The Single Source Contract Regulations 2014

[^key-efe9d43c59aa1ffccf4d14e6f5590078]: Word in Sch. para. 9(2) omitted (1.4.2024) by virtue of The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(15)(c)

[^key-f0454593f85eb69bc5e56cece70c7d27]: Word in reg. 5(4)(c) omitted (1.9.2019) by virtue of The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 4(2)(b)(i)

[^key-f0bf960d677dc6dca4d75a8bb81aa6f2]: Word in reg. 39(4)(b)(v) substituted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 38

[^key-f0e0c4c1eb4a9a569aa7811b00a31f8e]: Reg. 5(9)-(12) omitted (1.9.2019) by virtue of The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 4(8)

[^key-f102a0997051190c2c139c577bd0b2ea]: Words in reg. 65(11) substituted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 42(f)

[^key-f1aabda557ec4a4283715ee2f987a307]: Word in reg. 22(2)(k) substituted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 26(a)(ii)

[^key-f1aaf25f5daebc66c679bf0ea42cc56b]: Words in reg. 22(6)(b)(i) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 26(c)(iii)(bb)

[^key-f3fb937cd83746b27087caf6a9f30618]: Reg. 66 inserted (1.9.2019) by The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 22

[^key-f44a69082bc6b435f90445f758433d73]: Word in Sch. para. 6(1)(b) substituted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(12)(a)(ii)(aa)

[^key-f4cb80f3080148257936d1b840da0e77]: Word in Sch. para. 5(3)(a) omitted (1.4.2024) by virtue of The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(11)(d)(i)

[^key-f4d4215c64c3cc265127b1a367b2e258]: Sch. para. 10 omitted (1.4.2024) by virtue of The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(17)

[^key-f67ee27986afb4a35592b5370f98e2eb]: Word in Sch. para. 5 heading omitted (1.4.2024) by virtue of The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(11)(a)(ii)

[^key-f75872b31353de17d525b1168623e75b]: Word in Sch. para. 8(1)(c) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(14)(b)(iii)

[^key-f7b1c3ec8126844b93a5304780f4d7eb]: Word in reg. 28(2)(l) substituted (1.9.2019) by The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 12(2)

[^key-f7dc6f879ece08e18441b8acd03a3272]: Word in Sch. para. 9(1)(b) substituted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(15)(b)(ii)(aa)

[^key-f830397289c85b91b2f4c37a9d7d20fe]: Words in reg. 28(2)(j)(ii) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 33(a)(xiii)(bb)

[^key-f88d96c98fec032ae8fef37fd4dcbdcf]: Reg. 25(3)-(6) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 29(b)

[^key-fa85ef785daa68d6b000d3a1f034940f]: Words in reg. 39(4)(d) substituted (1.4.2019) by The Single Source Contract (Amendment) (No. 2) Regulations 2018 (S.I. 2018/1350), regs. 1(3), 9

[^key-fb17587cd871905f6d2d745db144ef39]: Words in reg. 26(7) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 30(c) (with reg. 44(2))

[^key-fb179b58b6214159fd80bd298e17847e]: Words in reg. 10 heading substituted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 13(a)

[^key-fcc4e971a2eb77ca4da01388b06e77b9]: Words in reg. 28(2)(j) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 33(a)(xiii)(aa)

[^key-fd415fb4ffe1a29592d5c75577fd1509]: Words in reg. 60 substituted (1.9.2019) by The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 18(2)

[^key-fdc6601b6ffc582dcc7a5f68c32a65e4]: Word in Sch. para. 7(4)(b) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 43(13)(e)

[^key-fdd7baf69e5b2d7005b5bc5c2a132ff4]: Words in reg. 28(2)(p) omitted (1.9.2019) by virtue of The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 12(3)

[^key-ffdc443638fe82a9824d0a984ee9d01b]: Words in reg. 10(1) inserted (1.4.2024) by The Single Source Contract (Amendment) Regulations 2024 (S.I. 2024/420), regs. 1(2), 13(b)(i)

SCHEDULE — Re-determination of contract price

PART 1 — General

Application of Schedule

1

• (1) This Schedule applies if the parties to a qualifying defence contract propose to amend the contract in a way that would affect the original contract price.

Such an amendment is referred to in this Schedule as a “pricing amendment” of the contract or a component of the contract.

• (2) In this Schedule—

• “original contract price”, in relation to a qualifying defence contract or component of such a contract, means—the price determined in accordance with a contract pricing method, orwhere the contract or component has previously been amended in a way that affects the price payable under the contract or component, the price determined or, as the case may be, last determined in accordance with this Schedule;

• “the parties”, in relation to a qualifying defence contract, means—the Secretary of State, andthe primary contractor.

Interpretation

2

• (1) In this Schedule—

• “contract profit rate”, in relation to a pricing amendment, means the contract profit rate that would be determined for the pricing amendment in accordance with regulation 11 as it applies for the purpose of determining the contract profit rate for a contract or component, and regulation 11(3) is modified for these purposes so that “under the contract or component” is to be read as “associated with the pricing amendment”;

• ...

