Defence Reform Act 2014

Defence Reform Act 2014

2014 CHAPTER 20

Commentary on Sections

Part 2: Single Source Contracts

Section 13 and Schedule 4: Single Source Regulations Office (“SSRO”)

46. This section provides for the establishment of the SSRO. The SSRO will be classified as a Non-Departmental Public Body (NDPB) and will replace the existing Review Board for Government Contracts, but will have a much greater remit than the Review Board had. The SSRO will act as the regulator for the new framework.

47. There will be a Framework Document setting out the arrangements between the MOD and the SSRO. This document will be publicly available.

48. The initial set-up costs of the SSRO will be funded by the MOD, and the Department will continue to contribute to its funding. However, once in a steady state, up to half of its funding will be provided by deductions from the price payable under contracts which are subject to Part 2. The amount of funding that will be obtained this way will be determined every year by the Secretary of State on the advice of the SSRO and taken from payments made to contractors (see step 4 of the contract profit rate, under section 17).

49. The functions of the SSRO are set out in various places in Part 2. In summary they are:

a)

advising the Secretary of State on the baseline profit rate, the SSRO funding adjustment, and capital servicing rates (section 19(2));

b)

keeping the regulatory framework under review and recommending changes to the Secretary of State (section 39(1) and (2));

c)

keeping records of contracts which are subject to Part 2 (section 36(1));

d)

keeping under review contractors’ compliance with their reporting obligations (section 36(2));

e)

analysing reports and other information (section 36(3));

f)

upon a referral, providing determinations, including on:

• the amount of any target cost incentive fee (TCIF – this term is explained under section 15 paragraph 59(c) below) adjustment (section 16(2)(b));

• whether step 2, 3 or 6 of the contract profit rate was appropriately determined at the time a contract was entered into (section 18(3));

• whether a cost under a contract is an allowable cost (section 20(5));

• the amount of any final price adjustment for firm or fixed price contracts (these terms are explained under section 15) (section 21(3)(b));

• whether obligations of confidence were entered into for genuine commercial reasons (section 27(3));

• whether a sub-contract is subject to Part 2 (sections 29(5) and 30(4));

• matters relating to a compliance or penalty notice (section 32(8));

• any matter specified by the regulations and referred to it by the Secretary of State, an authorised person, a contractor or a prospective contractor (section 35(1)(b));

g)

upon a referral, providing an opinion, including on:

• whether the Secretary of State or an authorised person has reasonably exercised functions in relation to contractor records (section 23(6) and (7));

• any matter specified by the regulations and referred to it by the Secretary of State, an authorised person, a contractor or a prospective contractor (section 35(1)(a));

• any matter referred by both parties to a regulated contract or a proposed regulated contract (section 35(3)); and

h)

providing statutory guidance on:

• any of the contract profit rate steps (section 18(1));

• determining whether costs are allowable costs (section 20(1));

• preparing reports (sections 24(2)(d) and 25(6)(d));

• how to determine the amount of a penalty (section 33(3)).

50. The SSRO will also have the function of providing other assistance or services to the Secretary of State in accordance with arrangements made with the Secretary of State (section 37(1)), but if it does so those will be paid for by the Secretary of State (section 37(2)). The industry contribution described above, which will be deducted at step 4 of the contract profit rate, will not contribute to this work.

51. Subsection (2) sets out the overall aim of the SSRO in carrying out its functions. That aim is to ensure both value for money for the government and a fair and reasonable price for contractors in relation to contracts to which Part 2 applies.

52. Subsection (3) gives effect to Schedule 4, which provides for governance aspects of the SSRO. The Schedule describes the members the SSRO will have, their terms of office, and how they may resign or be removed or suspended from office. It allows the SSRO to employ staff and provides for the remuneration and pensions of employees and members. The SSRO may determine its own procedure, subject to a requirement that when it is exercising certain functions listed in paragraph 10(3) (which include making determinations under specified provisions), this must be done by a committee which includes someone who is neither a member nor an employee of the SSRO (paragraph 10(5)). This is to bring an external view to the determination.

53. Schedule 4 contains other provisions that are standard for an NDPB. It also provides (paragraph 17) that the SSRO is not a servant or agent of the Crown and does not enjoy any Crown status or immunity. Its members and employees are not civil servants.