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The Single Source Contract Regulations 2014

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PART 1U.K.General

Citation and commencementU.K.

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

InterpretationU.K.

2.—(1) In these Regulations—

[F1“the Act” means the Defence Reform Act 2014, and references to sections are to sections of that Act;]

[F2“alternative pricing method” means one of the contract pricing methods described in Chapter 3 of Part 3;]

“business unit” means either—

(a)

a unit—

(i)

which carries on any activities for the purposes of an undertaking; and

(ii)

for which separate financial accounting statements are produced; or

(b)

an undertaking, or group of two or more undertakings, for which a single set of financial accounting statements is produced which is separate from the financial accounting statements of each of those undertakings;

[F3“competed rate” means the competed rate or price in accordance with the terms of the relevant framework agreement;]

[F3“component”, in relation to a contract, has the meaning given by regulation 9A;]

[F3“component completion date” has the meaning given by regulation 4(1A);]

“contract completion date” has the meaning given by regulation 4 [F4(1)];

[F5“contract price” has the meaning given by regulation 4A;]

[F6“contract pricing method” means an alternative pricing method or a default pricing method;]

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

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

[F7“default pricing method” means one of the contract pricing methods described in Chapter 2 of Part 3;]

“deliverable” means any goods, works or services which—

(a)

are provided under a contract; and

(b)

can be described using an output metric;

“further group sub-contract” has the meaning given by regulation [F813A(4)];

“group sub-contract” has the meaning given by regulation [F913A(3)];

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

“parent undertaking” has the meaning given by section 1162 of the Companies Act 2006 M1;

F10...

“SME” has the meaning given in Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises M2;

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

“the time of agreement” means—

(a)

in the case of a contract which is a qualifying defence contract by virtue of section 14(3), or a qualifying sub-contract—

(i)

the date the contract is entered into; or

(ii)

if the price payable under the contract is re-determined [F11in accordance with the Schedule], the date of that re-determination;

(b)

in the case of a contract which is a qualifying defence contract by virtue of section 14(4) or (5)—

(i)

the date of the amendment mentioned in section 14(4)(c) or (5)(b); or

(ii)

if the price payable under the contract is re-determined [F11in accordance with the Schedule], the date of that re-determination;

(c)

[F12 in the case of a component of a qualifying defence contract—

(i)

the date the component is entered into; or

(ii)

if the price payable under the component is re-determined in accordance with the Schedule, the date of that re-determination;]

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

“working day” means any day excluding—

(a)

Saturday, Sunday, Christmas Day, Good Friday or a bank holiday under the Banking and Financial Dealings Act 1971 M3; and

(b)

where a person gives the Secretary of State and the SSRO no less than 30 days' written notice of its intention to treat a day as a holiday, that day.

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

[F13(3) A reference to a report provided under Part 6 includes an estimated rates agreement pricing statement under regulation 38.]

Textual Amendments

Marginal Citations

M2O.J. L 124, p. 36-41, of 20 May 2003.

[F14Meaning of “defence purposes” and “substantially for defence purposes”)U.K.

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

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

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

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

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

Textual Amendments

Meaning of “contract completion date” [F15and “component completion date”]U.K.

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

F16(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)F17... the date on which the contractor completes all obligations which entitle it to final payment under the contract;

(c)if the contract is terminated before the date described in sub-paragraph [F18(1)(b)], the date on which the contract is terminated.

[F19(1A) The “component completion date”, in relation to a component of a contract, means—

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

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

(2) For the purposes of paragraph (1)(b) [F20and (1A)(a)], final payment under a contract [F21or in respect of a component] does not include—

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

(b)any TCIF adjustment;

(c)any payment under regulation 16 (final price adjustment); or

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

Textual Amendments

[F22Meaning of “contract price”U.K.

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).]

Textual Amendments

Calculating the value of a contractU.K.

5.—(1) The value of a contract [F23or component] is to be determined—

(a)by the contracting authority; and

(b)in accordance with this regulation.

(2) For the purposes of the Act and these Regulations, the value of a contract [F24or component] means the consideration (net of value added tax) which the contracting authority expects will be payable under the contract [F24or component].

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

(a)in the case of a proposed contract [F25or component] under regulation F26... 61 (assessing whether a contract would be a qualifying sub-contract), either—

(i)at the date of the assessment under regulation [F2761], or

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

whichever is the higher;

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

(c)in all other cases, the date the contract [F28or component] is entered into.

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

(a)where appropriate, take account of—

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

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

(b)exclude the value of any land, buildings, equipment, information, personnel or other resource that is provided by [F29the contracting authority];

(c)convert any amounts payable under the contract in a foreign currency to sterling, using a rate consistent with the contracting authority'sF30... policies [F31or where no such policies exist, a rate of exchange derived on a just and reasonable basis].

(5) Subject to [F32paragraph (6)], where—

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

(b)the contracting authority has also entered into, or proposes to enter into, one or more other contracts [F33which are not the result of a competitive process] with the same person (or persons associated with that person) for the purpose of fulfilling that requirement,

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

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

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

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

[F34(c)the contracting authority must disregard a contract, or a proposed contract, which has a value of £250,000 or less where it is reasonably satisfied that the procurement has not been subdivided in order to avoid the requirements of the Act and these Regulations.]

(7) Condition A is that the contract has a value of [F35more than £250,000 but] less than £1,000,000.