• “contractual requirement”, in relation to a qualifying defence contract or component of such a contract, means a provision of the contract or component setting out—the specification of,quantity of, ortime or place for delivery of,the goods, works or services procured under the contract;

• “cost-plus method” means the default pricing method described in regulation 10(6);

• “original contract price” has the meaning given in paragraph 1(2);

• “the parties” has the meaning given in paragraph 1(2);

• ...

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

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

PART 2 — Re-determination of price using a default pricing method

Application of Part 2

3

This Part applies to determine the price payable under a contract or component if—

• (a) the parties propose to make a single pricing amendment to a qualifying defence contract (irrespective of whether the parties propose to make, at the same time, any other amendment to the contract which is not a pricing amendment), and

• (b) the price of the contract (if the pricing amendment does not relate to an existing component) or component (if the pricing amendment relates to an existing component) to which the pricing amendment relates was last determined in accordance with a default pricing method or with this Part.

Change of default pricing method

Amendment of the regulated pricing method used for a qualifying defence contract

4

• (1) This paragraph applies where the proposed pricing amendment will change the default pricing method used for the contract to another default pricing method (the “new default pricing method”).

• (2) The price payable in respect of the pricing amendment must be determined in accordance with the following formula—

$$(CPR×AC)+AC$where—“CPR” is the contract profit rate for the pricing amendment, and“AC” means the primary contractor’s allowable costs after the time of agreement, determined in accordance with the new default pricing method.$

• (3) The price payable under the amended contract is the total of—

• (a) the price payable in respect of performance under the contract on or before the time of agreement, and

• (b) the price payable in respect of the pricing amendment.

Amendment of a regulated pricing method used for a defined component of a contract

5

• (1) This paragraph applies where the proposed pricing amendment will change the default pricing method used for a ... component of the contract to another default pricing method (the “new default pricing amendment”).

• (2) The price payable in respect of the pricing amendment must be determined in accordance with the following formula—

$$(CPR×AC)+AC$where—“CPR” is the contract profit rate for the pricing amendment, and“AC” means the primary contractor’s allowable costs under the ... component after the time of agreement, determined in accordance with the new default pricing method.$

• (3) The price payable under the amended contract is the total of—

• (a) the price payable for performance under the contract (other than performance under the relevant ... component),

• (b) the price payable for performance under the relevant ... component on or before the time of agreement, and

• (c) the price payable in respect of the pricing amendment.

Change to an element of allowable costs

Amendment affecting a defined element of allowable costs

6

• (1) This paragraph applies where—

• (a) the proposed pricing amendment will change a defined element of allowable costs under the contract or a ... component of the contract, and

• (b) the default pricing method used for the contract or ... component (as the case may be) is a qualifying default pricing method.

• (2) In this paragraph “qualifying default pricing method” means a pricing method described—

• (a) in regulation 10(4) (firm pricing method),

• (b) in regulation 10(5) (fixed pricing method),

• (c) in regulation 10(9) and (10) (volume-driven pricing method), or

• (d) in regulation 10(11) (target pricing method).

• (3) The price payable in respect of the pricing amendment must be determined in accordance with the following formula—

$$(CPR×AC)+AC$where—“CPR” is the contract profit rate for the pricing amendment, and“AC” means the defined element of allowable costs after it is changed, determined in accordance with the qualifying default pricing method used for the contract or ... component.$

• (4) The price payable under the amended contract is the total of—

• (a) the original contract price less the adjustment amount, and

• (b) the price payable in respect of the pricing amendment.

• (5) For the purposes of sub-paragraph (4), “the adjustment amount” is the amount of the original contract price which can be attributed to the defined element of allowable costs that is being changed.

Change to a contractual requirement

Change to a contractual requirement: contract or ... component not using cost-plus method

7

• (1) This paragraph applies where—

• (a) the proposed pricing amendment will change a contractual requirement of the contract or of a ... component of the contract, and

• (b) the default pricing method used for the contract or ... component (as the case may be) is not the cost-plus method.

• (2) The price payable in respect of the pricing amendment must be determined in accordance with the following formula and may be a negative amount—

$$(CPR×AC)+AC$where—“CPR” is the contract profit rate for the pricing amendment, and“AC” means the amount (which may be a negative amount) by which the pricing amendment will change the original allowable costs.$

• (3) For the purposes of sub-paragraph (2), “original allowable costs” means the allowable costs under the contract or ... component, as determined for the purposes of calculating the original contract price.

• (4) The price payable under the amended contract is the total of—

• (a) the original contract price, and

• (b) the price payable in respect of the pricing amendment.

Change to a contractual requirement: contract or ... component which uses cost-plus method – distinguishable costs

8

• (1) This paragraph applies where—

• (a) the proposed pricing amendment will change a contractual requirement of the contract or of a ... component of the contract,

• (b) the default pricing method used for the contract or ... component (as the case may be) is the cost-plus method, and

• (c) the allowable costs resulting from the pricing amendment can be distinguished from the original allowable costs.

