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The Single Source Contract Regulations 2014

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PART 3U.K.Pricing of contracts

[F1Chapter 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.]

[F2Chapter 2U.K.Default pricing of contracts]

Textual Amendments

[F3Default pricing] of contractsU.K.

10.—(1) The price payable under a qualifying defence contract [F4or 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 [F5or 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 [F6default] pricing methods described in paragraphs (4) to (11) below.

F7(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F8(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 [F9or component completion date].

Estimate-based fee pricing method

[F10(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 [F11or 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 [F12or 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

[F13(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 [F14or component of such a contract] must be calculated by taking the following F15... 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 [F16financial 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].

F17(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F18(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Step [F193] – incentive adjustment

(6) Where the Secretary of State determines that the amount resulting from step [F202] should be increased so as to give the primary contractor a particular financial incentive as regards the performance of provisions of the contract [F21or 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 [F224] – capital servicing adjustment

(7) Take the amount resulting from step [F233] 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 [F24or 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 [F25or 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 [F26or 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.

F2712.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 [F28financial 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 [F29the 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 [F30any 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 [F31any 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

[F32Costs 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.

F3314.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 [F34or 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 [F35or 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 F36... 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 F37... 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.

[F38(2A) Where the price payable under the contract includes one or more F39... components which use a [F40contract] 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 [F41or, where the reference relates to a component, after the component completion date]; but

(b)no later than two years after the contract completion date [F42or, 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 [F435 percentage points] but less than [F4410 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 [F4510 percentage points] but less than [F4615 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 [F4715 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.

[F48(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 [F49or 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 [F50or 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 [F51or 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 [F52or 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 [F53or 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 [F543] 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.

F55(k). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F56(l). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Determination of contract profit rate adjustmentsU.K.

18.—[F57(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.]

[F58(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.

[F59(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 [F60or, 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

[F61Chapter 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.]

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