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

(a)that contract, and

(b)any other such contract within paragraph (5)(b), each of which has a value of [F36more than £250,000 but] less than £1,000,000,

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

[F37(8A) A contract which has a value of £1,000,000 or less shall not be treated as a qualifying defence contract by virtue of this regulation unless the contracting authority is reasonably satisfied that the procurement has been subdivided in order to avoid the requirements of the Act and these Regulations.]

F38(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Textual Amendments

F26Words in reg. 5(3)(a) omitted (1.8.2018) by virtue of The Single Source Contract (Amendment) Regulations 2018 (S.I. 2018/917), regs. 1, 3(1)

PART 2U.K.Qualifying defence contracts

Threshold value for qualifying defence contractsU.K.

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

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

(b)otherwise, £5,000,000.

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

Contracts that may not be qualifying defence contractsU.K.

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

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

(b)made within the framework of an international cooperative defence programme [F39, except where the parties to any such contract agree that it is a contract which should be a qualifying defence contract]; or

(c)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; or

F40(iii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F41(d)in relation to which compliance with Part 4, 5 or 6 of the Regulations (records and reports), or section 26 of the Act (duty to report relevant events, circumstances and information), would require disclosure of information which the Secretary of State considers would create a risk to national security; or

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

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

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

(ii)B replaced a contract (A),

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

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

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

Textual Amendments

[F42Meaning of a new contractU.K.

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.]

Textual Amendments

Competitive process for single contractsU.K.

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

(a)the Secretary of State either—

(i)published F43... a notice of intention to seek offers in relation to a proposed contract; or

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

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

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

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

(a)the Secretary of State either —

(i)published F43... a notice of intention to seek offers in order to obtain the goods, works or services provided under the amendment or amended contract; or

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

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

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

Textual Amendments

Competitive process for contracts made under a framework agreementU.K.

9.—(1) This regulation applies where F44...—

(a)[F45the Secretary of State or a person acting on behalf of the Secretary of State] has either—

(i)published F46... 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 “[F47framework supplier]”) would enter into one or more contracts with the Secretary of State in the period during which the framework agreement applies; or

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

(b)[F48the Secretary of State or a person acting on behalf of the Secretary of State] has entered into a framework agreement with one or more [F49framework suppliers]; and

(c)[F50the Secretary of State] enters into a contract with a primary contractor.

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

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

(b)the terms governing the price payable under the contract are determined by a competition between two or more [F51framework suppliers] and the conditions in paragraph (4) are met.

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

(a)the material terms of the framework agreement are wholly or substantially the same as were offered by the [F52primary contractor]—

(i)in a tender submitted in response to the notice mentioned in [F53paragraph (1)(a)(i)]; or

(ii)in negotiations following the invitation mentioned in [F54paragraph (1)(a)(ii)];

(b)at the time of making that offer, the [F55primary contractor] did not consider it likely, or could not have reasonably considered it likely, that its offer would be the only offer reasonably capable of acceptance by the Secretary of State [F56or a person acting on behalf of the Secretary of State]; and

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

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

(a)at least one of those [F57framework suppliers] was not the primary contractor (or a person associated with the primary contractor);

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

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

Textual Amendments

[F58Components of qualifying defence contractsU.K.

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.]

Textual Amendments

PART 3U.K.Pricing of contracts

[F59Chapter 1U.K.Contract pricing methods

Textual Amendments

Contract pricing methodsU.K.

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 priceU.K.

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.]

[F60Chapter 2U.K.Default pricing of contracts]

Textual Amendments

[F61Default pricing] of contractsU.K.

10.—(1) The price payable under a qualifying defence contract [F62or component of such a contract] to the primary contractor must be determined in accordance with the formula—

where—

a

“CPR” is the contract profit rate for the contract [F63or component], determined in accordance with regulation 11; and

b

“AC” means the primary contractor's allowable costs (see section 20), determined in accordance with one of the six [F64default] pricing methods described in paragraphs (4) to (11) below.

F65(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F66(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Firm pricing method

(4) Under the firm pricing method, the allowable costs are the allowable costs as estimated at the time of agreement.

Fixed pricing method

(5) Under the fixed pricing method, the allowable costs are the allowable costs as—

(a)estimated at the time of agreement; and

(b)adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).

Cost-plus pricing method

(6) Under the cost-plus pricing method, the allowable costs are the actual allowable costs determined during the contract or after the contract completion date [F67or component completion date].

Estimate-based fee pricing method

[F68(7) Under the estimate-based fee pricing method, the allowable costs by which the CPR is multiplied are the allowable costs as—

(a)estimated at the time of agreement; and

(b)may be adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).]

(8) The allowable costs which are added to the product of the CPR and the allowable costs determined in accordance with paragraph (7) are the actual allowable costs determined during the contract or after the contract completion date [F69or component completion date].

Volume-driven pricing method

(9) Under the volume-driven pricing method, the allowable costs are the allowable costs per unit of volume multiplied by the actual volume of output of the contract [F70or component].

(10) The allowable costs—

(a)must be estimated at the time of agreement; and

(b)may be adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).

Target pricing method

[F71(11) Under the target pricing method, the allowable costs—

(a)must be estimated at the time of agreement;

(b)may be, or may include, allowable costs per unit of volume multiplied by the actual volume of output of the contract or component; and

(c)may be adjusted in accordance with changes in specified indices or rates between the time of agreement and a specified time (and different times, indices or rates may be specified in relation to different allowable costs).]

(12) In this regulation, “specified” means specified in the contract at the time of agreement.

