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The Single Source Contract Regulations 2014

Type Statutory-Instrument

Publication 2014-12-17

Last updated 2024-04-01

State In force

Department King's Printer of Acts of Parliament

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(i) whether those 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 in respect of the component; and

(h) 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 of the component and the total actual and forecast costs of the component.

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

(a) the requirements in paragraph (4) are modified as follows in relation to a contract—

(i) the estimated quantum of deliverables required by paragraph (4)(b) need not be expressed using the output metrics set out in the contract reporting plan;

(ii) the report need not contain the information specified in paragraphs (4)(c)(i) and (ii), (d) to (f), (g)(i) and (h);

(iii) paragraph (4)(i) has effect as if for the words from “any estimated costs” to the end there were substituted “the estimated price of the contract determined in accordance with regulation 19A(5) (method of determining commercial price) and the current estimated price”;

(b) the requirements in paragraph (4A) are modified as follows in relation to a component—

(i) the report need not contain the information specified in paragraphs (4A)(b)(i) and (ii), (c) to (e), (f)(i) and (g);

(ii) paragraph (4A)(h) has effect as if for the words from “any estimated costs” to the end there were substituted “the estimated price of the component determined in accordance with regulation 19A(5) (method of determining commercial price) and the current estimated price”.

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

(a) the requirements in paragraph (4) are modified as follows in relation to a contract—

(i) the estimated quantum of deliverables required by paragraph (4)(b) need not be expressed using the output metrics set out in the contract reporting plan;

(ii) the report need not contain the information specified in paragraphs (4)(c) to (h);

(iii) paragraph (4)(i) has effect as if for the words from “any estimated costs” to the end there were substituted “the estimated price of the contract determined in accordance with regulation 19B(3) (method of determining price determined in accordance with law) and the current estimated price”;

(b) the requirements of paragraph (4A) are modified as follows in relation to a component—

(i) the report need not contain the information specified in paragraphs (4A)(b) to (g);

(ii) paragraph (4A)(h) has effect as if for the words from “any estimated costs” to the end there were substituted “the estimated price of the component determined in accordance with regulation 19B(3) (method of determining price determined in accordance with law) and the current estimated price”.

(4D) If the contract price for a contract or component is determined entirely in accordance with regulation 19C (previously agreed price) the report need not contain the information specified in paragraph (4) (in relation to a contract) or (4A) (in relation to a component), and must instead 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.

(4E) If the contract price for a contract or component is determined entirely in accordance with regulation 19E (competed rates applied to uncompeted volumes), paragraphs (4)(f) and (h)(ii) (in relation to a contract) and (4B)(e) and (g)(ii) (in relation to a component) have effect as if references to “cost recovery base” were references to “competed rates”.

(5) Subject to paragraphs (7) to (9), if the value of the qualifying defence contract is less than £50,000,000, the report must also contain the following information—

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

(b) 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 (paragraph (4)(h)); and

(iv) the forecast effect that the event or circumstances will have on the forecast costs which it is expected will be incurred (paragraph (4)(h));

(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;

(d) 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 which the primary contractor expects to sub-contract); and

(e) in relation to each such sub-contract 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.

(f) 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; and

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

(6) In paragraph (5)(g), “the relevant component information” means, subject to paragraphs (7) to (9), 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 (5)—

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

(b) 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 for the component;

(iii) the effect that the event or circumstances have had on the costs already incurred in respect of the component (paragraph (4A)(g)); and

(iv) the forecast effect that the event or circumstances will have on the forecast costs which it is expected will be incurred in respect of the component (paragraph (4A)(g)); and

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

(a) the requirements in paragraph (5) are modified as follows in relation to a contract—

(i) the report need not contain the information specified in paragraph (5)(a) and (d) to (f);

(ii) paragraph (5)(b)(iii) has effect as if for “costs already incurred” there were substituted “price payable”;

(iii) paragraph (5)(b)(iv) has effect as if for “costs which it is expected will be incurred” there were substituted “price payable”;

(b) the requirements in paragraph (6) are modified as follows in relation to a component—

(i) the report need not contain the information specified in (6)(a);

(ii) paragraph (6)(b)(iii) has effect as if for “costs already incurred” there were substituted “price payable”;

(iii) paragraph (6)(b)(iv) has effect as if for “costs which it is expected will be incurred” there were substituted “price payable”.

(8) If the contract price for a contract or component is determined entirely in accordance with regulation 19B(3), (prices determined in accordance with law)—

(a) the requirements in paragraph (5) are modified as follows in relation to a contract—

(i) the report need not contain the information specified in paragraph (5)(a) and (d) to (f);

(ii) paragraph (5)(b)(iii) has effect as if for “costs already incurred” there were substituted “price payable”;

(b) the requirements in paragraph (6) are modified as follows in relation to a component—

(i) the report need not contain the information specified in paragraph (6)(a);

(ii) paragraph (6)(b)(iii) has effect as if for “costs already incurred” there were substituted “price payable”.

(9) If the contract price for the contract or component is determined in accordance with regulation 19C (previously agreed price)—

(a) the requirements in paragraph (5) are modified as follows in relation to a contract—

(i) paragraph (5)(b)(iii) has effect as if for “costs already incurred” there were substituted “price payable after the contract has become a qualifying defence contract”;

(ii) paragraph (5)(c)(i) has effect as if at the end there were inserted “after it became a qualifying defence contract”;

(iii) the report need not contain the information specified in paragraph (5)(d) to (f);

(b) paragraph (6)(b)(iii) has effect in relation to a component as if for “costs already incurred” there were substituted “price payable after the contract has become a qualifying defence contract”.

Contract completion report

28

(1) The primary contractor must provide a contract completion report within six months after the contract completion date of the qualifying defence contract.

(2) Subject to paragraphs (3) to (7), 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 actual quantum of those deliverables, expressed using the output metrics set out in the most recent 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—

(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) any actual risk contingency element and, where the contract contains components, an explanation of which parts of any actual risk contingency element relate to which component;

(iii) the maximum amount of profit for the contract and, where the contract contains components, for each component that could have resulted from the incentive adjustment (step 3 of regulation 11) at the time of agreement;

(iv) the actual incentive adjustment for the contract and, where the contract contains components, for each component;

(v) the planned amount of profit for the contract and, where the contract contains components, for each component, excluding any amount resulting from the incentive adjustment; and

(vi) the actual amount of profit for the contract and, where the contract contains components, for each component, excluding any amount resulting from the incentive adjustment;

(d) an annual profile of any estimated costs for the contract and, where the contract contains components, for each component at the time of agreement (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 at the time of agreement;

(g) an annual profile of the actual costs (split by the defined pricing structure) for the contract and, where the contract contains components, each component of the contract;

(h) an annual profile of the actual 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 of the contract and, where the contract contains components, each component of the contract and the total actual and forecast costs;

(j) 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 or, where the contract contains components, a component of the contract, including—

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

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

(iii) the effect that the event or circumstances have had on the costs already incurred or forecast to be incurred under the contract or component;

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

(l) 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;

(m) 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;

(n) 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;

(o) 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;

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

(iv) a description of the causes of any variance between the expected date for a delivery milestone set out in the contract, and the actual or expected completion date; and

(oa) where the contract contains components, an explanation of which delivery milestones relate to which component;

(p) in relation to each sub-contract which the primary contractor has entered into for the purposes of enabling it to perform its obligations under the qualifying defence contract 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 provided under the sub-contract;

(vi) the date on which the sub-contract was 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;

(q) 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; and

(r) a description of any component completion reports provided under regulation 27A.