• (2) For the purposes of sub-paragraph (1)(c), “original allowable costs” means the allowable costs under the contract or ... component before the contract is amended.

• (3) The price payable in respect of the pricing amendment is to be determined in accordance with the following formula—

$$(CPR×AC)+AC$where—“CPR” is the contract profit rate for the pricing amendment, and“AC” means the primary contractor’s allowable costs resulting from the pricing amendment, as determined in accordance with the cost-plus method.$

• (4) The price payable under the amended contract is the total of—

• (a) the original contract price, and

• (b) the price payable in respect of the pricing amendment.

Change to a contractual requirement: contract or ... component which uses cost-plus method – costs not distinguishable

9

• (1) This paragraph applies where—

• (a) the proposed pricing amendment will change a contractual requirement of the contract or of a ... component of the contract,

• (b) the default pricing method used for the contract or ... component (as the case may be) is the cost-plus method, and

• (c) the allowable costs resulting from the pricing amendment cannot be distinguished from the original allowable costs.

• (2) For the purposes of sub-paragraph (1)(c), “original allowable costs” means the allowable costs under the contract or ... component before the contract is amended.

• (3) The price payable in respect of the pricing amendment is to be determined in accordance with the following formula—

$$(CPR×AC)+AC$where—“CPR” is the contract profit rate for the pricing amendment, and“AC” means the primary contractor’s allowable costs under the contract, or ... component, after the time of agreement, as determined in accordance with the cost-plus method.$

• (4) For the purposes of sub-paragraph (3), no account is to be taken of any costs incurred by the primary contractor before the contract is amended.

• (5) The price payable under the amended contract is the total of—

• (a) the price payable under the contract on or before the time of agreement, and

• (b) the price payable in respect of the pricing amendment.

...

Other amendments

10

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

PART 3 — Multiple pricing amendments to a qualifying defence contract

Scope of Part 3

11

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

Re-determination of the contract price

12

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

Price adjustments for qualifying sub-contracts

66

Where the amount of an adjustment to the contract price of a qualifying sub-contract is determined by the SSRO under regulation 16(7) or calculated under regulation 17—

• (a) the contract price is not to be adjusted by that amount; and

• (b) a payment for that amount must be made by the Secretary of State to the sub-contractor or by the sub-contractor to the Secretary of State (whichever is appropriate).

Meaning of “defence purposes” and “substantially for defence purposes”)

Meaning of “contract completion date” and “component completion date”

Meaning of “contract price”

4A

“Contract price” means—

• (a) in relation to a qualifying defence contract which does not contain components and in relation to a component of a qualifying defence contract—

• (i) the price payable under the contract or component to the primary contractor as determined in accordance with a contract pricing method; or

• (ii) if the contract or component is amended in a way that affects the price payable under it, the price payable under the contract to the primary contractor as determined or, as the case may be, last determined in accordance with the Schedule;

• (b) in relation to a qualifying defence contract which contains components—

• (i) where the price has not been determined in accordance with regulation 19G (aggregation of components), the sum of the contract prices payable for each component of the contract; or

• (ii) where the price has been determined in accordance with regulation 19G, the price of the contract as determined in accordance with that regulation (taking account of any adjustment to that price made in accordance with paragraph 18(3) of the Schedule).

Calculating the value of a contract

Meaning of a new contract

7A

• (1) For the purposes of section 14 of the Act, a contract between the Secretary of State and the primary contractor for additional goods, works or services is not to be treated as amending an existing contract (and therefore is a new contract) if paragraph (2) or (3) applies.

• (2) This paragraph applies where—

• (a) the parties have an existing contract and wish the primary contractor to provide additional goods, works or services;

• (b) the same, or substantially the same, commercial outcome could be achieved either by—

• (i) amending the existing contract to include the additional goods, works or services; or

• (ii) procuring the additional goods, works or services under a separate contract without making disproportionately numerous or complex amendments to the existing contract;

• (c) procuring the additional goods, works or services under a separate contract would not give rise to unavoidable and material—

• (i) additional commercial risk; or

• (ii) duplication of costs or resource; and

• (d) the additional goods, works or services are not subject to a relevant pricing restriction.

• (3) This paragraph applies if a contract is amended in such a way as to amount in effect to termination of that contract and the creation of a new contract.

• (4) For the purposes of section 14(4)(d) and (5)(d) of the Act, the Secretary of State and the primary contractor may agree to treat a contract that they have entered into as amending an existing contract.

• (5) For the purposes of paragraph (2)(b), any difference in commercial outcome which arises as a result of having to comply with the requirements of the Act and these Regulations is to be disregarded.

• (6) For the purposes of paragraph (2)(d), a relevant pricing restriction exists if paragraph (7) or (8) applies.