Textual Amendments

Steps in determining contract profit rateU.K.

11.—(1) The contract profit rate for any qualifying defence contract [F72or component of such a contract] must be calculated by taking the following F73... steps.

Step 1 – baseline profit rate

(2) Take the baseline profit rate in force at the time of agreement, which is—

(a)until 31 March 2015, 10.70%;

(b)on or after 1 April 2015, the rate published in the London Gazette in accordance with section 19(4).

Step 2 – cost risk adjustment

(3) Adjust the baseline profit rate by an agreed amount which is within a range of plus or minus 25% of the baseline profit rate, so as to reflect the [F74financial risks to the primary contractor of entering into the contract or component, taking into account the particular type of activities to be carried out by the primary contractor under that contract or component].

F75(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F76(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Step [F773] – incentive adjustment

(6) Where the Secretary of State determines that the amount resulting from step [F782] should be increased so as to give the primary contractor a particular financial incentive as regards the performance of provisions of the contract [F79or component] specified by the Secretary of State, increase that amount by an amount (“the incentive adjustment”) specified by the Secretary of State, that amount not to exceed two percentage points.

Step [F804] – capital servicing adjustment

(7) Take the amount resulting from step [F813] and add to or subtract from it an agreed amount (“the capital servicing adjustment”), so as to ensure that the primary contractor receives an appropriate and reasonable return on the fixed and working capital employed by the primary contractor for the purposes of enabling the primary contractor to perform the contract [F82or component].

(8) In agreeing the capital servicing adjustment, the primary contractor and the Secretary of State—

(a)must have regard to the capital servicing rates in force at the time of agreement;

(b)must not apply any adjustment in respect of any costs of the fixed and working capital employed by the primary contractor which are allowable costs under the contract [F83or component]; and

(c)may use an average fixed and working capital for any business unit which is likely to be performing the primary contractor's obligations under the contract [F84or component].

(9) The capital servicing rates are—

(a)until 31 March 2015—

(i)for fixed capital, 6.20%;

(ii)for positive working capital, 2.07%;

(iii)for negative working capital, 1.25%;

(b)on or after 1 April 2015, the rate published in the London Gazette in accordance with section 19(4).

Textual Amendments

Calculation of profit on cost once (“POCO”) adjustmentU.K.

F8512.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Rates agreed on a group basisU.K.

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

(2) The prospective contractor and the Secretary of State may agree an amount which may be used as the cost risk adjustment (regulation 11(3)) for any qualifying defence contract entered into between the prospective contractor and the Secretary of State within the relevant year, so as to reflect the [F86financial risks to the primary contractor of entering into the contracts mentioned in paragraph (1), taking into account the particular type of activities to be carried out by the primary contractor under those contracts].

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

(4) The prospective contractor and the Secretary of State may agree an amount which may be used as [F87the deduction from costs associated with group profits (regulation 13A))] for any qualifying defence contract entered into between the prospective contractor and the Secretary of State within the relevant year, so as to ensure that profit arises only once in relation to those allowable costs under [F88any such qualifying defence contract] that relate to the price payable under any group-sub-contract (including any further group sub-contract).

(5) The prospective contractor and the Secretary of State may agree an amount which may be used as the capital servicing adjustment (regulation 11(7)) for any qualifying defence contract entered into between the prospective contractor and the Secretary of State within the relevant year, so as to ensure that the primary contractor receives an appropriate and reasonable return on the fixed and working capital employed by the primary contractor for the purposes of enabling the primary contractor to perform [F89any such qualifying defence contract].

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

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

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

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

Textual Amendments

[F90Costs associated with group profitsU.K.

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.]

Textual Amendments

Re-determination of contract priceU.K.

F9114.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Target cost incentive fee (“TCIF”) adjustmentU.K.

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

(a)the qualifying defence contract—

(i)contains provision to the effect that the total price payable under the contract [F92or component] is subject to adjustment in accordance with section 16(1)(b); and

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

(b)the price payable under the contract [F93or component] was determined using the target pricing method.

Textual Amendments

Procedure for determining final price adjustmentU.K.

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

(a)the price payable under the contract—

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

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

(b)the price payable under one or more F94... components of the contract—

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

(ii)the total value of the F95... component or components the price of which has been so determined is of or above that amount.

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

[F96(2A) Where the price payable under the contract includes one or more F97... components which use a [F98contract] pricing method other than the firm pricing method, fixed pricing method, or volume-driven pricing method, the value of such component or components shall be disregarded for the purposes of paragraph (2).]

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

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

(5) The Secretary of State may, within—

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

(b)15 months after the contract completion date,

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

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

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

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

(a)after the contract completion date [F99or, where the reference relates to a component, after the component completion date]; but

(b)no later than two years after the contract completion date [F100or, where the reference relates to a component, after the component completion date].

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

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

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

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

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

Textual Amendments

Calculation of final price adjustmentU.K.

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

(2) Where the difference is at least [F1015 percentage points] but less than [F10210 percentage points], the contract price is decreased by an amount equal to 25% of the outturn profit which exceeds excess level 1.

(3) Where the difference is at least [F10310 percentage points] but less than [F10415 percentage points], the contract price is decreased by an amount equal to the total of—

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

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

(4) Where the difference is at least [F10515 percentage points], the contract price is decreased by an amount equal to the total of—

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

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

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

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

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

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

[F106(5A) For each component of a qualifying defence contract that is not subject to an agreement in accordance with paragraph (5B), the final price adjustment is to be calculated in relation to that component alone.