(3) If the contract price for the contract or component is determined entirely in accordance with regulation 19A (commercial pricing) or regulation 19B(3) (prices determined in accordance with law) the requirements in paragraphs (2) are modified as follows in relation to the contract or component—

(a) the actual 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 report need not contain the information specified in paragraphs (2)(c)(i), (ii), (v) and (vi), (b) to (h), (k), (p) and (q);

(c) paragraph (2)(i) has effect as if for the words from “any estimated” to the end there were substituted “the contract price of the contract or component estimated at the time of agreement and the actual contract price of the contract or component”;

(d) paragraph (2)(j)(iii) has effect as if for “costs already incurred or forecast to be incurred under the contract or component” there were substituted “price payable, together with a quantified analysis of the variance”.

(4) If the contract price for the contract or component is determined entirely in accordance with regulation 19C (previously agreed price) the requirements in paragraphs (2) are modified as follows in relation to the contract or component—

(a) paragraph (2)(a) has effect as if at the end there were inserted “which were deliverable after the contract has become a qualifying defence contract”;

(b) paragraph (2)(b) has effect as if after “expressed” there were inserted “in respect of those deliverables that were deliverable after the contract became a qualifying defence contract”;

(d) paragraph (2)(i) has effect as if for the words from “any estimated” to the end there were substituted “the contract price for the contract or component estimated at the time of agreement and the actual contract price for the contract or component”;

(e) paragraph (2)(j) has effect as if for “was entered into” there were substituted “became a qualifying defence contract”;

(f) paragraph (2)(m) has effect as if at the end there were inserted “after the contract became a qualifying defence contract”;

(g) paragraph (2)(n) has effect as if at the end there were inserted “after the contract became a qualifying defence contract”;

(h) paragraph (2)(o) has effect as if—

(i) in paragraph (2)(o)(i) at the end there were inserted “after the contract became a qualifying defence contract”;

(ii) paragraph (2)(o)(ii) were omitted.

(5) If the contract price for the contract or component is determined entirely in accordance with regulation 19E (competed rates applied to uncompeted volumes) in relation to the contract or component—

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

(b) paragraph (2)(h) has effect as if for “cost recovery base” there were substituted “competed rates”.

(6) The report need not separately identify any information in relation to a component which has been provided in a report under regulation 27A (component completion report).

Contract costs statement

29

(1) The primary contractor must provide a contract costs statement—

(a) within 12 months after the contract completion date of the contract; and

(b) where the component completion date of a component of the contract is more than 12 months before the expected contract completion date of the contract, within 12 months after the component completion date of the component.

(1A) Where a statement is provided in accordance with—

(a) paragraph (1)(a), the statement must contain the information required by this regulation in relation to the contract and, where different, in relation to each component of the contract in respect of which no statement has been provided in accordance with paragraph (1)(b);

(b) paragraph (1)(b), the statement must contain the information required by this regulation in relation to the component in respect of which the statement is provided.

(2) If the contract or component is not priced entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the statement must contain the following information—

(a) the start and end dates of the contractor's accounting period;

(b) if there has been any agreement between the contractor and the Secretary of State as to the cost allocation and apportionment methodology to be used in the contract cost statement, a description of that agreement and any deviations from the methodology;

(c) an annual profile of the actual allowable costs for the contract or, where the statement is provided in relation to a component, for the component, showing—

(i) all purchased items, services and expenses (including payments to sub-contractors) which are direct costs;

(ii) any other direct costs; and

(iii) all indirect costs, showing each cost recovery rate charged and the quantum of the corresponding cost recovery base;

(iv) the total actual costs which the contractor claims are allowable costs;

(d) if there is any variance between the total actual costs (sub-paragraph (c)(iv)) and the costs described in sub-paragraph (c)(i) to (iii), an explanation of the reason for that variance;

(e) if there is any variance between a cost recorded in the most recent information provided in response to a direction under regulation 30(1) or (3)(d) and the amount reported for the same cost in sub-paragraph (c)(i) to (iv), an explanation of the reason for that variance; and

(f) the percentage of the allowable costs included in the statement which are still estimated rather than actual.

(2A) If the contract or component is priced entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the statement must contain the following information—

(a) an annual profile of the actual price payable under the contract or component, and where the contract or component was priced in accordance with regulation 19E (competed rates applied to uncompeted volumes) the annual profile must show—

(i) all competed rate costs showing each competed rate charged and the quantum of the corresponding volume; and

(ii) the actual volumes delivered under the contract or component; and

(b) if there is any variance between the total price estimated at the time of agreement and the actual total price payable under the contract or component, an explanation of the reason for that variance.

(3) Up to 2% of—

(a) the actual allowable costs required by paragraph (2)(c) may, without explanation, be estimated costs;

(b) the actual price payable required by paragraph (2A)(a) may, without explanation, be estimated price;

(4) 2% or more of the actual allowable costs, actual price payable or actual volumes mentioned in paragraph (3) may be estimated costs, price or volumes, if an explanation is given of—

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

(b) when the actual costs, price or volumes will be available.

(4A) Where estimated costs, price or volumes are provided in accordance with paragraph (4), the primary contractor must provide the actual costs, price or volumes as soon as reasonably practicable after that information becomes available.

(5) In this regulation—

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

(zb) “competed rate costs” means costs which—

(i) the contractor claims are allowable costs under the contract; and

(ii) have been calculated by applying a competed rate to a volume;

(a) “direct costs” means costs which—

(i) the contractor claims are allowable costs under the contract; and

(ii) have not been calculated using a cost recovery rate;

(b) “indirect costs” means costs which—

(i) the contractor claims are allowable costs under the contract; and

(ii) have been calculated using a cost recovery rate.

On-demand contract report

30

(1) Within one month of the initial reporting date of the qualifying defence contract, the Secretary of State may by written direction require the primary contractor to provide the information described in regulation 29(2) (contract costs statement) for one or more specified periods, each such period ending on a date before—

(a) where the information is required in relation to the contract, the contract completion date;

(b) where the information is required in relation to a component of the contract, the component completion date for that component.

(2) The contractor must provide the information required under paragraph (1) within 12 months after the last day of each period specified in the written direction.

(3) Before the contract completion date or the component completion date of a component of the contract, the Secretary of State may by written direction require the primary contractor to provide the information described in any of—

(a) regulation 23(2) (contract pricing statement);

(b) regulation 24(2) (contract reporting plan);

(d) regulation 29(2) (contract costs statement).

