Baseline Profit Rate Activities Review
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The SSRO is today publishing the outcome of its consultation on proposed developments to our annual profit rate assessment methodology. Our established methodology will apply for this year’s assessment and is available on the SSRO’s website. The consultation response sets out our plans for future developments to the methodology that the SSRO intends to implement for future assessments.
The SSRO is required each year to provide the Secretary of State with an assessment of the appropriate starting rate of profit on Ministry of Defence contracts placed in the absence of competition. This starting point (the baseline profit rate or BPR) is currently 8.29 per cent and contributes the most substantial part of the profit rate negotiated by the MOD and industry on those contracts. The BPR has, during the life of the regime, been applied to contracts totalling in price at over £85 billion, including over £7 billion of estimated contract profit.
The baseline profit rate supports both value for money and fair and reasonable contract prices because it reflects the profits that companies contracting competitively earn when they undertake activities comparable to those that support the delivery of non-competitive defence contracts.
The SSRO launched a consultation in June 2023 on the review and revalidation of the comparable activities used in this assessment. The review was to establish if those activities remain representative of those that are known to contribute to the delivery of non-competitive defence contracts.
We consulted on proposals to refine the activities we include in our profit benchmarks. This included expanding the scope of our benchmarks to cover technical support services, logistics and labour outsourcing. We also asked for feedback on how rental and leasing activities might contribute to the performance of contracts and its treatment in our profit assessment. Our consultation response, that we are publishing today sets out the feedback we received on our proposals and explains how we have taken it into account in reaching our decision on each of the proposals.
We now plan to finalise changes to methodology to include technical support services and labour outsourcing in Phase 2 of the review after this year’s rates assessment has concluded. Further work is required to establish the merits of proposed changes in respect of logistics, rental and leasing.
We would like to thank all those who responded to the consultation for sharing their views with us. Where respondents gave permission for their responses to be published these have been made available.
Feedback received
Original consultation
Consultation description
The SSRO is required each year to provide the Secretary of State with an assessment of the appropriate baseline profit rate. The baseline profit rate provides the starting point in the determination of the contract profit rate. The assessment uses the SSRO’s transparent and established methodology, which incorporates the returns of companies whose economic activities are comparable to those that contribute to the delivery of Qualifying Defence Contracts (QDCs) and Qualifying Sub-Contracts (QSCs).
We are reviewing and revalidating the economic activities used in this assessment, to confirm they remain representative of those that are known to contribute to the delivery of QDCs and QSCs. This will ensure we can continue to rely on our methodology to produce a BPR assessment which supports the SSRO’s statutory aims of value for money and fair and reasonable prices. This consultation seeks feedback on the first phase of this review in which the SSRO has analysed the QDCs and QSCs entered into since the start of the regime. Stakeholder feedback on this analysis will contribute to the development of any proposals to further develop and refine the activity types that contribute to the SSRO’s annual BPR assessment.
Responding to the consultation
This consultation is open to all interested persons. We particularly welcome comments from individuals or organisations with an interest in single source defence procurement and ensuring that good value for money is obtained in the government expenditure on qualifying contracts and the prices paid under those contracts are fair and reasonable.
The consultation runs until 5.00 pm Thursday 10 August 2023. Written responses should be sent:
- by email to: consultations@ssro.gov.uk (preferred),
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by post to: BPR Activities Review consultation responses, SSRO, 100 Parliament Street, London, SW1A 2BQ
- by telephone including arranging an appointment to speak to the SSRO about the consultation: 020 3771 4767
Documents
Updates to this page
Published 22 June 2023Last updated 5 October 2023 + show all updates
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Consultation response published
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First published.