The Single Source Contract Regulations 2014

• (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;

• (c) all other 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;

• (c) all other 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;

• (c) an estimate of—

• (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),

• (c) Part 6 (reports on overheads and forward planning etc), or

• (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

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• (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);

• (c) to make available a copy required under regulation 21(4);

• (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

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• (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

• (c) no response, or no response which the Secretary of State considers to be satisfactory, has been received.

• (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);

• (c) the extent to which any person has fulfilled its responsibilities under Part 2 of the Act and these Regulations;

• (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;

• (c) the terms of the contract; and

• (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;

• (c) regulation 25(2)(b) to (f) and (l) (contract notification report);

• (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

• (e) at the time of making that offer, the sub-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 contracting authority.

Competitive process for sub-contracts made under a framework agreement

60

• (1) This regulation applies where the contracting authority—

• (a) 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 contracting authority 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) has entered into a framework agreement with one or more framework suppliers; and

• (c) enters into a contract with a sub-contractor.

• (2) For the purposes of section 28, 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 procurement process by which the contracting authority entered into the framework agreement with the sub-contractor—

• (i) was transparent and arms-length; and

• (ii) used appropriate evaluation criteria to determine which person or persons should be awarded a framework agreement;

• (b) the material terms of the framework agreement are wholly or substantially the same as were offered by the sub-contractor—

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

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

• (c) at the time of making that offer, the sub-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 contracting authority; and

• (d) 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 sub-contractor (or a person associated with the sub-contractor).

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

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

• (b) the competition—

• (i) was transparent and arms-length; and

• (ii) used appropriate evaluation criteria to identify the offer made by the sub-contractor as the best offer;

• (c) the terms governing the price payable under the contract are wholly or substantially the same as were offered by the sub-contractor in that best offer; and

• (d) at the time of making that offer, the sub-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 contracting authority.

Assessing whether a contract would be a qualifying sub-contract

61

• (1) Where either—

• (a) a primary contractor (“A”) proposes to enter into a contract with another person (“B”), and the proposed contract involves the provision by B of anything for the purposes of a qualifying defence contract to which A is a party, or

• (b) a person (“C”) proposes to enter into a contract with another person (“D”), and the proposed contract involves the provision by D of anything for the purposes of a qualifying sub-contract to which C is a party,

A or C (as the case may be) must assess whether the proposed contract would be a qualifying sub-contract if it were entered into.

• (2) A or C (as the case may be) must keep a record of the assessment for the purpose of its inclusion in the records which A or C (as the case may be) would be required by regulation 20 to keep if the contract were entered into.

• (3) Where the assessment is that the proposed contract would be a qualifying sub-contract if it were entered into, A or C (as the case may be) must give notice in writing of that fact to the Secretary of State and to B or D (as the case may be).

• (4) Where—

• (a) a person (“E”) proposes to enter into a qualifying defence contract or a qualifying sub-contract (“the proposed contract”),

• (b) E also proposes to enter into a contract (“the proposed sub-contract”) with another person (“F”), and

• (c) the proposed sub-contract involves the provision by F of anything for the purposes of the proposed contract,

E must assess whether the proposed sub-contract would be a qualifying sub-contract if it and the proposed contract were entered into.

• (5) E must keep a record of the assessment for the purpose of its inclusion in the records which E would be required by regulation 20 to keep if the proposed contracts were entered into.

• (6) Where the assessment is that the proposed sub-contract would be a qualifying sub-contract if it were entered into, E must give notice in writing of that fact to the Secretary of State and to F.

• (7) For the purposes of paragraphs (2) and (5), where the value of the proposed contract is not less than £15,000,000, the record of the assessment must contain an assessment of whether the proposed contract would be the result of a competitive process and any other reason relied upon to justify a negative assessment.

• (8) Where A, C or E (as the case may be) makes a record of assessment, A, C or E must give notice in writing to the Secretary of State and the SSRO that an assessment has been made.

Appeal against assessment

62

• (1) Where an assessment is made under regulation 61(1) that a proposed contract would be a qualifying sub-contract if it were entered into, B or D (as the case may be) may appeal to the SSRO against the assessment.

• (2) Where an assessment is made under regulation 61(4) that a proposed sub-contract would be a qualifying sub-contract if it and the proposed contract were entered into, F may appeal to the SSRO against the assessment.

• (3) No appeal may be brought—

• (a) under paragraph (1) after the proposed contract is entered into;

• (b) under paragraph (2) after the proposed sub-contract is entered into.