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

(6) In this regulation—

(a)“excess level 1” means the contract profit which would have been achieved under the contract [F107or component] (before the application of the final price adjustment) if—

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

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

(b)“excess level 2” means the contract profit which would have been achieved under the contract [F108or component] (before the application of the final price adjustment) if—

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

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

(c)“excess level 3” means the contract profit which would have been achieved under the contract [F109or component] (before the application of the final price adjustment) if—

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

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

(d)“loss level” means the loss which the primary contractor would have made under the contract [F110or component] (before the application of the final price adjustment) had the outturn costs been 5% higher than the contract price;

(e)“outturn costs” means the amount of the primary contractor's actual costs under the contract [F111or component] which meet the requirements set out in section 20(2)(a) to (c);

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

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

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

(i)references to the contract profit rate or contract price exclude any amount resulting from step [F1123] of regulation 11 (incentive adjustment);

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

F113(k). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F114(l). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Determination of contract profit rate adjustmentsU.K.

18.—[F115(1) This regulation applies to—

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

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

(c)any adjustment agreed under step 3 of regulation 11.]

[F116(2) The SSRO may, on an application by the Secretary of State or the primary contractor made within two years after the contract completion date or, where the application is made in respect of a component, the component completion date—

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

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

(c)determine whether the adjustment mentioned in paragraph (1)(c) is in accordance with these Regulations.]

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

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

(b)the statutory guidance in place,

at the time of agreement.

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

[F117(5) If the SSRO determines that—

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

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

(c)the adjustment mentioned in paragraph (1)(c) is not in accordance with these Regulations,

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

Textual Amendments

Determination of allowable costsU.K.

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

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

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

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

(2) An application must be made within two years after the contract completion date [F118or, where the application is made in respect of a component, the component completion date].

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

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

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

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

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

Textual Amendments

[F119Chapter 3U.K.Alternative pricing of contracts

Textual Amendments

Commercial pricingU.K.

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 lawU.K.

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 priceU.K.

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 priceU.K.

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 volumesU.K.

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 rateU.K.

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 componentsU.K.

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.]

PART 4U.K.Records

Duty to keep relevant recordsU.K.

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

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

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

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

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

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

(c)the date the contractor made an offer to amend the contract;

(d)the date of the amendment.

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

(4) Where the award of a qualifying defence contract was the result of a process in which a notice of intention to seek offers was published F120..., the recording date is the date of the publication of that notice.

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

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

(b)the date the Secretary of State [F121last] published [F122a transparency notice or] a voluntary transparency notice in relation to the contract;

(c)the date the primary contractor was invited to provide an offer;

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

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

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

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

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

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

whichever is the earlier.

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

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

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

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

whichever is the earlier.

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

[F123(11) In this regulation—

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

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

Textual Amendments

Examination of relevant recordsU.K.

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

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

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

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

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

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

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

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

PART 5U.K.Reports on qualifying defence contracts

General requirements and interpretationU.K.

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

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

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

(i)the individual submitting the report;

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

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

(b)the date the report is due;

(c)the date the report is submitted;

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

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

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

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

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

[F124(i)the expected contract completion date (or, if the contract completion date is known, that date);]

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

(k)the [F125contract] pricing method or methods used in determining the price payable under the contract, and the amount of the price resulting from each method (if known); and

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

[F126(2A) Where the qualifying defence contract contains components, every report provided under this Part must contain the following information in relation to each component except where the information is the same in relation to that component as it is in relation to the contract—

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

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

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

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

(c)any unique identifying number allocated to the component by the Secretary of State;

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

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

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

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

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

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

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

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

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

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

(c)whether the contractor is an SME; and

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

(4) Every report provided under this Part must—

(a)be provided in electronic form; and

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

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

(6) Subject to regulation 29(3) and (4), where a regulation requires a statement of actual costs [F127, actual price payable or actual volumes], nevertheless—

(a)up to 5% of the costs [F128, price payable or volumes] may, without any explanation, be estimated costs [F128, price payable or volumes];

(b)5% or more of the costs [F129, price payable or volumes] may be estimated costs [F129, price payable or volumes], if an explanation is given of—

(i)why it is not possible to provide actual costs [F130, price payable or volumes] at the time the report is provided; and

(ii)when actual costs [F131, price payable or volumes] will be available.

[F132(6A) Where estimated costs, price or volumes are provided in accordance with paragraph (6)(b), the primary contractor must provide the actual costs, price or volumes as soon as reasonably practicable after that information becomes available.]

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

[F133(7A) Where a regulation requires reporting of the costs or profit of a component which was created because of a pricing amendment to which paragraph 7 of the Schedule applied, the parties may agree that the costs or profit are to be reported as the costs or profit originally determined in accordance with that paragraph (irrespective of any variance to the costs or profit which has occurred since).

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

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

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

(10) In this Part—

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

[F134(aa)a reference to a contract pricing method under which costs are indistinguishable from profits is a reference to a contract pricing method described in regulation 19A, 19B(3), 19C or 19E;

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

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

(i)1 January to 31 March;

(ii)1 April to 30 June;

(iii)1 July to 30 September; and

(iv)1 October to 31 December;

(c)“the initial reporting date” means—

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

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

Textual Amendments

[F135Contract pricing statementU.K.

23.—(1) The primary contractor must provide—

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

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

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

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

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

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

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

(c)describe any other information which was material to the pricing of the contract.