(4) The Secretary of State may make more than one written direction under paragraph (3) in relation to the contract or component.

(5) The contractor must provide the information required under paragraph (3)(a) or (b)—

(a) if the contractor and the Secretary of State agree a date which is no more than three months after the date of receiving the written direction, by that date; or

(b) if no such agreement is made, within one month of receiving the written direction.

(6) The contractor must provide the information required under paragraph (3)(c)—

(a) if the contractor and the Secretary of State agree a date which is no more than six months after the date of receiving the written direction, by that date; or

(b) if no such agreement is made, within two months after receiving the written direction.

(7) The contractor must provide the information required under paragraph (3)(d)—

(a) if the contractor and the Secretary of State agree a date which is no more than 18 months after the date of receiving the written direction, by that date; or

(b) if no such agreement is made, within six months after receiving the written direction.

PART 6 — Reports on overheads and forward planning etc

Application of this Part

31

(1) This Part applies where—

(a) a person (“P”) is party to a qualifying defence contract; and

(b) the ongoing contract condition is met in relation to a financial year (“the relevant financial year”).

(2) Paragraph (1) is subject to section 25(4) (minimum value of qualifying defence contract for reporting requirement to be imposed), and the amount specified for the purposes of that subsection is—

(a) for the financial years ending on 31 March 2016 and 31 March 2017, £20,000,000;

(b) for subsequent financial years, £50,000,000.

(2A) In determining the value of a qualifying defence contract for the purposes of this Part, any part of the contract the price of which was determined in accordance with a contract pricing method under which costs are indistinguishable from profits (within the meaning of regulation 22(10)(aa)) is to be disregarded.

(3) The reference in paragraph (1) to the ongoing contract condition being met in relation to a financial year has the meaning given by section 25(5).

(4) The reference in paragraph (1) to a financial year does not include the financial year ending on 31 March 2015.

Interpretation

32

(1) In this Part, “QBU” (qualifying business unit) means—

(a) a unit to which paragraph (3) applies in respect of a relevant period;

(b) an undertaking to which paragraph (4) applies in respect of a relevant period; or

(2) A period is relevant if it ends on a day falling within the relevant financial year.

(3) This paragraph applies to a unit in respect of any period if—

(a) the unit carries on any activities for the purposes of an undertaking which is, or is associated with, the designated person;

(b) separate financial accounting statements are produced in respect of it for that period;

(c) in that period it provides anything for the purposes of any qualifying defence contract or qualifying sub-contract to which the designated person, or any person associated with the designated person, is party; and

(d) the total value of what it provides for those purposes in that period is at least £10,000,000.

(4) This paragraph applies to an undertaking in respect of any period if—

(a) no unit is a QBU in respect of that period by virtue of carrying on activities for the purposes of that undertaking;

(b) the undertaking is, or is associated with, the designated person;

(d) in that period it provides anything for the purposes of any qualifying defence contract or qualifying sub-contract to which the designated person, or any person associated with the designated person, is party; and

(e) the total value of what it provides for those purposes in that period is at least £10,000,000.

(5) This paragraph applies to a group of undertakings in respect of any period if—

(a) no unit is a QBU in respect of that period by virtue of carrying on activities for the purposes of any of those undertakings;

(b) none of those undertakings is a QBU in respect of that period;

(d) a single set of financial accounting statements is produced in respect of the group for that period, separate from those of the parent undertakings of any of those undertakings;

(e) in that period the group provides anything for the purposes of any qualifying defence contract or qualifying sub-contract to which the designated person, or any person associated with the designated person, is party; and

(f) the total value of what the group provides for those purposes in that period is at least £10,000,000.

(6) In this Part—

(a) “defence contract” means—

(i) any contract to which the Secretary of State is a party which is for, or substantially for, defence purposes (within the meaning of regulation 3); or

(ii) any contract entered into for the purpose of enabling a contract within paragraph (i), or this paragraph, to be fulfilled;

(b) “the designated person” means—

(i) where the person mentioned in regulation 31(1) (“P”) is associated with one or more other persons, the ultimate parent undertaking in relation to P and those other persons,

(ii) otherwise, P,

and section 25(9) (definition of “ultimate parent undertaking”) applies for the purposes of this sub-paragraph as it applies for the purposes of section 25(3);

(d) “pricing QBU” means a QBU in relation to which a cost recovery rate has been used for determining the price payable under any contract mentioned in paragraph (3)(c), (4)(d) or (5)(e), as the case may be;

(e) “the relevant accounting period”, in relation to a QBU, means the period in respect of which paragraph (3), (4) or (5) applies to the QBU.

General requirements

33

(1) 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; and

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

(b) the date the report is due;

(d) the relevant financial year to which the report relates.

(2) A report provided under any of regulations 34 to 39 must contain the following information—

(a) the name of the QBU to which it relates;

(b) the relevant accounting period to which the report relates; and

(3) Where a report requires an analysis of staffing costs, that must include—

(a) the total number of employees;

(b) the proportion of the cost of employing those employees recovered through cost recovery rates, and the proportion recovered through direct costs;

(d) the proportion of the cost of engaging those contractors recovered through cost recovery rates, and the proportion recovered through direct costs.

(4) In this regulation, “contractor” means any individual who provides services under contract for the purposes of activities undertaken by a QBU, but who is not employed by the designated person or any person associated with the designated person.

(5) All reports provided under this Part must be provided to the Secretary of State and to the SSRO.

(6) All reports under this Part, except a strategic industry capacity report (regulation 40), must be provided in electronic form.

(7) A strategic industry capacity report must be provided either in electronic form or in hard copy.

(8) In preparing reports, the designated person must have regard to any relevant guidance issued by the SSRO.

Actual rates claim report

34

(1) The designated person must provide, for each relevant financial year, an actual rates claim report for each pricing QBU in that relevant financial year.

(2) The actual rates claim report must be provided either—

(a) three months after either—

(i) the end of the relevant accounting period, or

(ii) the date on which the ongoing contract condition was first met in relation to the relevant financial year,

whichever is the later; or

(b) if the designated person and the Secretary of State agree a date which is within three months after the end of the period described in paragraph (a), by that date.

(3) The report must contain the following information—

(a) a list of all cost recovery rates which have been calculated for that QBU and for which a claim relating to the relevant accounting period has been or will be made;

(b) a list of all the cost recovery bases that have been used to calculate the cost recovery rates described in sub-paragraph (a);

(d) the QBU's financial accounting statements and supporting accounting schedules for the relevant accounting period;

(e) a quantified analysis of the adjustments made between those financial accounting statements and costs claimed for recovery through cost recovery rates;

(f) a quantified analysis of any adjustments for costs—

(i) incurred in the relevant accounting period that have been or will be included in a claim relating to a period other than the relevant accounting period;

(ii) incurred in a period other than the relevant accounting period that have been or will be included in a claim relating to the relevant accounting period;

(g) a quantified analysis of QBU costs recovered as direct costs under any qualifying defence contract, qualifying sub-contract or other defence contract;

(h) a quantified analysis of QBU costs allocated to each cost recovery base listed under sub-paragraph (b);

(i) a calculation of the amount of each such cost recovery base; and

(j) a calculation of each cost recovery rate, including, for each such rate—

(i) the total cost claimed and the cost recovery base which has been used to calculate it; and

(ii) the amount of each such cost recovery base.

