Transparency data

Board minutes: 27 September 2018

Published 11 February 2019

Single Source Regulations Office

Minutes of the 23rd Board Meeting Board Room, Finlaison House, 15-17 Furnival Street, London EC4A 1AB

Thursday 27 September 2018 2:00pm to 4:00pm

Board members present:	Others present:
George Jenkins (Chairman)	Malcolm Botting
Mary Davies	Akhlaq Shah (item 3)
Peter Freeman	Ben Johnston (item 4)
Terence Jagger	Adrian Wallis (item 4)
David Johnston	Colin Sharples (item 6)
Marta Phillips	Jane McGovern (item 7)
Neil Swift
Matthew Rees
David Galpin (by phone from item 3 onwards)

1. Welcome, apologies, announcements and declarations of interest

1.1. The Chairman welcomed members to the 23rd meeting of the Board.

1.2. There were no apologies.

No interests were declared

2. Minutes of 22nd meeting of the Board and action tracker

2.1. The Chairman introduced the minutes of the Board meeting held on 26 June 2018. Five actions were recorded on the separate action tracker and had been completed or were reported on in papers elsewhere on the agenda. The Chairman thanked Terence Jagger for chairing the appointment panel that had identified four new independent members to be appointed to SSRO Referrals Committees. It was noted that the terms of the existing referrals panel members would expire within the year. Action: David Galpin to explore arrangements for ensuring a sufficient number of independent members on the referrals panel.

2.2. The minutes of the 22nd meeting of the Board were approved as a correct record subject to two additions, which would be circulated to the Board for information following the meeting. Action: Secretariat.

3. Chief Executive’s Report to Board

3.1. Neil Swift, Chief Executive, presented his report to the Board, which provided an update on items not included elsewhere on the agenda.

3.2. The Chief Executive informed the Board of recent stakeholder engagement, including the potential for the SSRO to attend the Defence Suppliers Forum. As the Defence Suppliers Forum was attended by senior stakeholders from both industry and the MOD, and the single source regime was a recurrent item on its agenda, the Board agreed that it was appropriate for the SSRO to be present and noted that the SSRO’s Senior Stakeholder Forum in October may be cancelled as a result.

3.3. The Chief Executive informed the Board of the successful recruitment of a Defence Advisor. The Board was responsible for determining the structure of the Executive Committee and approved the structure as follows: Chief Executive (Board member); Director of Regulation and Economics (Board member); Director of Legal and Policy (Board member); Director of Corporate Resources (fulfils the role of Chief Operating Officer specified in the Act); and Defence Advisor.

3.4. The Board agreed to defer the next stakeholder survey until 2019/20, and to undertake a full survey at that time.

3.5. The Chief Executive informed the Board that Parliament had approved a new statutory instrument, entitled ‘Single Source Contract (Amendment) Regulations 2018’. This had made a small number of changes to the existing Single Source Contract Regulations 2014, principally around changing the provisions for excluding contracts from being QDCs and QSCs. The statutory instrument also addressed drafting deficiencies in the original regulations.

3.6. The Board considered the publication of the annual Compliance Report in the light of feedback received from stakeholders. The Board noted that the report was moderate, factual and professional, that it fulfilled the SSRO’s responsibility to highlight compliance issues and that it reflected the work done by the SSRO to ensure improvements in the quality of the data submitted through statutory reports. The Board approved the publication of the report on the SSRO’s website. It would be published following the meeting. Action: Neil Swift.

The Board:

• noted the information provided in the report;
• approved the Executive Committee structure set out in paragraph at paragraph 5.4;
• considered and agreed a preferred option for undertaking a stakeholder survey (paragraph 6.3); and
• approved the publication of the annual Compliance Report (paragraph 8.2).

4. 2019/20 baseline profit rate methodology

4.1. Matthew Rees, Director of Regulation and Economics, introduced a report that summarised stakeholder feedback received on the baseline profit rate methodology and how the SSRO had sought to address the issues raised. Stakeholders had acknowledged the stability, predictability and replicability of the calculated rates, and the Board agreed there was no appetite for significant change.

4.2. In the light of feedback received, the Board considered the methodology that would be applied to assess the SSRO’s recommendation of the baseline profit rate, capital servicing rates and funding adjustment that should apply for the financial year 2019/20. It agreed that the SSRO would adopt the existing methodology, the Single Source Baseline Profit Rate, Capital Servicing Rates and Funding Adjustment Methodology. The methodology had been applied successfully for the last two years, with the analysis delivered in-house with external specialist advice engaged to provide technical support to the project team. Its application had to date been supported by the Secretary of State and the Minister for Defence Procurement. Use of the existing methodology would provide stability in the calculation of the baseline profit rate.