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

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

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

(c)describe—

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

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

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

(a)explain—

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(a)describe—

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

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

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

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

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

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

(b)include an explanation of how—

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

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

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

Textual Amendments

[F136Contract reporting planU.K.

24.—(1) The primary contractor must provide—

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

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

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

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

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

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

(b)a list of—

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

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

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

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

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

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

(f)a list of the cost recovery bases—

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

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

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

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

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

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

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

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

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

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

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

(a)the contract—

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

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

(b)a component of the contract—

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

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

Textual Amendments

Contract notification reportU.K.

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

(2) [F137Subject to paragraphs (3) to (6), the report] must contain the following information—

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

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

[F138(ba)where the contract contains components, an explanation of which of those deliverables relate to which component;]

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

(i)any risk contingency element included in the allowable costs [F139and where the contract contains components, an explanation of which parts of any risk contingency element relate to which component];

(ii)planned amounts of profit [F140for the contract and, where the contract contains components, for each component], excluding any amount resulting from an adjustment determined under step [F1413] of regulation 11; and

(iii)the maximum amount of profit resulting from an adjustment determined under step [F1423] of regulation 11 [F143and where the contract contains components, the maximum amount of profit in relation to each component resulting from such an adjustment];

[F144(d)an annual profile of any estimated costs for the contract and, where the contract contains components, for each component of the contract at the initial reporting date (split by the defined pricing structure);]

[F145(e)the total amount of non-recurring allowable costs (split by the defined pricing structure) for the contract and, where the contract contains components, for each component of the contract, except where the contract or component was priced using a contract pricing method under which costs are indistinguishable from profits;]

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

(g)a list of all payments exceeding £100,000 or 1% of the contract [F146price] (whichever is the greater) expected to be made by the Secretary of State under the contract, including—

(i)the expected amount of each payment;

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

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

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

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

(j)a list of—

(i)all delivery milestones set out in the contract [F147, together with an explanation of whether, and if so how, each milestone relates to any component of the contract]; and

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

(k)a description of any actual or intended sub-contracts which the primary contractor has entered into, or intends to enter into, for the purposes of enabling it to perform its obligations under the qualifying defence contract (including the total proportion of the [F148contract price] of the qualifying defence contract which the primary contractor expects to sub-contract); and

(l)in relation to each such sub-contract into which the primary contractor has entered or intends to enter, and which has or is expected to have a value of not less than £1,000,000 F149...—

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

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

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

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

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

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

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

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

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

[F150(m)in relation to each sub-contract which the primary contractor has entered into, or intends to enter into, and which has or is expected to have a value of not less than £15,000,000, if the primary contractor has made an assessment that the contract would not be a qualifying sub-contract—

(i)the outcome of the negative assessment;

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

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

[F151(3) If the contract price for the contract or component is determined entirely in accordance with regulation 19A (commercial pricing) the requirements in paragraph (2) are modified in respect of the contract or component as follows—

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

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

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

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

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

Textual Amendments

Quarterly contract reportU.K.

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

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

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

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

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

(6) [F152Except where the price of the contract is determined entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the] report must contain the following information—

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

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

(ii)planned amounts of profit, excluding any amount resulting from an adjustment determined under step [F1533] of regulation 11; and

(iii)the maximum amount of profit resulting from an adjustment determined under step [F1543] of regulation 11;

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

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

(i)any risk contingency element,

(ii)planned amounts of profit, excluding any amount resulting from an adjustment determined under step [F1553] of regulation 11, and

(iii)the expected maximum amount of profit resulting from an adjustment determined under step [F1563] of regulation 11,

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

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

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

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

(ii)the previous financial year, and

(iii)the next financial year,

split by the contractor reporting structure;

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

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

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

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

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

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

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

(i)a list of—

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

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

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

(j)a description of any actual or intended sub-contracts which the primary contractor has entered into, or intends to enter into, for the purposes of enabling it to perform its obligations under the qualifying defence contract (including the total proportion of the [F157contract price] of the qualifying defence contract which the contractor expects to sub-contract); and

(k)in relation to each such sub-contract into which the primary contractor has entered in the period covered by the report, or intends to enter in the calendar quarter following the period covered by the report, and which has or is expected to have a value of not less than £1,000,000 F158...—

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

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

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

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

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

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

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

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

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

[F159(l)in relation to each sub-contract which the primary contractor has entered into, or intends to enter into, and which has or is expected to have a value of not less than £15,000,000, if the primary contractor has made an assessment that the contract would not be a qualifying sub-contract—

(i)the outcome of the negative assessment;

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

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

[F160(6A) Where the contract contains a component which was not priced in accordance with a contract pricing method under which costs are indistinguishable from profits, the report must also contain the relevant component information.

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

(a)on each of—

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(ii)the previous financial year; and

(iii)the next financial year,

split by the contractor reporting structure;

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

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

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

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

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

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

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

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

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

(a)the current estimate of the price; and

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

(7) In this regulation, “contractor reporting structure” means the breakdown of contract [F161or component] costs into the categories used by the contractor for its own internal contract management purposes.

Textual Amendments

F158Words in reg. 26(6)(k) omitted (1.9.2019) by virtue of The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 10(3)

Interim contract reportU.K.

