New guidance to help contracting parties deal with excess profits and losses on vital defence contracts
Publication of guidance on the Final Price Adjustment, which mitigates the impact of excess profits or losses that may arise in non-competitive defence contracts.
Following consultation with stakeholders, we have issued new guidance regarding the Final Price Adjustment (FPA). This guidance will support contracting parties to swiftly resolve common issues encountered in the application of the FPA.
The FPA allows the contractor and the Ministry of Defence to share excess profits or losses arising under a qualifying defence contract, rather than having them fall solely on one of them. The FPA is generally used after the contract has concluded, but may now also be applied where a contract has several pricing periods during the life. The guidance provides further detail as to when and how the FPA might be used.
John Russell, Chief Executive said:
This new publication on the final price adjustment provides valuable guidance to help resolve common issues between contracting parties. Dealing with these issues should save time and money for the MOD and contractors. This work reflects the SSRO’s approach of developing advice and guidance that is accessible, easy to use and relevant to the major issues MOD and industry face in negotiating and managing these vital contracts.
The SSRO has taken a new approach to how this guidance is structured, to make it accessible and user friendly. Developments include the use of real-world scenarios to help understand and resolve common issues, as well as signposting to the relevant Regulations and details of how to contact the SSRO for support. An FPA calculator has also been developed and is available for stakeholders’ use. This development of SSRO guidance has been well received by consultation respondents who said the guidance will help with the agreement of the FPA.
We will keep the guidance under review and will update it to reflect users’ experience of its application.
The FPA guidance has been issued as part of the SSRO’s new powers arising from the Procurement Act 2023, which enable the SSRO to issue guidance in relation to the application or interpretation of any area of the law governing qualifying defence contracts. We plan to use our new powers to issue more guidance in a broader range of areas particularly where stakeholders tell us they would like more support.
For more information, read the FPA guidance and our response to stakeholder feedback on the FPA consultation.