• (7) This paragraph applies if—

• (a) the award of the contract was the result of a competitive process;

• (b) the contract specifies the way in which the price of the additional goods, works or services is to be determined;

• (c) the manner of determining the price was agreed when the contract was entered into; and

• (d) the way in which the price is determined is incompatible with the way in which the price may be calculated in accordance with the Act and these Regulations.

• (8) This paragraph applies if—

• (a) the award of the contract was not the result of a competitive process;

• (b) the contract specifies the way in which the price of the additional goods, works or services is to be determined;

• (c) the manner of determining the price was agreed prior to the relevant date; and

• (d) the way in which the price is determined is incompatible with the way in which the price may be calculated in accordance with the Act and these Regulations.

Competitive process for single contracts

Competitive process for contracts made under a framework agreement

Components of qualifying defence contracts

9A

• (1) A part of a qualifying defence contract is a component of the contract if—

• (a) that part uses a different contract pricing method to the contract pricing method used in any other part of the contract;

• (b) that part has a different contract profit rate to the contract profit rate used in any other part of the contract;

• (c) that part is a component by virtue of regulation 19C(6) or paragraph 14(7)(c) or 16(2)(b) of the Schedule.

• (2) For the purposes of section 15(8), the parties to a contract may not agree that a part of a contract is a component of the contract unless they can demonstrate a commercial purpose for such agreement other than to affect the amount of any final price adjustment determined under regulation 16.

Chapter 1 — Contract pricing methods

Contract pricing methods

9B

• (1) The parties to a qualifying defence contract must use a contract pricing method for determining the price payable under that contract or a component of the contract.

• (2) Unless the parties make an agreement in accordance with paragraph (3), the parties must determine the price payable in accordance with a default pricing method.

• (3) If the circumstances described in an alternative pricing method pertain, the parties may agree to determine the price payable in accordance with that alternative pricing method.

Re-determination of contract price

9C

The Schedule makes provision for the re-determination of the contract price for a qualifying defence contract or a component of such a contract.

Chapter 2 — Default pricing of contracts

Default pricing of contracts

Steps in determining contract profit rate

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

Rates agreed on a group basis

Costs associated with group profits

13A

• (1) The requirements in section 20(2)(a) to (c) (allowable costs to be appropriate, attributable to the contract or component, and reasonable) will not be met if—

• (a) the primary contractor is a party to or proposes to enter into a group sub-contract; and

• (b) a deduction from the allowable costs has not been made in accordance with paragraph (2).

• (2) Where paragraph (1)(a) applies to a qualifying defence contract—

• (a) the allowable costs of that qualifying defence contract that relate to the price payable under any group sub-contract must be reduced by an amount equal to the attributable profit on that group sub-contract; and

• (b) the allowable costs of the qualifying defence contract that relate to the price payable under any further group sub-contract which relates to the group sub-contract described in sub-paragraph (a) must be reduced by an amount equal to the attributable profit on that further group sub-contract.

• (3) “Group sub-contract” means a contract—

• (a) the price payable under which includes an amount of profit;

• (b) which is made between the primary contractor and any person connected with the primary contractor;

• (c) the value of which is no less than £250,000;

• (d) the award of which was not the result of a competitive process (within the meanings given in regulation 59 or 60);

• (e) the price of which is not determined in accordance with regulation 19A (commercial pricing) or 19B(3) (prices determined in accordance with law); and

• (f) where the goods, works or services to be provided under the contract are necessary to enable the performance of the qualifying defence contract.

• (4) “Further group sub-contract” means a contract—

• (a) the price payable under which includes an amount of profit;

• (b) which is made between the two or more persons, each of which is associated with the primary contractor or a group sub-contractor;

• (c) the value of which is no less than £250,000;

• (d) the award of which was not the result of a competitive process (within the meanings given in regulation 59 and 60);

• (e) the price of which is not determined in accordance with regulation 19A (commercial pricing) or 19B(3) (prices determined in accordance with law); and

• (f) where the goods, works or services to be provided under the contract are necessary to enable the performance of the qualifying defence contract.

• (5) The attributable profit is—

• (a) where all of the output of a group sub-contract or further group sub-contract is necessary to enable the performance of the qualifying defence contract, all the profit element in the price payable under that group sub-contract or further group sub-contract;

• (b) where only part of the output of a group sub-contract or further group sub-contract is necessary to enable the performance of the qualifying defence contract, that part of the profit element in the price payable under that group sub-contract or further group sub-contract which relates to the output necessary for that performance.

• (6) Attributable profit does not include—

• (a) any appropriate sub-contractor profit;

• (b) any capital servicing adjustment made under regulation 11(7);

• (c) any profit which is received by a person who is not connected with the primary contractor.

• (7) In determining the value of a contract for the purposes of sub-paragraph (3)(c) or (4)(c), paragraphs (5) to (8A) of regulation 5 do not apply.

• (8) In this regulation, “appropriate sub-contractor profit” means an amount of profit in the price of a group sub-contract or further group sub-contract which the Secretary of State is satisfied is not duplicated by the values calculated by applying step 1 (baseline profit rate) and step 2 (cost risk adjustment) of regulation 11.