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

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

(a)either—

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

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

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

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

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

(3) Otherwise, the reporting dates are—

(a)either—

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

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

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

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

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

[F162(3A) Where the contract contains components—

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

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

(4) [F163Subject to paragraphs (4B) to (4E), the report] must contain the following information—

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

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

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

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

(ii)planned amounts of profit, excluding any amount resulting from an adjustment determined under step [F1643] of regulation 11; and

(iii)the maximum amount of profit resulting from an adjustment determined under step [F1653] of regulation 11;

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

[F166(e)except where the component is priced using a contract pricing method under which costs are indistinguishable from profits, the total amount of non-recurring costs at the time of agreement (split by defined pricing structure);]

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

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

(i)any risk contingency element,

(ii)planned amounts of profit, excluding any amount resulting from an adjustment determined under step [F1673] of regulation 11, and

(iii)the expected amount of profit resulting from an adjustment determined under step [F1683] of regulation 11,

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

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

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

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

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

(j)a list of all payments exceeding £100,000 or 1% of the contract [F169price] (whichever is the greater) that have been or are expected to be made by the Secretary of State under the contract, including—

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

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

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

(k)if the contract requires payment to be made in sterling, an annual profile of all such payments made, or which the contractor expects the Secretary of State will make; F170...

(l)if the contract requires payment to be made in any currency other than sterling, an annual profile for each such currency of all payments made, or which the contractor expects the Secretary of State will [F171make; and]

[F172(m)where the report is provided on a reporting date for a component of the contract, the relevant component information in relation to that component.]

[F173(4A) In paragraph (4)(m), “relevant component information” means the following information in relation to the component so far as it is different from the information provided in relation to the contract in accordance with paragraph (4)—

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(a)the current estimate of the price; and

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

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

(5) [F174Subject to paragraphs (7) to (9), if] the value of the qualifying defence contract is less than £50,000,000, the report must also contain the following information—

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

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

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

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

(iii)the effect that the event or circumstances have had on the costs already incurred (paragraph (4)(h)); and

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

(c)a list of—

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

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

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

(d)a description of any actual or intended sub-contracts which the primary contractor has entered into, or intends to enter into, for the purposes of enabling it to perform its obligations under the qualifying defence contract (including the total proportion of the [F175contract price] which the primary contractor expects to sub-contract); and

(e)in relation to each such sub-contract which has or is expected to have a value of not less than £1,000,000 F176...—

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

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

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

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

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

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

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

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

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

[F177(f)in relation to each sub-contract which the primary contractor has entered into, or intends to enter into, and which has or is expected to have a value of not less than £15,000,000, if the primary contractor has made an assessment that the contract would not be a qualifying sub-contract—

(i)the outcome of the negative assessment;

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

(iii)confirmation of whether the contract enables the performance of contracts other than a qualifying defence contract or qualifying [F178sub-contract; and]]

[F179(g)where the report is provided on a reporting date for a component of the contract, the relevant component information in relation to that component.]

[F180(6) In paragraph (5)(g), “the relevant component information” means, subject to paragraphs (7) to (9), the following information in relation to the component so far as it is different from the information provided in relation to the contract in accordance with paragraph (5)—

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

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

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

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

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

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

(c)an explanation of which delivery milestones set out in the contract relate to the component.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Textual Amendments

F176Words in reg. 27(5)(e) omitted (1.9.2019) by virtue of The Single Source Contract (Amendment) Regulations 2019 (S.I. 2019/1106), regs. 1, 11(4)

[F181Component completion reportU.K.

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.]

Textual Amendments

Contract completion reportU.K.

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

(2) [F182Subject to paragraphs (3) to (7), the report] must contain the following information—

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

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

[F183(ba)where the contract contains components, an explanation of which of those deliverables relate to which component;]

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

(i)any risk contingency element included in the allowable costs [F184and, where the contract contains components, an explanation of which parts of any risk contingency element relate to which component];

(ii)any actual risk contingency element [F185and, where the contract contains components, an explanation of which parts of any actual risk contingency element relate to which component];

(iii)the maximum amount of profit [F186for the contract and, where the contract contains components, for each component] that could have resulted from the incentive adjustment (step [F1873] of regulation 11) at the time of agreement;

(iv)the actual incentive adjustment [F188for the contract and, where the contract contains components, for each component];

(v)the planned amount of profit [F189for the contract and, where the contract contains components, for each component], excluding any amount resulting from the incentive adjustment; and

(vi)the actual amount of profit [F190for the contract and, where the contract contains components, for each component], excluding any amount resulting from the incentive adjustment;

[F191(d)an annual profile of any estimated costs for the contract and, where the contract contains components, for each component at the time of agreement (split by the defined pricing structure);]

[F192(e)the total amount of non-recurring allowable costs (split by the defined pricing structure) for the contract and, where the contract contains components, for each component of the contract, except where the contract or component was priced using a contract pricing method under which costs are indistinguishable from profits;]

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

(g)an annual profile of the actual costs (split by the defined pricing structure) [F193for the contract and, where the contract contains components, each component of the contract];

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

(i)a quantified analysis of the causes of variance (explaining not less than 90% of the total variance) between any estimated costs used to determine the contract price [F194of the contract and, where the contract contains components, each component of the contract] and the total actual and forecast costs;

(j)a description of any event that has occurred, or circumstances which have arisen, since the contract was entered into, that have had or are likely to have a material effect in relation to the contract [F195or, where the contract contains components, a component of the contract], including—

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

(ii)whether the event or circumstances were covered by any contingency element of the contract price [F196for the contract or component]; and

(iii)the effect that the event or circumstances have had on the costs already incurred or forecast to be incurred under the contract [F197or component];