QBU actual cost analysis report

35

(1) The designated person must provide, for each relevant financial year, a QBU actual cost analysis report for each QBU in that relevant financial year.

(2) In the case of a pricing QBU, the report must be provided with the actual rates claim report for that pricing QBU for that relevant financial year.

(3) In any other case, the report must be provided either—

(a) three months after either—

(i) the end of the relevant accounting period, or

(ii) the date on which the ongoing contract condition was first met in relation to the relevant financial year,

whichever is the later; or

(b) if the designated person and the Secretary of State agree a date which is within three months after the end of the period described in paragraph (a), by that date.

(4) The Secretary of State may by written notice require the designated person to provide a further QBU actual cost analysis report for any one or more QBU for the relevant financial year.

(5) The designated person must provide a further QBU actual cost analysis report within a month of receiving a notice under paragraph (4).

(6) The Secretary of State may only require one further QBU actual cost analysis report for any one QBU in a relevant financial year.

(7) The report must contain the following information (“costs analysis information”) for the relevant accounting period —

(a) a quantified analysis of the total actual operating costs incurred by the QBU, showing the amount of each type of cost (including activity costs) and, for each type of cost, the amount attributable to each business function;

(b) an analysis of staffing costs relative to business function;

(i) revenue from any qualifying defence contract or qualifying sub-contract;

(ii) revenue from any other defence contract;

(iii) any other revenue;

(d) actual values for all cost recovery bases that have been used to calculate the cost recovery rates which have been calculated for that QBU and for which a claim relating to the relevant accounting period has been or will be made; and

(e) actual values for the cost recovery rates.

(8) If a QBU estimated cost analysis report (regulation 37) was required for the QBU in relation to the financial year immediately preceding the relevant financial year, the report must contain—

(a) the costs analysis information as estimated in the previous report; and

(b) an explanation of any material difference between the costs analysis information as estimated in the previous report and the costs analysis information in this report.

Estimated rates claim report

36

(1) The designated person must provide, for each relevant financial year, an estimated rates claim report for each pricing QBU that was a pricing QBU of the designated person in relation to the financial year immediately preceding the relevant financial year.

(2) The estimated rates claim report must be provided either—

(a) three months after either—

(i) the end of the relevant accounting period, or

(ii) the date on which the ongoing contract condition was first met in relation to the relevant financial year,

whichever is the later; or

(b) if the designated person and the Secretary of State agree a date which is within three months after the end of the period described in paragraph (a), by that date.

(3) The report must contain the following information for the accounting period immediately following the relevant accounting period—

(a) a list of all cost recovery rates which will be calculated for that QBU and for which it is anticipated that a claim will be made during a future relevant accounting period;

(b) a list of all the cost recovery bases that have been used to calculate the cost recovery rates described in sub-paragraph (a);

(d) the QBU budgeted cost and budgeted volume data;

(e) a quantified analysis of the adjustments made between the budget and costs claimed for recovery through cost recovery rates;

(f) a quantified analysis of any adjustments for costs incurred in or forecast for one relevant accounting period but recovered in other relevant accounting periods;

(g) a quantified analysis of QBU costs estimated to be recovered as direct costs under any qualifying defence contract, qualifying sub-contract, or other defence contract;

(h) a quantified analysis of QBU estimated costs allocated to each cost recovery base listed under sub-paragraph (b);

(i) a calculation of the estimated amount of each such cost recovery base; and

(j) a calculation of each estimated cost recovery rate, including, for each such rate—

(i) the total estimated cost claimed and the cost recovery base which has been used to calculate it; and

(ii) the estimated amount of each such cost recovery base.

QBU estimated cost analysis report

37

(1) The designated person must provide, for each relevant financial year, a QBU estimated cost analysis report for each QBU that was a QBU of the designated person in the relation to the financial year immediately preceding the relevant financial year.

(2) In the case of a pricing QBU, the report must be provided with the estimated rates claim report for that pricing QBU for that relevant financial year.

(3) In any other case, the report must be provided either—

(a) three months after either—

(i) the end of the relevant accounting period, or

(ii) the date on which the ongoing contract condition was first met in relation to the relevant financial year,

whichever is the later; or

(b) by agreement with the Secretary of State, a date within three months after the end of the period described in paragraph (a).

(4) The Secretary of State may by written notice require the designated person to provide a further QBU estimated cost analysis report for any one or more QBU for the relevant financial year.

(5) The designated person must provide a further QBU estimated cost analysis report within a month of receiving a notice under paragraph (4).

(6) The Secretary of State may only require one further QBU estimated cost analysis report for any one QBU in a relevant financial year.

(7) The report must contain the following information (“costs analysis information”) for the relevant accounting period—

(a) a quantified analysis of the total estimated operating costs for the QBU, showing the amount of each type of cost (including activity costs) and, for each type of cost, the amount attributable to each business function;

(b) an analysis of estimated staffing costs relative to business function;

(i) revenue from any qualifying defence contract or qualifying sub-contract;

(ii) revenue from any other defence contract;

(iii) any other revenue;

(d) estimated values for all cost recovery bases that have been used to calculate the cost recovery rates which will be calculated for that QBU and for which it is anticipated that a claim will be made during a future relevant accounting period; and

(e) estimated values for the cost recovery rates.

(8) The report must contain—

(a) an explanation of any material differences between the actual costs analysis information in relation to the financial year immediately preceding the relevant financial year and the estimated costs analysis information for the relevant financial year; and

(b) a description of material future initiatives that may be included in any future actual rates claim report or estimated rates claim report, and for each initiative an explanation of the estimated impact on the costs analysis information over the next five periods in respect of which financial accounting statements are expected to be produced for the QBU.

Estimated rates agreement pricing statement

38

(1) The designated person must, for each relevant financial year, provide an estimated rates agreement pricing statement for each pricing QBU that was a pricing QBU of the designated person in relation to the financial year immediately preceding the relevant financial year.

(2) The designated person must provide the estimated rates agreement pricing statement for each pricing QBU with the estimated rates claim report for that pricing QBU for the same relevant financial year.

(3) The Secretary of State may by written notice require the designated person to provide a further estimated rates agreement pricing statement for any one or more pricing QBU for the relevant financial year.

(4) The designated person must provide an estimated rates agreement pricing statement within three months of receiving a notice under paragraph (3).

(5) The Secretary of State may only require one further estimated rates agreement pricing statement for any one pricing QBU in a relevant financial year.