• (9) A person is connected with another person for the purposes of this regulation if they are associated with each other.

Re-determination of contract price

Target cost incentive fee (“TCIF”) adjustment

Procedure for determining final price adjustment

Calculation of final price adjustment

Determination of contract profit rate adjustments

Determination of allowable costs

Chapter 3 — Alternative pricing of contracts

Commercial pricing

19A

• (1) The commercial pricing method of determining the price of a qualifying defence contract or a component of such a contract may be used in the circumstances specified in paragraph (3).

• (2) Where the commercial pricing method is used, the price is determined in accordance with paragraph (6).

• (3) Unless paragraph (4) applies, the commercial pricing method may be used if—

• (a) the Secretary of State is satisfied that the primary contractor has supplied goods, works or services under a contract to the same or substantially the same specifications—

• (i) to the Secretary of State under a contract awarded as a result of a competitive process;

• (ii) to another party under a contract placed following a process which would satisfy the requirements of regulation 59 had the party purchasing the goods or services been a contracting authority; or

• (iii) to any other person in an open market where such goods, works or services are offered for sale; or

• (b) the Secretary of State is satisfied that a supplier (who may be the primary contractor) has supplied goods, works or services under a contract to the same or substantially the same specifications to other parties in a competitive environment.

• (4) This paragraph applies if the proposed contract is for the supply of goods, works or services and the Secretary of State has made any direct payment for the development of those goods, works or services.

• (5) Where the commercial pricing method may be used by virtue of more than one contract described in paragraph (3) (“the relevant contracts”), the Secretary of State must determine a reasonable price for the goods, works or services—

• (a) by reference to all of the relevant contracts; or

• (b) where it is not practicable to determine a reasonable price by reference to all of the relevant contracts, by reference to a representative sample of the relevant contracts.

• (6) The method of determining the price is—

• (a) take—

• (i) the price for which the goods, works or services were supplied under the contract described in paragraph (3); or

• (ii) where paragraph (5) applies, the reasonable price determined under that paragraph;

• (b) add or subtract from that price a reasonable adjustment in respect of differences in—

• (i) volume;

• (ii) specification;

• (iii) other terms of supply;

• (iv) a change in economic conditions;

• (v) a change in technology;

• (vi) a change in performance of the goods, works or services.

• (7) The primary contractor must provide to the Secretary of State all information within its possession that is relevant for the purposes of establishing—

• (a) whether goods, works or services have been supplied as described in paragraph (3)(a) or (b); and

• (b) whether any price determined under paragraph (5) or adjustment determined under paragraph (6)(b) is reasonable.

Prices determined in accordance with law

19B

• (1) The price determined in accordance with law method of determining the price of qualifying defence contract or component of such a contract may be used if the Secretary of State is satisfied that the price of the goods, works and services must be set in accordance with a relevant law.

• (2) Where there is an inconsistency between the pricing requirements of the relevant law and those of the Act and these Regulations, the price is to be determined in accordance with paragraph (3) or (4).

• (3) Where the relevant law specifies the price which must be paid for the goods, works or services, the price is as so specified.

• (4) Where the relevant law does not specify the price which must be paid for the goods, works or services, the price must comply with the pricing requirements of the relevant law and be as close as possible to the price which would have been agreed between the parties in compliance with the Act and these Regulations but for the application of the relevant law.

• (5) In this regulation—

• (a) “law” includes statutes, rules, regulations, codes of practice and requirements of regulatory authorities;

• (b) “relevant law” means law, whether of the United Kingdom or otherwise, compliance with which is mandatory for at least one of the parties and which applies to the provision of goods, works or services under the contract or component.

Previously agreed price

19C

• (1) The previously agreed price method of determining the price of a qualifying defence contract or component of such a contract may be used in the circumstances specified in paragraph (3).

• (2) Where the previously agreed price method is used, the price is determined in accordance with paragraph (4) or (5).

• (3) The previously agreed price method may be used if—

• (a) the contract has become a qualifying defence contract by virtue of section 14(4) or (5); or

• (b) the parties to a qualifying defence contract (“contract A”) agree that an obligation to provide goods, works or services (“the transferred element”) under that contract is instead to be performed under another qualifying defence contract (“contract B”).

• (4) Where paragraph (3)(a) applies—

• (a) for goods, works or services provided under the contract prior to the date on which the contract became a qualifying defence contract (“the date of conversion”), the price is that which was agreed between the parties before the date of conversion in respect of those goods, works or services;

• (b) for goods, works or services in respect of which the parties had agreed a price before the date of conversion but which have not been provided at that date, the price is, at the parties’ election, either—

• (i) the price so agreed; or

• (ii) the price re-determined at the date of conversion in accordance with another contract pricing method (“the relevant contract pricing method”).

• (5) Where paragraph (3)(b) applies, the price for the transferred element under contract B is the price for that element under contract A immediately before it became a transferred element.

