(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

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),

(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

(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

(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;

(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;

(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;

(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;

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