Q&As arising from Session 4: Reporting Teach-In held on 8 May 2024
Published 5 July 2024
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This session focused on:
- Responding to areas of interest raised at 12 March session
- Feedback from stakeholders
- Clarification of any aspects of the guidance
Final price adjustment and components
Is a final price adjustment applicable at the component or the contract level for a contract entered into before 1 April 2024?
Prior to 1 April 2024 the regulations required the final price adjustment to be calculated with reference to the contract profit, the contract profit rate, the loss level and the outturn costs related only to the relevant defined component or components of the contract.
The regulations now make explicit provision for the parties to agree to treat two or more components as aggregated for the purpose of calculating the final price adjustment. This means that the adjustment can be applied on a component by component basis, or at the overall level of the contract price that excludes any components that use a pricing method to which an FPA is not permitted. It is at the discretion of the parties which approach they take.
The FPA continues to only be applicable to components that use the firm, fixed or volume-based pricing method, and in the circumstances prescribed in the regulations.
Components under the previous regulations
I have a contract entered into under the regulations prior to 1 April 2024. What provisions existed under those regulations which enabled separately priced components of a contract?
Prior to 1 April 2024, the provisions to determine a contract price comprised of one or more components were:
- Different regulated pricing methods (now known as default pricing methods) to be used for defined components of the contract.
- An amendment of a regulated pricing method used for a defined component of a contract.
- An amendment to a defined element of allowable costs under the contract or a defined component of the contract.
- A change to a contractual requirement for a contract or defined component of the contract.
If a contract entered into prior to 1 April 2024 applied any of these provisions in determining the original or amended price of the contract, then it may (but not always) now meet the definition of having created components under the new legislation.
If a contract amendment took place before 1 April 2024 and a different contract profit rate to that of the original contract was used, would a separate component be created?
A separate component would exist because part of the contract is using a different contract profit rate to the CPR used in another part of the contract (regulation 9A(1)(b)).
ICR reporting
If I have identified components in my contract and have an ICR due on 31 May 2024 with a reporting date of 31 March 2024, when does my component level information become due?
Where a new reporting requirement (either submitting a new report or within a report that is otherwise required to be submitted) introduced under the new regulations is triggered by a date or event which occurs before 1 April 2024, that new reporting requirement does not apply, since the requirement to report will not be triggered.
Since the ‘trigger’ is the reporting date of 31 March 2024, at which time the requirement to report component level information was not in force, the need to report this information does not arise (regardless of the due or submission dates).
Meeting the regulatory reporting requirements
What happens if we report incorrectly?
Contractors are required to understand the Regulations which apply to their contracts. The SSRO can provide support to assist contractors to develop their understanding but it is the contracting parties who must meet their legal obligations and ensure that reports are submitted and correct.
The MOD has the power to undertake enforcement action for breaches of the reporting requirements. However, in order to allow time for familiarisation with the new Regulations, the MOD has confirmed that in respect of the reporting of component level information it does not intend to take enforcement action in respect of breaches which occur before April 2025.