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

(l)a list of all payments exceeding £100,000 or 1% of the contract [F198price] (whichever is the greater) that have been or are expected to be made by the Secretary of State under the contract, including—

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

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

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

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

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

(o)a list of—

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

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

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

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

[F199(oa)where the contract contains components, an explanation of which delivery milestones relate to which component;]

(p)in relation to each sub-contract which the primary contractor has entered into for the purposes of enabling it to perform its obligations under the qualifying defence contract which has or is expected to have a value of not less than £1,000,000 F200...—

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

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

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

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

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

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

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

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

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

[F201(q)in relation to each sub-contract which the primary contractor has entered into, or intends to enter into, and which has or is expected to have a value of not less than £15,000,000, if the primary contractor has made an assessment that the contract would not be a qualifying sub-contract—

(i)the outcome of the negative assessment;

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

(iii)confirmation of whether the contract enables the performance of contracts other than a qualifying defence contract or qualifying [F202sub-contract; and]]

[F203(r)a description of any component completion reports provided under regulation 27A.]

[F204(3) If the contract price for the contract or component is determined entirely in accordance with regulation 19A (commercial pricing) or regulation 19B(3) (prices determined in accordance with law) the requirements in paragraphs (2) are modified as follows in relation to the contract or component—

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

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

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

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

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

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

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

(c)the report need not contain the information specified in paragraph (2)(c), (e) and (p);

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

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

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

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

(h)paragraph (2)(o) has effect as if—

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

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

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

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

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

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

Textual Amendments

Contract costs statementU.K.

29.—[F205(1) The primary contractor must provide a contract costs statement—

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

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

[F206(1A) Where a statement is provided in accordance with—

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

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

(2) [F207If the contract or component is not priced entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the statement] must contain the following information—

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

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

(c)an annual profile of the actual allowable costs [F208for the contract or, where the statement is provided in relation to a component, for the component], showing—

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

(ii)any other direct costs; and

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

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

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

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

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

[F209(2A) If the contract or component is priced entirely in accordance with a contract pricing method under which costs are indistinguishable from profits, the statement must contain the following information—

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

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

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

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

[F210(3) Up to 2% of—

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

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

(c)the actual volumes delivered required by paragraph (2A)(b) may, without explanation, be estimated volumes.]

[F211(4) 2% or more of the actual allowable costs, actual price payable or actual volumes mentioned in paragraph (3) may be estimated costs, price or volumes, if an explanation is given of—

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

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

[F212(4A) Where estimated costs, price or volumes are provided in accordance with paragraph (4), the primary contractor must provide the actual costs, price or volumes as soon as reasonably practicable after that information becomes available.]

(5) In this regulation—

[F213(za)“competed rate” means the competed rate or price in accordance with the terms of the relevant framework agreement;

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

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

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

(a)“direct costs” means costs which—

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

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

(b)“indirect costs” means costs which—

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

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

Textual Amendments

On-demand contract reportU.K.

30.—[F214(1) Within one month of the initial reporting date of the qualifying defence contract, the Secretary of State may by written direction require the primary contractor to provide the information described in regulation 29(2) (contract costs statement) for one or more specified periods, each such period ending on a date before—

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

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

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

(3) Before the contract completion date [F215or the component completion date of a component of the contract], the Secretary of State may by written direction require the primary contractor to provide the information described in any of—

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

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

(c)regulation 27(4) and (5) (interim contract report);

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

(4) The Secretary of State may make more than one written direction under paragraph (3) in relation to the contract [F216or component].

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

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

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

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

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

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

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

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

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

Textual Amendments

PART 6U.K.Reports on overheads and forward planning etc

Application of this PartU.K.

31.—(1) This Part applies where—

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

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

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

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

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

[F217(2A) In determining the value of a qualifying defence contract for the purposes of this Part, any part of the contract the price of which was determined in accordance with a contract pricing method under which costs are indistinguishable from profits (within the meaning of regulation 22(10)(aa)) is to be disregarded.]

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

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

Textual Amendments

InterpretationU.K.

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

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

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

(c)a group of undertakings to which paragraph (5) applies in respect of a relevant period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(c)each of those undertakings either is, or is associated with, the designated person;

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

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

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

(6) In this Part—

(a)“defence contract” means—

[F218(i)any contract to which the Secretary of State is a party which is for, or substantially for, defence purposes (within the meaning of regulation 3); or]

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

(b)“the designated person” means—

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

(ii)otherwise, P,

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

(c)“direct costs” means costs which have not been calculated using a cost recovery rate;

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

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

Textual Amendments

General requirementsU.K.

33.—(1) Every report provided under this Part must contain the following information—

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

(i)the individual submitting the report; and

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

(b)the date the report is due;

(c)the date the report is submitted; and

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

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

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

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

(c)an address to which correspondence relating to the report may be sent.

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

(a)the total number of employees;

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

(c)the total number of contractors; and

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

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

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

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

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

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

Actual rates claim reportU.K.

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

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

(a)three months after either—

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

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

whichever is the later; or

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

(3) The report must contain the following information—

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

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

(c)a description of any deviation from the relevant statutory guidance in calculating those cost recovery rates;

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

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

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

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

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

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

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

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

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

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

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

QBU actual cost analysis reportU.K.

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

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

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

(a)three months after either—

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

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

whichever is the later; or

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

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

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

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

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

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

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

(c)a quantified analysis of the total actual revenue for the QBU, presented in the following categories—

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

(ii)revenue from any other defence contract;

(iii)any other revenue;

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

(e)actual values for the cost recovery rates.