• (6) Where the price of part of a contract is determined in accordance with—

• (a) paragraph (4)(a) or (b)(i), that part of the contract is a component the price of which is determined in accordance with this regulation;

• (b) paragraph (4)(b)(ii), that part of the contract is a component the price of which is determined in accordance with the relevant contract pricing method;

• (c) paragraph (5), that part of the contract is a component the price of which is determined in accordance with the contract pricing method under which the price of the transferred element was determined immediately before it became a transferred element.

Novated contract price

19D

• (1) The novated contract method of determining the price of a qualifying defence contract may be used in the circumstances specified in paragraph (3).

• (2) Where the novated contract method is used, the price is determined in accordance with paragraph (4).

• (3) The novated contract method may be used if—

• (a) a contract (B) replaced a contract (A);

• (b) the purpose of contract B is to ensure the performance of contractual obligations which were to be performed under contract A;

• (c) contract A was a qualifying defence contract;

• (d) at least one of the parties to contract A is also a party to contract B;

• (e) at least one of the parties to contract B was not a party to contract A; and

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

• (4) The price determined for contract B is the price payable in respect of contract A.

• (5) For the purposes of these Regulations—

• (a) contract B is to be treated as if its price was determined in accordance with the contract pricing method in accordance with which the price of contract A was determined; and

• (b) where contract A contained components, each component of contract B is to be treated as if its price was determined in accordance with the contract pricing method in accordance with which the equivalent component of contract A was determined.

Competed rates applied to uncompeted volumes

19E

• (1) The competed rates applied to uncompeted volumes (“CRUV”) method of determining the price of a qualifying defence contract or component of such a contract may be used in the circumstances specified in paragraph (3).

• (2) Where the CRUV method is used, the price is determined in accordance with paragraph (4).

• (3) The CRUV method may be used if—

• (a) a framework agreement is entered into in accordance with regulation 9(1) or 60(1);

• (b) the contract is awarded in accordance with regulation 9(1) or 60(1);

• (c) in relation to the goods, works or services to be provided under the contract—

• (i) the price will be agreed using the applicable unit prices or rates contained in the framework agreement (“the competed rates or prices”); and

• (ii) the volume of the goods, works or services to be provided will not have been subject to a competitive process; and

• (d) the conditions in regulation 9(3) or 60(3) apply to the framework agreement.

• (4) The method of determining the price is to—

• (a) estimate the volume of goods, works or services required in way which secures that the volume is—

• (i) appropriate;

• (ii) attributable to the contract; and

• (iii) reasonable in the circumstances; and

• (b) apply that estimate to the relevant competed rates or prices in accordance with the terms of the framework agreement.

Agreed changes to the contract profit rate

19F

• (1) The agreed change to the contract profit rate price method of determining the price of a qualifying defence contract or component of such a contract may be used in the circumstances specified in paragraph (3).

• (2) Where the agreed change to the contract profit rate price method is used, the price is determined in accordance with paragraph (4).

• (3) The agreed change to the contract profit rate price method may be used if the contract price was originally determined or re-determined using a default pricing method, and either—

• (a) an error has been identified in the determination of the contract profit rate in accordance with regulation 11; or

• (b) the parties agree that an adjustment should be made to the contract profit rate in accordance with regulation 11(6) (“the step 3 incentive adjustment”).

• (4) The method of determining the price is—

• (a) in the circumstances described in paragraph (3)(a), for the price to be adjusted by an amount which ensures that the contract profit rate is as it would have been if the error had not been made;

• (b) in the circumstances described in paragraph (3)(b), for the price to be adjusted to reflect the change to the step 3 incentive adjustment agreed between the parties.

• (5) The price of the contract or component is to be treated for the purposes of these Regulations as if it was determined in accordance with the default pricing method which applied to the contract or component immediately before its price was determined in accordance with this regulation.

Aggregation of components

19G

• (1) The aggregation of components method of determining the price of a qualifying defence contract may be used where—

• (a) a contract contains two or more components; and

• (b) the parties agree to make an adjustment in accordance with paragraphs (3) to (7).

• (2) The method of determining the price of such a contract is to add—

• (a) the price of each of the components (“the total component price”); and

• (b) the value of the adjustment agreed in accordance with paragraphs (3) to (7).

• (3) Paragraph (4) applies where—

• (a) the contract requires the primary contractor to integrate outputs from different components of the contract; and

• (b) the parties are satisfied that the cost risk adjustments (see step 2 of regulation 11) made in respect of the components of the contract are insufficient to reflect the financial risks to the primary contractor of entering into the contract, taking account of the requirement to integrate outputs from different components of the contract.

• (4) Where this paragraph applies, adjust the total component price by an amount (“the total cost risk adjustment”), so as to reflect the financial risks to the primary contractor under the contract, taking into account the particular types of activities to be carried out by the primary contractor under the contract, including the integration of outputs from different components of the contract.

