Single source contract regulations must make provision about determining the price payable under a qualifying defence contract F1, and, where the contract is divided into components, each component of that contract, to the primary contractor.

The regulations must only specify circumstances for the purposes of subsection (2)(b) if the Secretary of State is satisfied that the factors referred to in section 13(2) may be ensured in those circumstances if another method is used.

The regulations may also make provision requiring a particular method specified in the regulations to be used in certain of the circumstances specified for the purposes of subsection (2)(b).

The formula is—

$\left(\mathrm{CPR}\times \mathrm{AC}\right)+\mathrm{AC}$

where—

1. a

   “CPR” is the contract profit rate for the contract F6or component (see section 17), and

2. b

   “AC” means the primary contractor's allowable costs under the contract F7or component (see section 20).

The regulations may provide for a determination by virtue of subsection (2) or (3) to be made at such times as may be specified in the regulations (and different times may be specified for different kinds of contract F8or component).

In this Part, “component”, in relation to a contract, means a part of the contract that is to be treated distinctly from other such parts in determining the price payable under the contract.

Single source contract regulations may make provision about when parts of a qualifying defence contract are or are not to be treated distinctly from other parts of the same contract.

Section 21 (final price adjustment) does not apply to a contract in a case where an agreement of a kind mentioned in subsection (1) has effect.

Single source contract regulations must make provision for determining the contract profit rate for a qualifying defence contract F12, or, where the contract is divided into components, any component of that contract.

The regulations must provide for the determination to be made by taking the following sequence of steps, subject to section 18(2)—

• Step 1 Take the baseline profit rate (see section 19) which is in force at the relevant time.“The relevant time” means—

  1. (a)

     in a case within section 15(2)—

     1. (i)

        when the contract is entered into, if the contract is a qualifying defence contract by virtue of section 14(3), or

     2. (ii)

        when the contract is amended, if the contract is a qualifying defence contract by virtue of section 14(4) or (5);

  2. (b)

     in a case within section 15(3), when the contract is amended.

• Step 2 Adjust that rate by an agreed amount, being an amount falling within specified parameters above or below the baseline profit rate, so as to reflect F13the financial 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..“Specified” means specified in the regulations.

• F14...

• F14...

• Step F153 Where the Secretary of State determines that the amount resulting from step F162 should be increased so as to give the primary contractor a particular financial incentive as regards the performance of provisions of the contract F17or component specified by the Secretary of State, increase that amount by an amount specified by the Secretary of State. F18In specifying provisions of the contract or component, the Secretary of State must comply with any requirements imposed by the regulations, and any increase must not exceed the maximum increase permitted by the regulations.

• Step F154 Take the amount resulting from step F193 and add to or subtract from it an agreed amount, 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 F20or component. This adjustment—

  1. (a)

     is to be made having regard to the capital servicing rates determined under section 19, but

  2. (b)

     does not apply to the extent that the costs of the fixed and working capital employed by the primary contractor are allowable costs under the contract F20or component.

The Secretary of State or an authorised person, and the primary contractor, must have regard to guidance issued by the SSRO in relation to any of the steps set out in section 17(2).

The Secretary of State must, for each financial year, determine—

• the baseline profit rate,

• F28...

• the capital servicing rate for fixed capital, and

• the capital servicing rate for working capital.

For the purpose of assisting the Secretary of State in determining for a financial year each of the rates mentioned in subsection (1) F29..., the SSRO must provide the Secretary of State with its assessment of what is the appropriate rate F30... for that year.

The Secretary of State must publish each of the rates mentioned in subsection (1) for a financial year F31... in the London Gazette no later than 15 March in the preceding financial year.

Subsection (6) applies if, in the case of a particular rate F32..., there is a difference between the rate F33... determined under subsection (1) and the SSRO's assessment of the appropriate rate F33... for the financial year in question.

The Secretary of State must, when publishing the relevant rate F34..., also publish reasons for the difference.

The SSRO must issue guidance about determining whether costs are allowable costs under qualifying defence contracts.

Single source contract regulations may provide that the requirements set out in subsection (2)(a) to (c) are not met in relation to a cost where the cost arises from profits made by a person connected with the primary contractor.

The regulations may specify the circumstances in which a person is connected with the primary contractor.

In determining whether the requirements set out in subsection (2)(a) to (c) are met in relation to a particular cost, the Secretary of State or an authorised person, and the primary contractor, must have regard to guidance issued under subsection (1).

The Secretary of State or an authorised person may at any time require a primary contractor to show (whether by reference to guidance issued under subsection (1) or otherwise) that the requirements set out in subsection (2)(a) to (c) are met in relation to a particular cost claimed by the primary contractor as an allowable cost under a qualifying defence contract F38, or where the contract is divided into components, a component of that contract.

The SSRO may determine that the price payable under F40a qualifying defence contract is to be adjusted by an amount specified by the SSRO in consequence of a determination under subsection (5), having regard to the extent to which the cost in question was treated as an allowable cost when the price payable under the contract was determined (or last determined) in accordance with section 15.

Single source contract regulations may provide for adjustments to be made to the total price payable by the Secretary of State under a qualifying defence contract.

The regulations must specify the procedure to be followed in determining the amount of any adjustment.

Provision made under subsection (2) may include provision dealing with how, in the case of a qualifying defence contract divided into components, the components are to be taken into account in determining the amount of any adjustments to the total price payable under such a contract.

The regulations may specify matters to which the Secretary of State must have regard in deciding whether to make a direction under subsection (5).

If all or part of the amount mentioned in subsection (1)(b)(i) or (ii) is not paid or repaid before the payment date, the unpaid balance carries interest from that date at the rate for the time being specified in section 17 of the Judgments Act 1838.

The “payment date” is the date determined by the SSRO, in making the determination in question, as the date by which the amount must be paid or repaid.

The person to whom the amount is required to be paid or repaid (“the creditor”) may recover from the other person as a debt due to the creditor the unpaid balance and any unpaid interest.