4.3. The SSRO had recently focused attention on the turnover threshold within the methodology, in response to feedback from industry stakeholders. The Board considered the evidence presented on the issue to date, as well as additional matters it considered relevant to a decision. These included: the range of profit outcomes achievable under the six adjustments in the Regulations, as evidenced by the SSRO’s Annual and Quarterly Qualifying defence contract statistics; actual profit outcomes from finished contracts; the changing population of QDCs and QSCs and contractors; the outcome of the review of the cost risk adjustment; and the range of parameters that made up contract profit and the risk of unintended consequences.

4.4. The SSRO proposed to consider an analysis of company size, which could be measured in a number of ways, as a regulatory priority next year. Addressing this matter through the annual cycle of regulatory priorities would ensure that all stakeholders were engaged in a planned and systematic way, and that the SSRO would use their feedback to inform development of the baseline profit rate methodology.

4.5. The Board discussed external quality assurance for the application of the methodology. Following an open competition, the SSRO was in the process of appointing the successful bidder (BDO LLP) to provide external quality assurance support to the SSRO for the next three annual rates recommendations.

The Board:

• agreed to the application of the SSRO’s published methodology to assess the appropriate BPR, CSRs and FA for 2019/20;
• agreed that the SSRO should calculate the underlying profit rates on its four activity types;
• noted how the SSRO had responded to stakeholder feedback on the methodology;
• noted that the Regulatory Committee would be asked to agree the recommendation to the Secretary of State at its meeting on 23 January 2019; and
• noted that preliminary analysis on turnover had been added to the Board Shelf, and that further work would be proposed as part of the 2019-22 Corporate Plan.

5. SSRO staff skills

5.1. Neil Swift, Chief Executive, presented a report on the outcome of the recent review of the skills and knowledge of SSRO staff. The results of the review were being used to develop the SSRO’s Workforce Strategy, which would set the context for future recruitment and skills and knowledge development.

5.2. The review had found that skills, competence and knowledge levels were generally at a high level across the board, as reflected in the operational delivery of the SSRO’s business objectives. Board members commented on the high levels of academic achievement among staff, with 94 per cent of respondents educated to degree level or higher. Qualifications were typically in highly relevant subject areas, including economics, law, finance and engineering. 71 per cent were professionally qualified (mainly accountancy and law), with a quarter of staff being Fellows of their respective institutes.

5.3. Board members discussed employment practices at other regulators, including the use of revolving door policies with regulated organisations and secondments with other relevant organisations. The Board discussed what skills and experience the SSRO might benefit from and whether the paper should reflect on which skills would result in the right mix for the SSRO’s role. The SSRO positively sought to recruit from a diverse pool of talent and experience and this brought benefits. However, ensuring the right skills mix was a multi-faceted challenge that involved recruitment pathways, awareness of the SSRO and its work among potential recruits, and the attractiveness of the SSRO as an employer. The issues raised would be considered as part of the development of the workforce strategy. Action: Graham Payne.

The Board:

• noted and commented on the results of the review of staff skills and knowledge.

6. Corporate Plan – development timetable

6.1. David Galpin, Director of Legal and Policy, introduced a report providing the Board with a proposed timeline for the development of the SSRO’s Corporate Plan 2019-22 and Internal Business Plan, which would lead to the publication of the Corporate Plan at the end of March 2019.

6.2. The paper set out the process that the SSRO proposed to follow, which included a session with Board members following the meeting and a strategic planning session at Shrivenham. This was consistent with the consultative approach set out in the Stakeholder Engagement Strategy. The SSRO would engage with the MOD and industry throughout the development of the plans and in prioritising its work to deliver core regulatory objectives.

6.3. It was proposed that work to develop the plans and priorities would proceed with appropriate engagement and input from staff and stakeholders. In discussion, the Board was complimentary about the document, approved the approach and welcomed the commitment to consultation and engagement.

The Board:

• approved the timeline in Appendix 1 for the development of the Corporate Plan 2019-2022, which would include regulatory priorities for 2019-2020.

7. 2019/20 financial planning

7.1. Neil Swift, Chief Executive, introduced a report presenting the SSRO’s 2019/20 financial plan, draft budget and 2018/19 outturn. The 2019/20 draft budget was based on delivery of the current Corporate Plan and the requirement for key work areas to be adequately resourced.