• (5) The total cost risk adjustment must, when added to the cost risk adjustments agreed in respect of all components of the contract, not exceed the sum of all costs risk adjustments under the contract had the parties agreed an adjustment of plus 25% of the baseline profit rate when pricing each component of the contract.

• (6) Where the Secretary of State determines that the primary contractor should be given a particular financial incentive as regards the performance of provisions of the contract specified by the Secretary of State, the contract price may be increased by an amount (“the total incentive adjustment”) specified by the Secretary of State.

• (7) The maximum amount of the total incentive adjustment is—

• (a) the total of any incentive adjustments (see step 3 of regulation 11) that might be made in respect of the individual components of the contract that have been priced in accordance with the default pricing method, less

• (b) the amount of all of the incentive adjustments that have been determined in accordance with regulation 11(6) in respect of that contract.

Component completion report

27A

• (1) Subject to paragraph (2), the primary contractor must provide a report (a “component completion report”) containing the component completion information within 12 months after the component completion date of a component of a qualifying defence contract.

• (2) A component completion report need not be provided if the component completion information is provided in a contract completion report under regulation 28 within 12 months after the component completion date of the component.

• (3) In this regulation, “component completion information” means the information that would be required to be provided in relation to the component under regulation 28 if that information were not provided in a component completion report.

Contract completion report

Contract costs statement

On-demand contract report

Pricing amendments not covered by Part 2 or 4

2A

• (1) This paragraph applies if none of paragraphs 4 to 9 or 14 to 18 apply in relation to the pricing amendment.

• (2) Where the pricing amendment creates a new component of a contract, the price payable under the component must be determined in accordance with a contract pricing method (and is to be treated for the purposes of these Regulations as if it was determined in accordance with that contract pricing method and not this Schedule).

• (3) Where the pricing amendment does not create a new component, the price payable under the amended contract or, where the pricing amendment relates to an existing component, that component must be re-determined in accordance with a contract pricing method (and is to be treated for the purposes of these Regulations as if it was determined in accordance with that contract pricing method and not this Schedule).

• (4) The parties—

• (a) may agree which contract pricing method is to be used for the amended contract or component;

• (b) may agree that components of the contract will be priced by different pricing methods.

Multiple pricing amendments

2B

• (1) This paragraph applies where the parties propose to make two or more pricing amendments to a contract or component at the same time (irrespective of whether the parties also propose to make, at the same time, any other amendment to the contract or component which is not a pricing amendment).

• (2) Where this paragraph applies—

• (a) the pricing amendments are to be treated separately and dealt with in turn,

• (b) Part 2 or 4 (as the case may be) applies in relation to each pricing amendment as it applies to a single amendment, and

• (c) the price payable under the amended contract or component is the price determined after the last of the pricing amendments has been dealt with.

• (3) If the parties propose a pricing amendment which changes the contract pricing method used for the contract or component, that pricing amendment must be dealt with first.

• (4) If the parties propose a pricing amendment to which paragraph 2A applies, that pricing amendment must be dealt with last.

Amendment of the default pricing method used for a qualifying defence contract

Amendment of a default pricing method used for a ... component of a contract

Part 4 — Re-determination of price using an alternative pricing method

Application of Part 4

13

This Part applies to determine the price payable under a contract or component if—

• (a) the parties propose to make a single pricing amendment to the contract or component (irrespective of whether the parties propose to make, at the same time, any other amendment to the contract or component which is not a pricing amendment), and

• (b) the price of the contract (if the pricing amendment does not relate to a component) or component (if the pricing amendment relates to a component) was last determined in accordance with an alternative pricing method or with this Part.

Pricing amendment of contract or component priced using regulation 19A (commercial pricing)

14

• (1) This paragraph applies where the proposed pricing amendment is to a contract or component the price of which was determined in accordance with regulation 19A or this paragraph.

• (2) Sub-paragraph (3) applies where—

• (a) the pricing amendment will add a contractual requirement for the provision of goods, works or services (“the new goods, works or services”),

• (b) if the pricing amendment were a new contract or component, the circumstances would exist for the price of the pricing amendment to be determined in accordance with regulation 19A, and

• (c) the parties agree to determine the price of the pricing amendment in accordance with regulation 19A.

• (3) The price payable in respect of the pricing amendment is to be determined as follows—

• (a) determine the price of the new goods, works or services in accordance with regulation 19A, and

• (b) adjust that price by a reasonable amount to account for a change in the costs of providing the new goods, works or services as a consequence of any existing requirements under the contract to provide similar goods, works or services.

• (4) Sub-paragraph (5) applies where—

• (a) the pricing amendment will remove a contractual requirement for the provision of goods, works or services (“the removed requirement”), and

• (b) no costs have been, or will be, incurred in relation to the provision of the removed requirement.

• (5) The price payable under the contract or component to which the pricing amendment relates is to be determined as follows—

• (a) determine what price payable would have been determined in accordance with regulation 19A in respect of the contract or component at the time of agreement taking into account the removed requirement, and

• (b) adjust the price payable under the contract or component so that it is equivalent to the price determined in accordance with paragraph (a).