(6) The report must contain the following information—

(a) a description of the facts and assumptions used in calculating each cost recovery base listed in the estimated rates claim report (regulation 36(3)(b));

(b) whether the amount of each cost recovery base (regulation 36(3)(j)(ii)) has been estimated in a manner consistent with equivalent estimates in previous years and, if not, a description of any changes;

(d) a description of indices and rates used in calculating the estimated costs included in the estimated rates claim report, including for each—

(i) its source (including that source's version or date); and

(ii) an explanation of why its use was considered to be appropriate; and

(e) a description of all material assumptions—

(i) regarding changes to costs relating to employment;

(ii) used to derive any estimated staff head count upon which estimated costs in the estimated rates claim report are based;

(iii) used in calculating any costs relating to decreasing over-capacity that have been included in the cost recovery rates (regulation 36(3)(a)); and

(iv) regarding significant costs that have been included in the cost recovery rates and that are novel or unusual.

Rates comparison report

39

(1) The Secretary of State may, for any relevant financial year, by written notice require the designated person to provide a rates comparison report for any one or more pricing QBU for that relevant financial year.

(2) The designated person must provide a rates comparison report within two months after receiving a notice under paragraph (1).

(3) The Secretary of State may only require one rates comparison report for any one QBU in a relevant financial year.

(4) The report must contain the following information—

(a) a list of all qualifying defence contracts and qualifying sub-contracts—

(i) that have a contract completion date on or after the first day of the relevant accounting period;

(ii) to which the designated person or any person associated with it is party; and

(iii) the price of which have been or will be calculated using a cost recovery rate which relates to the costs of the QBU;

(b) for each of those contracts—

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

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

(iii) any title given in the contract;

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

(v) the contract pricing method or methods used in determining the price payable under the contract; and

(vi) whether the contract is a qualifying defence contract or a qualifying sub-contract;

(c) a list of all the cost recovery rates used in any of those contracts, and the actual value of each of those rates as provided in the QBU actual cost analysis report; and

(d) for each cost recovery rate used in determining the contract price under regulation 10 (or, if the price has been re-determined in accordance with the Schedule, used in the most recent determination)—

(i) the actual amount of the cost recovery base attributable to the contract;

(ii) the amount of the cost recovery base used in determining the contract price; and

(iii) the cost recovery rate used in determining the contract price.

Strategic industry capacity report: general requirements

40

(1) The designated person must provide, for each relevant financial year, a strategic industry capacity report either—

(a) 12 months after either—

(i) the end of the time period in relation to which financial accounting statements are prepared for the designated person and which ends on any day falling within the relevant financial year (“designated person's accounting period”), or

(ii) the date on which the ongoing contract condition was first met in relation to the relevant financial year,

whichever is the later; or

(b) if the designated person and the Secretary of State agree a date which is within six months after the end of the period described in paragraph (a), by that date.

(2) The report must contain the information specified in regulations 41 to 44 and (unless otherwise specified) that information must relate to the designated person's accounting period.

(3) For the purposes of regulations 41 and 42(1), a person is a qualifying supplier if—

(a) it is associated with the designated person;

(b) during the designated person's accounting period to which the report relates, the person provides anything for the purposes of a qualifying defence contract or qualifying sub-contract—

(i) to which the designated person, or any person associated with it, is party; and

(ii) which has its contract completion date on or after the first day of the designated person's accounting period.

Strategic industry capacity report: corporate structure

41

The strategic industry capacity report must contain—

(a) a list of any undertakings associated with the designated person;

(b) for each such undertaking—

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

(ii) any trading name (if that is different to its registered name);

(iii) its accounting period; and

(iv) whether it is a qualifying supplier of the designated person;

(d) in the case of a QBU which is a QBU by virtue of regulation 32(1)(a) or (c)—

(i) the undertaking, or a list of the undertakings, that are listed in that QBU; and

(ii) for each of those undertakings, the approximate proportion of its costs that are included in the QBU's financial accounting statements;

(e) for each QBU and qualifying supplier of the designated person, a description of its revenue, showing the proportion derived from—

(i) any qualifying defence contract or qualifying sub-contract;

(ii) any other defence contract;

(iii) all other sources; and

(f) a description of any anticipated change to the corporate structure of the designated person and any undertakings associated with it, including mergers or acquisitions, that may affect the performance of any qualifying defence contract, any qualifying sub-contract or any other defence contract.

Strategic industry capacity report: activities, people and infrastructure

42

(1) The strategic industry capacity report must contain—

(a) a description of the activities undertaken by the designated person, and all QBUs and qualifying suppliers, which relate to any qualifying defence contract, any qualifying sub-contract or any other defence contract; and

(b) a description of any physical site in relation to which at least £10,000,000 of costs has been attributed to those activities in the financial accounting statements for the designated person's accounting period, including—

(i) the name and location of the site;

(ii) the registered names of any companies which are associated with the designated person and carry out any activity on the site;

(iii) a description of any QBU that carries out any activity on the site;

(iv) a description of any qualifying defence contract or qualifying sub-contract which has a value of or above £50,000,000 and in relation to which any activity was carried out on the site;

(v) the capabilities or activities provided on the site for defence contracts;

(vi) the capacity which is on the site to deliver those capabilities or activities;

(vii) a description of the key infrastructure on the site used in the delivery of defence contracts;

(viii) the extent to which the capacity available on the site has been used;

(ix) an estimate of the number of employees (on a full-time equivalent basis) engaged in work on the site which relates to any qualifying defence contract, qualifying sub-contract or other defence contract; and

(x) a description of the key skills provided by those employees.

(2) The information required by sub-paragraphs (1)(b)(vii) and (viii) must be presented in the following categories—

(a) qualifying defence contracts or qualifying sub-contracts;

(b) other defence contracts;

Strategic industry capacity report: forecast costs of maintaining industrial capacity

43

(1) The information described in each paragraph of this regulation may be expressed either—

(a) for each of the sites described under regulation 42(1)(b), or

(b) for each QBU,

and is only required for those sites or QBUs (as the case may be).

(2) The strategic industry capacity report must contain—

(a) a description of forecast costs for the five years following the last day of the designated person's accounting period, and a description of any anticipated changes in accounting policies or business practices that could have a significant effect on those costs;

(b) a description of forecast labour requirements for those five years;

(c) if cost recovery rates are used for any QBUs, an estimate of what those rates are likely to be for each such QBU over those five years;

(d) a description of any policy—

(i) to employ apprentices or recent graduates,

(ii) to provide staff bonuses,

(iii) for training and development of personnel,

and the approximate cost of that policy;

(e) an explanation of the reasons for any material changes in the cost of maintaining industrial capacity; and

(f) a description of any likely event or change in circumstances relating to qualifying defence contracts, qualifying sub-contracts or other defence contracts which could have a material effect on the ability of the designated person to maintain its industrial capacity.

