5. Compliance and penalty queries
Updated 31 October 2024
© Crown copyright 2024
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/responses-to-commonly-asked-questions/5-compliance-and-penalty-queries
5.1 I can see that a compliance issue in the Defence Contract Analysis and Reporting System (DefCARS) has been forwarded to the MOD on my report, what do I need to do?
Published April 2023
Any issues that are shown in DefCARS as forwarded to the MOD will have first been raised with the contractor for response. The SSRO will refer unresolved reporting and pricing issues to the MOD, to allow it to consider whether any follow up action is required. Section 6 of the SSRO’s compliance and review methodology explains the process and the scenarios in which the SSRO raises issues with the MOD. The SSRO will further note whether it considers that the issue forwarded to the MOD is of a high, medium or low priority to allow the MOD to consider the matter further. In any case where a contractor sees that an issue has been forwarded to the MOD and the contractor has not previously responded, the contractor is still able to provide a response in the usual manner.
Where there has been no response from the MOD to a forwarded issue within six months, the SSRO will close the referred issue(s) on the system for that submission and mark it as impacting the overall quality of the report. We will cease to follow up on these issues actively and will not continue to seek a response or raise repeat issues on subsequent reports for the same issue(s) for the same contract.
Link to the SSRO’s compliance and review methodology
Link to the SSRO’s guidance on determining amount of financial penalty
5.2 What are the consequences if a QDC/QSC fails to apply the profit rate steps in determining the profit calculation?
Published July 2023. Updated May 2024.
It is a legal requirement for the contract profit rate of QDCs and QSCs using the default pricing method to be calculated by applying the steps contained in section 17(2) of the Defence Reform Act 2014 and Regulation 11 of the Single Source Contract Regulations 2014.
The SSRO monitors adherence to these requirements and will report any apparent non-adherence in line with its compliance methodology to both the contractor and the MOD using the compliance functionality in DefCARS.
The Secretary of State may issue a compliance notice to a contractor where it has failed to comply with the reporting requirements (section 31(3)(a)(ii) of the Act), including the requirement in the Contract Pricing Statement to “describe the calculation that was made under regulation 11 to determine the contract profit rate, including all factors that were determined under each of the steps of that regulation;” (Regulation 23(3)(b)).
The Secretary of State may issue a penalty notice to a contractor where they think it has “failed to take the steps specified in a compliance notice” and either “does not have a reasonable excuse” for the failure (section 32(2) of the Act) or there are no steps that can be taken to remedy the contravention (section 32(3) of the Act).
5.3 What is a compliance notice?
Published July 2023
The Secretary of State may issue a compliance notice under section 31 of the Defence Reform Act 2014. A compliance notice can be issued to a contractor if the Secretary of State thinks it has contravened section 31 and there are steps that can be taken by the contractor to remedy the contravention in question (section 31(1) of the Act). Section 31(3) of the Act lists the relevant contraventions.
A compliance notice will specify the steps necessary to remedy the contravention and direct the contractor to take such steps (section 31(2) of the Act). It must also give details of the contravention, specify the period within which the steps specified in the notice must be taken, and state that if the contractor fails to take those steps, the Secretary of State may issue a penalty notice (section 31(6) of the Act).
5.4 What is a penalty notice?
Published July 2023
The Secretary of State may issue a penalty notice under section 32 of the Defence Reform Act 2014 in two circumstances. The first is where the Secretary of State thinks that the contractor has “failed to take the steps specified in a compliance notice” and “does not have a reasonable excuse for the failure” (section 32(2) of the Act). The second is where the contractor has contravened section 31 of the Act and the Secretary of State does not think that there are steps that can be taken by the contractor to remedy the contravention (section 32(3) of the Act).
A penalty notice is a notice that requires the contractor to pay a penalty to the Secretary of State within six months of the date the notice is given (section 32(4) of the Act). Section 32(6) of the Act describes the information which a penalty notice must contain.
The SSRO publishes guidance on determining the amount of a financial penalty to be included in a penalty notice.