• (6) Sub-paragraph (7) applies where—

• (a) the pricing amendment will remove a contractual requirement for the provision of goods, works or services (“the removed requirement”), and

• (b) costs have been, or will be, incurred in relation to the reduced requirement (“the incurred costs”).

• (7) Where this paragraph applies—

• (a) the price payable under the contract or component to which the pricing amendment relates is to be determined in accordance with paragraph (5),

• (b) the price payable in respect of the incurred costs is to be determined in accordance with another contact pricing method as if the goods, works or services to which those costs relate were provided under a new component, and

• (c) the provision of the goods, works or services and the price payable in respect of them are a new component the price of which has been determined in accordance with the contract pricing method mentioned in paragraph (b) (and not in accordance with regulation 19A or this Schedule).

Pricing amendment of contract or component priced using regulation 19B (prices determined in accordance with law)

15

• (1) This paragraph applies where the proposed pricing amendment is to a contract or component the price of which was determined in accordance with regulation 19B or this paragraph.

• (2) Sub-paragraph (3) applies where—

• (a) the original contract price was determined in accordance with regulation 19B(3), and

• (b) regulation 19B(3) applies to the goods, works and services to which the pricing amendment relates.

• (3) The price payable under the contract or component is to be re-determined in accordance with regulation 19B(3), taking account of the pricing amendment.

• (4) Sub-paragraph (5) applies where—

• (a) the original contract price was determined in accordance with regulation 19B(4),

• (b) the relevant law in accordance with which the original contract price was determined has been amended (but still applies), and

• (c) the pricing amendment is made entirely in consequence of the amendment to the relevant law.

• (5) The price payable under the contract or component to which the pricing amendment relates is to be adjusted by an amount which secures a price as close as possible to the price which would have been agreed between the parties in compliance with the Act and these Regulations but for the application of the amended relevant law.

• (6) Sub-paragraph (7) applies where—

• (a) the original contract price was determined in accordance with regulation 19B(4),

• (b) regulation 19B(4) applies to the goods, works and services to which the pricing amendment relates, and

• (c) the pricing amendment is not made entirely in consequence of an amendment to the relevant law in accordance with which the original contract price was determined.

• (7) The price payable under the contract or component is to be re-determined in accordance with regulation 19B(4), taking account of the pricing amendment.

• (8) Sub-paragraph (9) applies where—

• (a) the pricing amendment will remove a contractual requirement for the provision of goods, works or services (“the removed requirement”), and

• (b) the Secretary of State is no longer satisfied that the price of the goods, works or services to be provided under the contract or component subject to the pricing amendment must be set in accordance with a relevant law (within the meaning of regulation 19B(5)).

• (9) The price payable under the contract or component to which the pricing amendment relates is to be determined as follows—

• (a) determine what price payable would have been determined in accordance with regulation 19B in respect of the contract or component at the time of agreement taking into account the removed requirement, and

• (b) adjust the price payable under the contract or component so that it is equivalent to the price determined in accordance with paragraph (a).

Pricing amendment of contract or component priced using regulation 19C (previously agreed price)

16

• (1) This paragraph applies where the proposed pricing amendment is to a contract or component the price of which was determined in accordance with regulation 19C.

• (2) The parties must agree to—

• (a) re-determine the price of the entire contract or component (taking account of any change to the contract or component as a result of the pricing amendment) in accordance with a contract pricing method other than that described in regulation 19C, or

• (b) create a new component containing the obligations to provide goods, works or services which have not yet been performed under the contract or component (taking account of any change to those obligations as a result of the pricing amendment), and determine the price of that component in accordance with a contract pricing method other than that described in regulation 19C.

• (3) Where—

• (a) the price of a contract or component is re-determined under sub-paragraph (2)(a), the contract or component is to be treated for the purposes of these Regulations as a contract or component the price of which has been determined in accordance with the new contract pricing method (and not in accordance with regulation 19C or this Schedule);

• (b) a component is created in accordance with sub-paragraph (2)(b), the component is a new component the price of which has been determined in accordance with the new contract pricing method (and not in accordance with regulation 19C or this Schedule).

Pricing amendment of contract or component priced using regulation 19E (competed rates applied to uncompeted volumes)

17

Where the proposed pricing amendment is to a contract or component the price of which was determined in accordance with regulation 19E, the price of the contract or component is to be re-determined in accordance with regulation 19E (taking account of any change to the contract or component as a result of the pricing amendment).

Pricing amendment of a contract priced using regulation 19G (aggregation of components)

18

• (1) This paragraph applies where the price of a contract has been determined in accordance with regulation 19G or this paragraph.

• (2) Where the price payable under a component of the contract has been re-determined under this Schedule, the price of the contract is to be re-determined in accordance with regulation 19G.

• (3) Where the pricing amendment relates only to a change to an adjustment agreed in accordance with regulation 19G(3) to (7), the price payable under the contract is to be adjusted to take account of that change.