(3) The information required by paragraph (2) must be presented in the following categories—

(a) qualifying defence contracts or qualifying sub-contracts;

(b) other defence contracts;

Strategic industry capacity report: capacity and supply chain

44

The strategic industry capacity report must contain a description of—

(a) the key delivery milestones for all work currently being undertaken by the designated person (or any person associated with the designated person) for qualifying defence contracts, qualifying sub-contracts or other defence contracts (“current committed work”);

(b) the key planning assumptions for any possible future qualifying defence contract, qualifying sub-contract or other defence contract to which the designated person (or any person associated with the designated person) will be party and which is expected to have a value of or over £50,000,000 (“planned future contract”), including the date on which the designated person anticipates that any planned future contract will be entered into;

(c) any current under-capacity or over-capacity of personnel or infrastructure relative to current committed work and planned future contracts, and any plans to rectify that;

(d) any current or planned measures to improve efficiency or productivity relative to current committed work and planned future contracts;

(e) any plans for material investment in people, skills or infrastructure in order to deliver current committed work and planned future contracts, including the approximate costs of those plans;

(f) all persons that are party to a contract with the designated person, or any person associated with the designated person, which has a value of at least £25,000,000 and which—

(i) supports the delivery of current committed work; or

(ii) is expected to support the delivery of planned future contracts; and

(g) any likely event or change in circumstances relating to the supply chain that could have a material effect on the performance of current committed work and planned future contracts.

Small or medium enterprises (“SME”) report

45

(1) The designated person must provide an SME report for each relevant financial year.

(2) The designated person must provide an SME report within 12 months after either—

(a) the end of the designated person's accounting period, or

(b) the date on which the ongoing contract condition was first met in relation to the relevant financial year,

whichever is the later.

(3) The information in the SME report must relate to the designated person's accounting period.

(4) The report must contain the following information—

(a) a description of the designated person's policies and procedures for engaging with SMEs, including—

(i) any standard contract or payment terms used in relation to SMEs;

(ii) any special assistance provided to SMEs;

(b) a description of any initiatives intended to—

(i) increase opportunities for SMEs to support the delivery of defence contracts; or

(ii) encourage technical innovation by SMEs relevant to such contracts;

(i) the total revenue which the designated person or any person associated with it received from defence contracts;

(ii) the amount of that total revenue which related to purchasing goods and services for the purpose of defence contracts from persons which are not associated with the designated person; and

(iii) the amount of that total revenue which related to purchasing goods and services from SMEs; and

(d) a description of the extent to which the goods, works or services provided by SMEs have contributed to defence contracts to which the designated person or any person associated with the designated person is party.

PART 7 — Records and reports: restrictions

Disapplication of requirements to give information

46

(1) Any requirement imposed by—

(a) regulation 21 (examination of relevant records),

(b) Part 5 (reports on qualifying defence contracts),

(d) section 26 (duty to report relevant events, circumstances and information),

shall not apply to the extent that compliance would require the person (“P”) which is subject to the requirement to contravene a relevant restriction.

(2) A “relevant restriction” is—

(a) a prohibition or restriction imposed by an enactment; or

(b) an obligation of confidentiality owed by P to another person, unless that other person—

(i) is associated with P; or

(ii) gives consent to P's complying with the requirement in question.

Reference to SSRO to investigate obligation of confidentiality

47

(1) Where P intends not to comply (either in whole or in part) with a requirement listed in regulation 46(1)(b) to (d) because to do so would contravene a relevant restriction, it must notify the Secretary of State.

(2) A notice under paragraph (1) must be in writing and state—

(a) the requirement with which P intends not to comply; and

(b) the grounds on which P intends not to comply with the requirement.

(3) If the Secretary of State reasonably suspects that an obligation of confidentiality has been entered into otherwise than for genuine commercial reasons, the Secretary of State may, within 40 working days of receiving the notice, refer the matter to the SSRO for investigation.

(4) Upon receipt of a reference under paragraph (3), the SSRO must investigate whether the obligation has been entered into for genuine commercial reasons.

(5) If the SSRO finds that the obligation was entered into otherwise than for genuine commercial reasons, the requirement specified in the notice continues to apply.

PART 8 — Compliance

Contraventions of section 31

48

(1) The requirements specified for the purposes of section 31(3)(a)(i) (failure to comply with duty to keep accounting and other records) are—

(a) to keep relevant records in accordance with regulation 20;

(b) to permit the Secretary of State to examine relevant records in accordance with regulation 21(1) to (3);

(d) to provide further information or explanation when requested to do so under regulation 21(5).

(2) The requirements specified for the purposes of section 31(3)(a)(ii) (failure to comply with reporting requirements) are those imposed by Part 5 (reports on qualifying defence contracts) and Part 6 (reports on overheads and forward planning etc).

(3) The reports specified for the purposes of section 31(3)(b) (misleading reports) are those required by Part 5 (reports on qualifying defence contracts).

Time limits for compliance notices and penalty notices

49

(1) The periods specified for the purposes of—

(a) section 31(5) (time limits for giving compliance notice), and

(b) section 32(5) (time limits for giving penalty notice) in the case set out in section 32(3) (contravention which cannot be remedied),

are those set out in paragraph (2).

(2) The periods are—

(a) in the case of a contravention within section 31(3)(a)(i) (failure to comply with duty to keep accounting and other records)—

(i) six months after the date on which the requirement to keep relevant records ends, or

(ii) two years after the contract completion date,

whichever ends earlier;

(b) in the case of a contravention within section 31(3)(a)(ii) (failure to comply with reporting requirements), six months after the date the report is due;

(c) in the case of a contravention within section 31(3)(b) (misleading reports) or 31(3)(c) (duty to report relevant events, circumstances and information)—

(i) one year after the date the Secretary of State becomes aware of the contravention, or

(ii) two years after the contract completion date,

whichever ends earlier;

(d) subject to paragraph (e), in the case of a contravention within section 31(3)(d), (e) or (f) (assessment of a proposed sub-contract)—

(i) one year after the date the Secretary of State becomes aware of the contravention, or

(ii) two years after the contract completion date of the contract to which the proposed sub-contract relates,

whichever ends earlier;

(e) in the case of a contravention within section 31(3)(d), (e) or (f) (assessment of a proposed sub-contract) where the proposed sub-contract is required to enable the performance of more than one contract (regulation 58(3)(b) or (4)(b))—

(i) one year after the date the Secretary of State becomes aware of the contravention, or

(ii) two years after the first contract completion date of any of those contracts,

whichever ends earlier.

(3) The period specified for the purposes of section 32(5) (time limit for giving penalty notice) in the case set out in section 32(2) (failure to take steps specified in a compliance notice) is three months after the last day of the period within which the compliance notice specified that the specified steps must be taken.

Maximum penalties

50

(1) In the following Table, each entry in the second column shows the amount specified for the purposes of section 33(1) (maximum penalty) for the following contraventions, where the relevant amount falls within the range shown in the corresponding entry in the first column—

(a) a contravention within section 31(3)(a)(i) (failure to comply with duty to keep accounting and other records); or

(b) a contravention within section 31(3)(a)(ii) (failure to comply with reporting requirements), other than the ones mentioned in paragraph (2)(a);

but this is subject to paragraph (3).

