Consultation outcome

Allowable Costs guidance: overheads and indirect costs

From:: Single Source Regulations Office
Published: 24 May 2022
Last updated: 7 November 2022 — See all updates

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Detail of outcome

The SSRO has undertaken a review of its allowable cost guidance on indirect costs and overheads. Overhead cost recovery and cost recovery rates are an important aspect of ensuring both value for money and fair and reasonable prices, under the single source regime.

We have today published updated guidance that supports parties negotiating qualifying contracts in the following areas:

Overheads: Helping to establish which overhead costs may be included in the price of a qualifying contract as allowable. We have refined and clarified the wording of the guidance to assist in its application.
Indirect costs: Encouraging a structured and consistent application of the requirements of allowable costs in agreeing cost recovery rates. We have introduced new specific guidance in this area.

We engaged with stakeholder in the development of this guidance refresh through a series of workshops, working papers and a public consultation. We are grateful for the contributions of our stakeholders. The consultation response document explains how the feedback they provided has informed the final guidance. We are always interested to hear about the experience of users of our guidance to help us to understand how it may be further improved.

To assist stakeholders in understanding the guidance changes we have published a table that specifically shows where the existing guidance text has been revised, deleted or added, and the purpose of these changes.

The revised guidance will apply to qualifying defence contracts and qualifying sub-contracts entered-into on and after 7 November 2022, replacing existing guidance in those areas.

Feedback received

Consultation responses

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Detail of feedback received

to be added

Original consultation

Consultation description

The SSRO is consulting on proposed changes to its guidance on Allowable Costs in qualifying defence contracts (QDCs) and qualifying sub-contracts (QSCs) regulated under the Defence Reform Act 2014 (the Act) and Single Source Contract Regulations 2014.

This consultation is open to anyone with an interest in ensuring that good value for money is obtained in government expenditure on QDCs and QSCs and that a fair and reasonable price is paid to contractors. We particularly welcome comments from individuals or organisations with an interest in non-competitive defence procurement.

Our proposed updates focus on improving the guidance we provide to parties negotiating qualifying contracts in the following areas:

Overheads: Helping the parties establish which overhead costs may be included in the price of a qualifying contract as allowable. We propose to refine and clarify the wording of the guidance and include some examples to assist its application.
Indirect costs: Encouraging a structured and consistent application of the requirements of allowable costs in agreeing cost recovery rates. We propose to introduce new specific guidance in this area.

To assist stakeholders in understanding the proposed changes, the consultation document clearly shows where the existing guidance text has been revised, deleted or added, and the purpose of the changes proposed.

The proposals for change have been informed by stakeholder input which we have summarised in the consultation and explained how it has informed the guidance developments.

The consultation runs until 18 July 2022.

Completed response forms should be sent:

by email to consultations@ssro.gov.uk (preferred); or
by post to SSRO, Finlaison House, 15-17 Furnival Street, London, EC4A 1AB.

The SSRO also welcomes the opportunity to meet with stakeholders to discuss the proposals during the consultation period. If you wish to arrange a discussion, please contact Peter Roche at the earliest opportunity via peter.roche@ssro.gov.uk.

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