• (4) An appeal must be commenced by a written notice (“notice of appeal”) containing the following information—

• (a) the name and contact details of the person bringing the appeal;

• (b) if the person bringing the appeal is a company, its registered name and company number, and the address of its registered office;

• (c) the name and contact details of the person which made the assessment;

• (d) if the person which made the assessment is a company, its registered name and company number, and the address of its registered office; and

• (e) the grounds for the appeal.

• (5) A notice of appeal must be—

• (a) accompanied by a copy of the notice of assessment given under regulation 61(3) or (6);

• (b) received by the SSRO no later than six months after the person bringing the appeal received the notice of assessment; and

• (c) copied to the person which made the assessment and to the Secretary of State at the same time that it is sent to the SSRO.

• (6) The Secretary of State or the person which made the assessment may, within 20 working days of receipt of the copy of the notice of appeal, make a written submission to the SSRO on any matters to which they wish the SSRO to have regard in determining the appeal.

• (7) Within 40 working days of receiving the notice of appeal, the SSRO must—

• (a) determine the appeal; and

• (b) notify in writing its determination to—

• (i) the person bringing the appeal;

• (ii) the person which made the assessment; and

• (iii) the Secretary of State.

Cessation of application to qualifying sub-contracts

63

• (1) If a sub-contractor is of the opinion—

• (a) that neither the condition in regulation 58(3) nor the condition in regulation 58(4) is now met in relation to the qualifying sub-contract, and

• (b) that Part 2 of the Act, and these Regulations, should therefore cease to apply to that qualifying sub-contract,

it may give the SSRO notice to that effect.

• (2) A notice under paragraph (1) must—

• (a) be received by the SSRO no later than the contract completion date of the qualifying sub-contract;

• (b) be in writing;

• (c) state the date at which the sub-contractor believes that neither the condition in regulation 58(3) nor the condition in regulation 58(4) were met in relation to the qualifying sub-contract;

• (d) explain the sub-contractor's reasons for that view; and

• (e) be copied to the other party to the qualifying sub-contract and the Secretary of State at the same time that it is sent to the SSRO.

• (3) The other party to the qualifying sub-contract or the Secretary of State may, within ten working days of receiving a copy of the notice, advise the SSRO in writing of any matters to which they consider the SSRO should have regard in deciding whether to overrule the notice.

• (4) The SSRO must consider the notice and any matters to which the other party to the qualifying sub-contract or the Secretary of State have advised that it should have regard.

• (5) If the SSRO does not agree that neither the condition in regulation 58(3) nor the condition in regulation 58(4) is met, it must overrule the notice.

• (6) If the SSRO agrees that neither the condition in regulation 58(3) nor the condition in regulation 58(4) is met, it must—

• (a) confirm the date on which neither the condition in regulation 58(3) nor the condition in regulation 58(4) were met in relation to the qualifying sub-contract; and

• (b) confirm that Part 2 of the Act, and these Regulations, no longer apply to that qualifying sub-contract.

• (7) The SSRO must—

• (a) notify the sub-contractor, the other party to the qualifying sub-contract and the Secretary of State in writing of its decision;

• (b) if the effect of the fact that Part 2 of the Act and these Regulations have ceased to apply to the qualifying sub-contract is that any other contract may also cease to be a qualifying sub-contract, notify the parties to that other qualifying sub-contract in writing of its decision.

Modifications of Part 2 of the Act

64

• (1) In their application to qualifying sub-contracts (and to sub-contractors) by virtue of section 30(1), the following provisions of Part 2 of the Act are modified as described in this regulation.

• (2) Section 16(2)(a) has effect as if for “between the Secretary of State, or an authorised person, and the primary contractor” there were substituted “ between the contracting authority and the sub-contractor ”.

• (3) Section 16(2)(b) has effect as if for “or the primary contractor” there were substituted “ ,the contracting authority or the sub-contractor ”.

• (4) Section 17(4)(a) has effect as if for “by the Secretary of State, or an authorised person, and the primary contractor” there were substituted “ by the contracting authority and the sub-contractor ”.

• (5) Section 18(1) has effect as if for “The Secretary of State or an authorised person, and the primary contractor” there were substituted “ The contracting authority and the sub-contractor ”.

• (5A) Section 21(1) has effect as if for “the Secretary of State” there were substituted “the contracting authority”

• (6) Section 21(5) (direction excluding final price adjustment) does not apply.