(2) In the following Table, each entry in the third column shows the amount specified for the purposes of section 33(1) (maximum penalty) for the following contraventions, where the relevant amount falls within the range shown in the corresponding entry in the first column, for—

(a) failing to comply with the requirements in—

(i) regulation 23 (contract pricing statement); or

(ii) regulation 38 (estimated rates agreement pricing statement); or

(b) a contravention within section 31(3)(d), (e) or (f) (assessment of proposed sub-contracts);

but this is subject to paragraph (3).

(3) In a case where—

(a) the Secretary of State gives a person a penalty notice in respect of a contravention within section 31(3)(a)(ii) (failure to comply with reporting requirements), and

(b) within the 12 months immediately preceding the date on which the Secretary of State gives the person that penalty notice, at least five other penalty notices for contraventions within section 31(3)(a)(ii) have been given to the person (or any person or persons associated with that person),

the amount specified for the purposes of section 33(1) (maximum penalty) is the amount prescribed by paragraph (1) or (2) (as the case may be) for that contravention, plus 20% of that amount.

(4) Any penalty notice which has been cancelled by the SSRO shall be disregarded for the purposes of paragraph (3).

(5) In this regulation, “the relevant amount” means—

(a) in the case of either—

(i) a contravention within section 31(3)(a)(i) by a person which is the designated person for the purpose of Part 6, or

(ii) a contravention within section 31(3)(a)(ii) which consists in a failure to comply with a requirement imposed by Part 6,

the total of all the contract prices for each qualifying defence contract and qualifying sub-contract to which the person who has been given the penalty notice, or any person associated with that person, is party;

(b) in all other cases, the price of the qualifying defence contract.

Relevant amount
Less than or equal to £50,000,000	£20,000	£50,000
More than £50,000,000 but less than or equal to £200,000,000	£100,000	£250,000
More than £200,000,000 but less than or equal to £500,000,000	£250,000	£500,000
More than £500,000,000 but less than or equal to £1,000,000,000	£375,000	£750,000
More than £1,000,000,000	£500,000	£1,000,000

PART 9 — SSRO: opinions and determinations

Matters on which the SSRO must give an opinion

51

(1) The matters relating to a proposed contract which are specified for the purposes of section 35(1)(a) (matters on which the SSRO must give an opinion) are—

(a) where the proposed contract is to be priced using a default pricing method—

(i) the appropriate amount of adjustment that should be made under step 2 or 4 of regulation 11;

(ii) the appropriate amount of a group cost risk adjustment (regulation 13(2)), the deduction from costs associated with group profits (regulation 13(4)) or group capital servicing adjustment (regulation 13(5));

(iii) any question relevant to the cost recovery rates that should be used to estimate likely allowable costs;

(iv) the extent to which a particular cost would be an allowable cost;

(b) where the proposed contract is to be priced using an alternative pricing method—

(i) whether the circumstances specified for the use of the alternative pricing method exist;

(ii) whether the price has been determined in accordance with the alternative pricing method;

(c) whether any part of the proposed contract should be treated as a component of the contract because the conditions in regulation 9A(1) are met in relation to that part.

(2) The matters relating to a contract which are specified for the purposes of section 35(1)(a) are—

(a) if the contract price were to be re-determined under Part 2 of the Schedule, the matters mentioned in paragraph (1)(a) (read as if a reference to the proposed contract were a reference to the contract);

(b) if the contract price were to be re-determined under Part 4 of the Schedule—

(i) whether the circumstances specified in Part 4 of the Schedule for the re-determination of the contract price exist;

(ii) whether the price has been re-determined in accordance with Part 4 of the Schedule or, where the Schedule requires the price to be re-determined using a contract pricing method, in accordance with that contract pricing method;

(c) if the contract is amended so as to add a new component and the price payable under the component is determined in accordance with an alternative pricing method, the matters mentioned in paragraph (1)(b) (read as if a reference to the proposed contract were a reference to the new component);

(d) if the contract price were to be re-determined under the Schedule, the matter mentioned in paragraph (1)(c) (read as if a reference to the proposed contract were a reference to the contract);

(e) whether the Secretary of State has acted reasonably in exercising a power to require the contractor to provide information under regulation 30 (on-demand contract report).

Matters in relation to which the SSRO must make a determination

52

(1) The matters relating to a contract which are specified for the purposes of section 35(1)(b) (matters in relation to which the SSRO must make a determination) are—

(a) the defined pricing structure and output metrics that the contractor must use in all reports provided under Part 5 for that contract;

(b) the matter mentioned in regulation 51(1)(c) (read as if a reference to the proposed contract were a reference to the contract).

(2) A reference to the SSRO for a determination in relation to the matters mentioned in paragraph (1)(a) must be made—

(a) where the contract is a qualifying defence contract by virtue of section 14(3)—

(i) no later than 6 months after the contract is entered into, or

(ii) if the contract is amended after it is entered into in a way that affects any of those matters, no later than 6 months after the contract is so amended;

(b) where the contract is a qualifying defence contract by virtue of section 14(4) or (5)—

(i) no later than 6 months after the amendment mentioned in section 14(4)(c) or (5)(b) (as the case may be) is made, or

(ii) if the contract is subsequently amended in a way that affects those matters, no later than 6 months after the contract is so amended.

(3) A reference to the SSRO for a determination in relation to the matters mentioned in paragraph (1)(b) must be made within two years of the contract completion date or, if the reference is made in respect of a component, within two years of the component completion date.

(4) The SSRO must, on an application by a person within section 16(5) in relation to a qualifying defence contract, or a component of such a contract, which has been priced using an alternative pricing method (“the applicable pricing method”)—

(a) determine whether the price of that contract or a component has been properly determined in accordance with the applicable pricing method; and

(b) if the price was not properly determined, determine as nearly as possible what the price of the contract or component would have been if the price were properly determined in accordance with the applicable pricing method.

(5) An application for a determination under paragraph (4) must be made within two years of the contract completion date or, if the application relates to a component, within two years of the component completion date.

(6) The SSRO may, in consequence of a determination under paragraph (4)(a), determine that the price payable under the contract or component is to be adjusted by the amount required to achieve the price determined under paragraph (4)(b).

(7) The Secretary of State may not make a reference under paragraph (1) or an application under paragraph (4) unless—

(a) the Secretary of State has sent the primary contractor a written notice requiring the primary contractor to show that the requirements in relation to which the proposed reference or application is to be made have been met;

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

(8) In making a determination under this regulation, the SSRO must have regard to—

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

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

(c) in the case of a contract priced in accordance with a default pricing method, whether the parties disclosed, in a timely manner, the facts and assumptions they used to determine the allowable costs or the contract profit rate.