7.2. In discussion it was clarified that sufficient expenditure for the DefCARS database was included within the proposed budget, and the Board queried other budget lines and what they incorporated. Further developments to DefCARS were likely as system utilisation and user numbers increased in line with contracts and reports. A small provision had been made for ongoing minor developments, but costs of improvement requests from stakeholders were likely to be more significant. These costs would be the subject of in-year business cases for additional Grant in Aid, if they could not be accommodated within the SSRO’s agreed budget.

7.3. The Board discussed potential future budget requirements and pressures as well as the external financial environment. The Board also discussed how the SSRO would respond to certain scenarios and considered issues such as the possibility of income generation.

The Board:

• approved the 2019/20 budget plan, draft budget and initial assumptions and risks; and
• noted the 2018/19 forecast outturn.

8. Renewal of corporate travel and contingent labour frameworks

8.1. Neil Swift, Chief Executive, introduced a report on the SSRO’s contract arrangements for purchasing corporate travel.

8.2. The SSRO currently had two contracts in place under Crown Commercial Services (CCS) framework agreements. These frameworks were due to expire and would be replaced by new frameworks following commercial procurements undertaken by CCS on behalf of the public sector. The SSRO would be able to establish new contracts under these framework agreements and satisfy the requirements of public procurement for relevant services, and this was the recommended approach that the Board agreed.

The Board:

• approved a new three-year enabling agreement for Contingent Labour with Alexander Mann under CCS framework RM3749 (Public Sector Resourcing (PSR)), which would come into effect immediately;
• authorised the Chief Executive to approve a new three-year enabling agreement for Corporate Travel with the supplier offering best value under CCS framework RM6016 (Public Sector Travel and Venue Solutions), which would have an effective date of 1 November 2018; and
• authorised the Chief Executive to sign the approved agreements.

9. Complaints policy

9.1. Malcolm Botting, Head of Governance and Chief Executive’s Office, presented a paper on the recent review of the SSRO’s complaints policy. The paper reported that the existing policy remained generally fit for purpose and that no major changes were required other than updating references to the General Data Protection Regulation, and minor editorial changes to improve clarity.

9.2. The Board made one amendment to the policy, which would be made prior to its publication on the SSRO’s website. Action: Malcolm Botting.

The Board:

• approved the updated policy.

10. Corporate Performance Report

10.1.Neil Swift, Chief Executive, introduced the report, which provided an update to the Board on how the organisation was delivering against its corporate priorities as set out in the Corporate Plan. The Board considered progress against each of the objectives and the KPI ratings set out in the report.

The Board:

• reviewed and commented on the Corporate Performance Report.

11. Minutes of the 24 July 2018 Regulatory Committee

11.1.Peter Freeman presented the minutes of the Regulatory Committee meeting on 24 July 2018.

11.2.The Regulatory Committee was currently monitoring several regulatory developments, and at the last meeting considered changes to statutory guidance, the review of the legislation, work on the baseline profit rate and external referrals guidance. At its next meeting the Committee would consider progress on the review of legislation and the development of the pricing guidance.

12. Minutes of the 19 September 2018 Audit Committee

12.1.Marta Phillips presented the minutes of the Audit Committee to the Board. At its last meeting, the Committee had been informed of a change in the NAO’s audit manager. The Committee had welcomed the work that had been done on the pay and gender gap while noting that there were some issues to resolve in the long term. The Committee had also discussed the extension of the contract for outsourced finance and HR.

12.2.The Committee had also considered the report from the SSRO’s internal auditors GIAA, which had provided substantial assurance on the SSRO’s risk management arrangements. The Board noted in particular Marta Phillips’s comments about the Audit Committee’s consideration of the Corporate Risk Register and the associated risk appetite for each of the risks. It considered the balance of risks and risk appetite and decided that it was satisfied with the current risk profile.

The Board:

• noted the minutes

13. Future Board business

13.1.The Chairman presented to the Board a two-page document showing the business of all Board and sub-committee meetings until September 2019. The Board noted the content of the report.

The Board:

• Commented on the future Board business.

14. Any Other Business

14.1.The Chairman informed the Board that he had agreed a set of objectives for the Chief Executive, and the Board noted that the process has been completed and agreed.

14.2.The Director of Regulation and Economics provided an update on his recent discussions with the DefCARS external provider, following an action from the May 2018 Board meeting.

15. Date of the next meeting

15.1.The next meeting of the Board would take place on 4 December at 2:00pm.