2023 contract profit rate recommendation
2023/24 baseline profit rate, capital servicing rates and SSRO funding adjustment recommendation
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Under the Defence Reform Act 2014, the Single Source Regulations Office (SSRO) is required to provide the Secretary of State each year with an assessment of the appropriate baseline profit rate, SSRO funding adjustment and capital servicing rates used to determine the contract profit rate for qualifying defence contracts (QDCs) and qualifying sub-contracts (QSCs).
The Secretary of State for Defence has announced his determination of the rates and we welcome the Secretary of State’s decision to accept our assessment. These rates will apply to qualifying contracts entered into from 1 April 2023 and can be found in The Gazette and in the SSRO’s guidance on the baseline profit rate and its adjustment.
This year’s assessment uses the SSRO’s established methodology and permanently excludes company profit data for the financial year 2020/21 from the benchmark. This exclusion covers the period where we found there to be an adverse impact on the data used in the methodology as a result of the pandemic. We consider that this is the best way to remove the impact of COVID-19. The inclusion of more recent data is supported by evidence of a return to pre-pandemic rates of profit in our benchmark data and wider macroeconomic indicators. The baseline profit rate is the starting point for the application of the six steps, which allows for a range of contract profit rates. Further details of the SSRO’s assessment can be found in the SSRO’s key questions and answers on this year’s rates assessment.
In addition to the standard baseline profit rate, the SSRO has recommended a baseline profit rate to apply to contracts between the Secretary of State and a company wholly owned by the UK Government, where both parties agree to this. This rate was introduced in 2021 by the Secretary of State and the reasons for its introduction can be found here: https://www.thegazette.co.uk/notice/3760612.
We continue to promote transparency about our rates assessment and have again published information on our methodology and its application to help anyone who may wish to scrutinise or replicate the approach we have taken this year.