Time limits for applications for opinions

53

(1) An application for an opinion on whether the Secretary of State has acted unreasonably in exercising a power to require a contractor to provide information under regulation 30 (on-demand contract report) must be made within three months of the contractor receiving a written direction under paragraph (1) or (3) of that regulation.

(2) A reference under section 35(3)... (reference by Secretary of State and primary contractor for SSRO's opinion) which relates to a qualifying defence contract must be made no later than two years after the contract completion date of the contract ....

Matters to which the SSRO must have regard in making determinations

54

In making any determination under the Act or these Regulations, the SSRO must have regard (in addition to any other matter to which these Regulations require it to have regard) to—

(a) any regulations or statutory guidance made under Part 2 of the Act which were in force at any time material to the matters under consideration;

(b) the extent to which any relevant statutory guidance has been followed (and any justification advanced for not following it);

(d) any relevant previous decisions of the SSRO; and

(e) representations made by the parties to the contract (or the persons who would be parties to the proposed contract), and (where not such a party or person) by the Secretary of State.

References in relation to contracts entered into before the relevant date

55

(1) A reference under section 35(7) (contracts entered into before the relevant date) may be made no later than two years after—

(a) the date described in the contract as the contract completion date;

(b) if no such date is described in the contract, the date on which the contractor completes all obligations which entitle it to final payment under the contract; or

(c) if the contract is terminated before either of the dates described in (a) or (b), the date that the contract is terminated.

(2) In making a determination or giving an opinion under section 35(7), the SSRO must have regard to—

(a) any relevant published decisions of the Review Board for Government Contracts;

(b) the Government Profit Formula and Associated Arrangements in force at the date the contract was entered into;

(d) representations made by the parties to the contract and, where not a party to the contract, the Secretary of State.

PART 10 — Restrictions on disclosing information

Information specified for the purposes of paragraph 1(1)(c) of Schedule 5

56

(1) Information is specified for the purposes of paragraph 1(1)(c) of Schedule 5 to the Act (information to which that Schedule applies) if it falls within any of paragraphs (2) to (5) below.

(2) Information falls within this paragraph if—

(a) it has been obtained by the Secretary of State under Part 4 of these Regulations (records); and

(b) its disclosure would be likely to substantially prejudice the commercial interests of any person.

(3) Information falls within this paragraph if it has been provided to the Secretary of State or the SSRO in accordance with any of the following provisions—

(a) regulation 23(2)(a), (d) or (e)(i) (contract pricing statement), including information described in any of those provisions and required under regulation 30(3);

(b) regulation 23(2)(f), if the information relates to any information within sub-paragraph (a) above;

(d) regulation 26(6)(a) to (h) and (k) (quarterly contract report);

(e) regulation 27(4)(b) to (i) and (5)(a), (b) and (e) (interim contract report), including information described in any of those provisions and required under regulation 30(3);

(f) regulation 28(2)(b) to (k) and (p) (contract completion report);

(g) regulation 29(2)(c) to (e) (contract costs statement), including information described in that provision and required under regulation 30(1) or (3);

(h) regulation 34(3)(d) to (j) (actual rates claim report);

(i) regulation 35(7) and (8) (QBU actual cost analysis report);

(j) regulation 36(3)(d) to (j) (estimated rates claim report);

(k) regulation 37(7) and (8) (QBU estimated cost analysis report);

(l) regulation 38(6) (estimated rates agreement pricing statement);

(m) regulation 39(4)(c) and (d) (rates comparison report); or

(n) regulations 41 to 44 (strategic industry capacity report).

(4) Information falls within this paragraph if—

(a) it—

(i) has been provided to the Secretary of State under section 26 (duty to report relevant events etc); or

(ii) has been provided to the Secretary of State in a notice given under regulation 47(2); and

(b) it is of a kind that could have fallen within any provision listed in paragraph (3).

(5) Information falls within this paragraph if—

(a) it has been provided—

(i) to the SSRO for the purposes of any application, reference or appeal to the SSRO; or

(ii) by the SSRO under section 36(3)(b) or arrangements made by virtue of section 37(2)(a); and

(b) its disclosure would be likely to substantially prejudice the commercial interests of any person.

PART 11 — Qualifying sub-contracts

Interpretation

57

In this Part, “contracting authority” means the party which is, or would be, liable to pay the contract price under a qualifying sub-contract.

Requirements for qualifying sub-contracts

58

(1) The amount specified for the purposes of section 28(3)(c) and (4)(c) (minimum value of a qualifying sub-contract) is £25,000,000.

(2) A contract may be a contract to which section 28(3) or (4) applies only if it is neither—

(a) made within the framework of an international cooperative defence programme , except where the parties to the contract agree that it is a contract which should be a qualifying sub-contract; nor

(b) made wholly for the purposes of one or more of the following—

(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; nor

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

(c) a contract 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; nor

(d) a contract falling within sub-paragraph (e) below;

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

(i) B replaced a contract (A),

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

(iii) A was not a qualifying defence contract or qualifying sub-contract,

(iv) at least one of the parties to A is also a party to B,

(v) at least one of the parties to B was not a party to A, and

(vi) B is in all material respects (save for the identity of the parties to the contract) identical to A.

(3) A contract may be a contract to which section 28(3) applies only if the performance of at least 50% by value of the obligations under the contract is required either—

(a) to enable the primary contractor to perform the qualifying defence contract mentioned in section 28(3)(a); or

(b) to enable the combined performance of the qualifying defence contract mentioned in section 28(3)(a) and any other qualifying defence contracts or qualifying sub-contracts, or prospective qualifying defence contracts or qualifying sub-contracts, to which the primary contractor (or any person associated with the primary contractor) is or might become party.

(4) A contract may be a contract to which section 28(4) applies only if the performance of at least 50% by value of the obligations under the contract is required either—

(a) to enable the performance of contract A (within the meaning of section 28(4)(a)); or

(b) to enable the combined performance of contract A and any other qualifying defence contracts or qualifying sub-contracts, or prospective qualifying defence contracts or qualifying sub-contracts, to which the person for whom anything is to be provided under contract A (or any person associated with that person) is or might become party.

(5) For the purposes of paragraphs (3) and (4), one or more obligations under a contract (“the actual contract”) form 50% by value of the obligations under that contract if, were they to constitute all the obligations under a contract, the value of that contract would be at least 50% of the value of the actual contract.

(6) Part 2 of the Act, and these Regulations, shall not apply to a qualifying sub-contract in respect of which no notice has been given under section 29(2)(b) or (4)(b).

Competitive process for single sub-contracts

59

For the purposes of section 28, the award of a contract is the result of a competitive process if—

(a) the contracting authority either—

(i) published a notice of intention to seek offers in relation to the provision of goods, works or services; or

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

(b) the contracting authority conducted a transparent and arms-length procurement process;

(c) the contracting authority used appropriate evaluation criteria to identify the offer made by the sub-contractor as the best offer;

(d) the material terms of the contract are wholly or substantially the same as that best offer; and

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