expected to be incurred, split by the defined pricing structure and indicating for each year—

(i) whether the costs have been incurred, are forecast, or a combination of both; and

(ii) the amount of each cost recovery base set out in the contract reporting plan;

(i) a quantified analysis of the causes of variance (explaining not less than 90% of the total variance) between any estimated costs used to determine the contract price and the total actual and forecast costs;

(j) a list of all payments exceeding £100,000 or 1% of the contract price (whichever is the greater) that have been or are expected to be made by the Secretary of State under the contract, including—

(i) the amount, or expected amount, of each payment;

(ii) the date on which each payment did or is expected to fall due; and

(iii) if the contract requires the payment to be made in any currency other than sterling, the currency in which the payment was or is to be made;

(k) if the contract requires payment to be made in sterling, an annual profile of all such payments made, or which the contractor expects the Secretary of State will make; ...

(l) if the contract requires payment to be made in any currency other than sterling, an annual profile for each such currency of all payments made, or which the contractor expects the Secretary of State will make; and

(m) where the report is provided on a reporting date for a component of the contract, the relevant component information in relation to that component.

(4A) In paragraph (4)(m), “relevant component information” means the following information in relation to the component so far as it is different from the information provided in relation to the contract in accordance with paragraph (4)—

(a) an explanation of which of the key deliverables specified in the contract relate to the component;

(b) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters which have been, or are expected to be, taken into account in determining the contract price of the component—

(i) any risk contingency element included in the allowable costs of the component;

(ii) planned amounts of profit in respect of the component, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the maximum amount of profit in respect of the component resulting from an adjustment determined under step 3 of regulation 11;

(c) an annual profile of the estimated costs of the component (split by the defined pricing structure) at the time of agreement;

(d) except where the component is priced using a contract pricing method under which costs are indistinguishable from profits, the total amount of non-recurring costs for the component at the time of agreement (split by defined pricing structure);

(e) an annual profile of the estimated amount of each cost recovery base set out in the contract reporting plan in respect of the component;

(f) an annual profile (or, if the contractor is of the view that it is not possible to express these matters in an annual profile, the total amount) of the following matters—

(i) any risk contingency element in respect of the component;

(ii) planned amounts of profit in respect of the component, excluding any amount resulting from an adjustment determined under step 3 of regulation 11; and

(iii) the expected maximum amount of profit in respect of the component resulting from an adjustment determined under step 3 of regulation 11,

(g) an annual profile of the costs already incurred in respect of the component and the forecast costs which are expected to be incurred in respect of the component (split by the defined pricing structure) and indicating for each year—

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