PART 3 Pricing of contracts

Pricing of contracts

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

where—

(a)

“CPR” is the contract profit rate for the contract, 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 regulated pricing methods described in paragraphs (4) to (11) below.

(2) The parties to a qualifying defence contract may agree which of the regulated pricing methods is to be used for that qualifying defence contract.

(3) The parties to a qualifying defence contract may agree that different regulated pricing methods are to be used for defined components of that contract.

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.

Estimate-based fee pricing method

(7) Under the estimate-based fee pricing method, the allowable costs by which the CPR is multiplied are the allowable costs as estimated at the time of agreement.

(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.

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.

(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

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

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