• (7) Section 35(1) has effect as if—

• (a) the contracting authority (in the case of a qualifying sub-contract), and

• (b) the person who proposes to enter into the qualifying sub-contract,

were persons mentioned in section 35(2).

• (8) Section 35(3)(b) has effect as if for “other proposed party to the contract” there were substituted “ proposed sub-contractor ”;

• (9) Section 35(4)(a) has effect as if for “by one party to the contract to the other” there were substituted “ by the sub-contractor to the Secretary of State, or by the Secretary of State to the sub-contractor ”;

• (10) Section 35(4)(b) has effect as if for that subsection there were substituted—

(b) in the case of a proposed qualifying sub-contract— (i) by the proposed sub-contractor to the Secretary of State; or (ii) by the Secretary of State to the proposed sub-contractor.

• (11) Section 43(1) has effect as if after the definition of “authorised person” there were inserted—

Modifications of these Regulations

65

• (1) In their application to qualifying sub-contracts (and to sub-contractors) by virtue of section 30(1), these Regulations are modified as described in this regulation.

• (2) Regulation 2(1) has effect as if after the definition of “contract completion date” there were inserted—

• (3) Regulations 6, 7 and 8 to 9A do not apply.

• (3A) Regulation 7A has effect as if—

• (a) in paragraph (1)—

• (i) the words “For the purposes of section 14 of the Act,” were omitted;

• (ii) for “Secretary of State” there were substituted “contracting authority”;

• (b) paragraph (4) were omitted;

• (c) in paragraphs (7)(a) and (8)(a), the references to “competitive process” have the meanings given in regulations 59 and 60.

• (4) Regulation 11 (steps in determining profit rate) has effect as if—

• (a) in paragraph (6), for each “Secretary of State” there were substituted “ contracting authority ”;

• (b) in paragraph (8), for “Secretary of State” there were substituted “ contracting authority ”.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) Regulation 13 (rates agreed on a group basis) does not apply.

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) Regulation 16 (final price adjustment) has effect as if—

• (a) in paragraph (1)—

• (i) for “£5,000,000” there were substituted “ £50,000,000 ”;

• (ii) for the words “an adjustment” to “(“final price adjustment”)” there were substituted “a payment of a specified amount (“a final price adjustment”) may be made to or by the Secretary of State”;

• (b) paragraphs (2) and (3) were omitted.

• (9) Regulation 18 (determination of contract profit rate adjustments) has effect as if—

• (a) in paragraph (1), the words “(including an adjustment agreed on a group basis under regulation 13)” were omitted;

• (b) in paragraph (5), for the words “the contract price is to be adjusted by a specified amount” there were substituted “ a payment of a specified amount must be made to or by the Secretary of State ”.

• (9ZA) Regulation 19A (commercial pricing) has effect as if after “Secretary of State”, where it occurs in paragraphs (3)(a)(i) and (4), there were inserted “or the contracting authority”.

• (9ZB) Regulation 19C (previously agreed price) does not apply.

• (9ZC) Regulation 19G(5) (aggregation of components) has effect as if for each “Secretary of State” there were substituted “contracting authority”.

• (9A) Regulation 20(7)(a) has effect as if after the words “contract completion date” there were inserted “or the date on which it is determined that the contract is no longer a qualifying sub-contract”.

• (10) In regulation 22 (general requirements and interpretation), paragraphs (2)(a)(iii) and (e) and (2A)(a)(ii) and (c) do not apply.

• (11) Regulation 23 (contract pricing statement) has effect as if in paragraph (3)(c)(ii) for “by the Secretary of State” there were substituted “ by either the contracting authority or the Secretary of State ”.

• (12) In regulation 25 (contract notification report), paragraph (2)(g) to (i) does not apply.

• (13) In regulation 27 (interim contract report), paragraph (4)(j) to (l) does not apply.

• (14) In regulation 28 (contract completion report), paragraph (2)(l) to (n) does not apply.

• (15) Regulation 52 has effect as if—

• (a) in paragraph (2)(a) for “qualifying defence contract by virtue of section 14(3)”, there were substituted “qualifying sub-contract”;

• (b) paragraph (2)(b) were omitted.

• (16) The Schedule (re-determination of contract price) has effect as if, in the definition of “the parties”, for “Secretary of State” there were substituted “contracting authority”.

Signed

Philip Dunne — Minister for Defence Equipment, Support and Technology — 2014-12-17

Explanatory note

(This note is not part of these Regulations)

Footnotes

Editorial notes