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

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

(b)an explanation of any [F219material] difference between the costs analysis information as estimated in the previous report and the costs analysis information in this report.

Textual Amendments

Estimated rates claim reportU.K.

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

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

(a)three months after either—

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

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

whichever is the later; or

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

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

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

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

(c)a description of any deviation from the relevant statutory guidance in calculating those cost recovery rates;

[F220(d)the QBU budgeted cost and budgeted volume data;]

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

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

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

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

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

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

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

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

Textual Amendments

QBU estimated cost analysis reportU.K.

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

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

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

(a)three months after either—

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

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

whichever is the later; or

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

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

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

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

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

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

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

(c)a quantified analysis of the total estimated revenue for the QBU, presented in the following categories—

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

(ii)revenue from any other defence contract;

(iii)any other revenue;

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

(e)estimated values for the cost recovery rates.

(8) The report must contain—

(a)an explanation of any [F221material] differences between the actual costs analysis information in relation to the financial year immediately preceding the relevant financial year and the estimated costs analysis information for the relevant financial year; and

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

Textual Amendments

Estimated rates agreement pricing statementU.K.

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

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

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

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

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

(6) The report must contain the following information—

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

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

(c)a description of the facts and assumptions used in calculating the matters described in regulation 36(3)(d) to (h);

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

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

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

(e)a description of all material assumptions—

(i)regarding changes to costs relating to employment;

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

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

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

Rates comparison reportU.K.

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

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

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

(4) The report must contain the following information—

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

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

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

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

(b)for each of those contracts—

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

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

(iii)any title given in the contract;

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

(v)the [F222contract] pricing method or methods used in determining the price payable under the contract; and

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

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

(d)for each cost recovery rate used in determining the contract price under regulation 10 (or, if the price has been re-determined [F223in accordance with the Schedule], used in the most recent determination)—

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

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

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

Textual Amendments

Strategic industry capacity report: general requirementsU.K.

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

(a)12 months after either—

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

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

whichever is the later; or

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

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

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

(a)it is associated with the designated person;

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

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

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

Strategic industry capacity report: corporate structureU.K.

41.  The strategic industry capacity report must contain—

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

(b)for each such undertaking—

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

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

(iii)its accounting period; and

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

(c)a list of all the QBUs of the designated person;

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

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

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

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

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

(ii)any other defence contract;

(iii)all other sources; and

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

Strategic industry capacity report: activities, people and infrastructureU.K.

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 [F224£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.

Textual Amendments

Strategic industry capacity report: forecast costs of maintaining industrial capacityU.K.

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 chainU.K.

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”) reportU.K.

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 7U.K.Records and reports: restrictions

Disapplication of requirements to give informationU.K.

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 confidentialityU.K.

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 8U.K.Compliance

Contraventions of section 31U.K.

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

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

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

(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 noticesU.K.

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 penaltiesU.K.

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 [F225of 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 [F226price] 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

Textual Amendments

PART 9U.K.SSRO: opinions and determinations

[F227Matters on which the SSRO must give an opinionU.K.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Textual Amendments

Matters in relation to which the SSRO must make a determinationU.K.

52.—[F228(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).]

[F229(2) A reference to the SSRO for a determination in relation to [F230the 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.]

[F231(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.]

Textual Amendments

Time limits for applications for opinionsU.K.

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)F232... (reference by Secretary of State and primary contractor for SSRO's opinion) [F233which relates to a qualifying defence contract] must be made no later than two years after the contract completion date of the contract F234....

Textual Amendments

Matters to which the SSRO must have regard in making determinationsU.K.

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 dateU.K.

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 10U.K.Restrictions on disclosing information

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

56.—(1) Information is specified for the purposes of paragraph 1(1)(c) of Schedule 5 [F235to 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.

Textual Amendments

PART 11U.K.Qualifying sub-contracts

InterpretationU.K.

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-contractsU.K.

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 [F236, 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; [F237nor]

F238(iii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F239(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).

Textual Amendments

Competitive process for single sub-contractsU.K.

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 agreementU.K.

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 “[F240framework 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 [F241framework suppliers]; and

(c)enters into a contract with a [F242sub-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 [F241framework 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 [F243person 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 [F241framework 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.

Textual Amendments

Assessing whether a contract would be a qualifying sub-contractU.K.

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.

[F244(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.]

Textual Amendments

Appeal against assessmentU.K.

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-contractsU.K.

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 ActU.K.

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 ”.

[F245(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—

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

Textual Amendments

Modifications of these RegulationsU.K.

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—

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

[F246(3) Regulations 6, 7 and 8 to 9A do not apply.]

[F247(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 ”.

F248(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F249(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 ”;

[F250(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 ”.

[F251(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”.]

[F252(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), [F253paragraphs (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 [F254paragraph (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), [F255paragraph (2)(g) to (i) does] not apply.

(13) In regulation 27 (interim contract report), [F256paragraph (4)(j) to (l) does] not apply.

(14) In regulation 28 (contract completion report), [F257paragraph (2)(l) to (n) does] not apply.

[F258(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.]

[F259(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”.]

Textual Amendments

[F260Price adjustments for qualifying sub-contractsU.K.

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).]

Textual Amendments

Philip Dunne

Minister for Defence Equipment, Support and Technology

Ministry of Defence

Yn ôl i’r brig

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