Transparency data

Board meeting minutes: 28 March 2019

Published 27 September 2019

Single Source Regulations Office

Minutes of the 26th Board Meeting Board Room, Finlaison House, 15-17 Furnival Street, London EC4A 1AB

28 March 2019 2:00pm to 5:00pm

Board members present:	Others present:
George Jenkins (Chairman)	Paul Everitt, Chief Executive ADS (item 2)
Mary Davies	Graham Payne
Peter Freeman	Colin Hill
Terence Jagger	Malcolm Botting
David Johnston	Ben Johnson (item 5)
Marta Phillips	Colin Sharples (item 6)
Neil Swift
Matthew Rees
David Galpin

1. Welcome, apologies, announcements and declarations of interest

1.1. The Chairman welcomed members to the 26th meeting of the Board.

1.2. There were no apologies.

1.3. The Chairman welcomed Neil Swift’s return to work following a period of absence and thanked Matthew Rees and David Galpin for respectively undertaking the role of delegated Accounting Officer during his absence.

1.4. The Chairman noted that Matthew Rees had been elected to the ICAEW Council and congratulated him on the appointment. The new role would be disclosed on the SSRO’s register of interests.

No interests were declared

2. Presentation by Paul Everitt, Chief Executive of ADS

2.1. The Chairman welcomed Paul Everitt, Chief Executive of ADS, to the meeting and thanked him on behalf of the Board for attending. He noted that Paul Everitt’s presentation would provide the Board with further insight into the landscape in which ADS operated, its work programme and its reflections on the single source procurement regime.

2.2. In his presentation, Paul Everitt noted several positive market features that were of benefit to the defence industry, including that the UK remained one of the largest defence markets in the world. The government had an ambitious defence equipment and support programme and was committed to meeting the NATO target of spending 2 per cent of GDP annually on defence. The UK was also a major exporter of defence equipment and had recently sold or had commitments to sell a significant range of equipment overseas. The Permanent Secretary had appointed a high-quality team of civil servants at the MOD with a strong public service ethos. While these were positive features, several challenges remained such as austerity, currency depreciation and the currently uncertain outcome of the forthcoming spending review.

2.3. Paul Everitt noted that the relationship between ADS, the defence industry and the SSRO was improving significantly and that there was active dialogue in place between the parties. Industry was becoming more at ease with the role the SSRO played, although he cautioned that this should not lead to complacency.

2.4. The Secretary of State was due to undertake a review of the Defence Reform Act and associated Regulations in 2020 and ADS’s view was that the review should consider, among other issues, statutory reporting and reporting requirements. It should also consider what was fair and reasonable in terms of pricing, ensuring that the UK was an attractive place to invest while considering national security and sovereign capability. While the recent increase in the baseline profit rate had been welcomed by industry, the baseline profit rate did not reflect the full contract price. In Paul Everitt’s view this increased complexity and did not provide transparency or comparability to international investors or boards considering where to invest. The next review should therefore consider the signal sent by the current six step process and the baseline profit rate itself. It should also consider an alternative approach where a firm has a commercial list price.

2.5. ADS recognised that the defence industry was complex and was keen to ensure that SSRO staff fully understood the environment in which it operated and the day-to-day pressures it faced, such as pricing contracts or negotiating with the MOD. ADS would like to establish a secondment regime, through which SSRO staff would gain direct experience of the issues facing industry.

2.6. Paul Everitt reflected on recent discussions around potential changes to the cost risk adjustment. The MOD and industry were being encouraged to implement innovative business models, but in his view the move towards innovation sat uncomfortably with a regime that reviewed itself only periodically. Further thought should be given as to how to increase speed of adaptation and how to ensure that opportunities to innovate were taken.

2.7. In discussion, Board members reflected on the points made by Paul Everitt around regulatory programmes and innovation. It was noted that the regime depended on insight from industry and that it was paramount that the UK was seen as a good place to do business. Board members recognised the description of the opportunities and challenges facing the defence industry, and the SSRO’s intention was to help drive improvements in defence procurement while balancing value for money and fair pricing. The SSRO was engaging with industry in prioritising which issues it would focus on over the course of its Corporate Plan 2019-22. Forthcoming discussions at forums such as the Operational Working Group provided an opportunity to ensure that the SSRO prioritised those appropriately given the resources available.

2.8. Board members also made points relating to the use and opportunities arising from the data collected under the Regulations, skills and experience at the SSRO, areas of potential focus for the SSRO Board, the volume of future referrals, the statutory timetable for reviewing the legislation and shareholder value.

3. Minutes of 25th meeting of the Board and action tracker

3.1. The Chairman introduced the minutes of the Board meeting held on 29 January 2019. Four actions were recorded on the separate action tracker and had been completed or were reported on in papers elsewhere on the agenda.

3.2. The minutes of the 25th meeting of the Board were approved as a correct record.

4. Chief Executive’s Report to the Board

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

4.2. A Tailored Review of the SSRO was being undertaken by a team from UKGI, working on behalf of the MOD. The review team was due to interview several non-executive Board members, senior SSRO staff and independent referrals panel members in May and would observe the Board meeting in June 2019, before its final report was circulated in September 2019. The Board noted that it was an important review that provided an opportunity for the SSRO to demonstrate the high quality of the work it delivered. The Board also discussed arrangements for individual members contributing to the review and how developments would be communicated with members.

4.3. A Strategic Update meeting would take place on 10 April, hosted by BAES in Portsmouth. A programme was being developed incorporating a tour of facilities, a presentation by BAES and a private SSRO session. The Board considered the programme of future Strategic Update meetings.

4.4. The annual DefCARS accreditation review had taken place on 14 March 2019. The review confirmed the continuing accredited status of DefCARS and that residual risks were being well managed. The accreditation also considered the organisation’s wider information systems, with the accreditor commenting that the SSRO continued to actively identify and implement best practice regarding data security.

4.5. The reporting requirements project was due to be discussed with stakeholders at the Operational Working Group on 9 April. The areas of focus for the review would be agreed through this engagement and would be reported to the Regulatory Committee at its May 2019 meeting.

The Board:

• noted the information provided in the report;

5. Review of the Contract Profit Rate

5.1. Matthew Rees, the Director for Regulation and Economics, gave a presentation to inform the Board of the work under way in relation to the review of contract profit rates. This multi-year project would contribute to the SSRO’s profit methodology, statutory guidance and the next Review of Legislation.

5.2. While the SSRO retained an open mind on the focus and outcome of the review until it had consulted with stakeholders, the Board agreed that it was important for topics to be prioritised within available resources. Stakeholder feedback to date suggested prioritising incremental improvement of the 6-steps approach, but there would be further discussion about prioritisation at the next meeting of the Operational Working Group.

5.3. Board members would be provided with further information about the review, either through written documents or through a workshop of Board members. Regulatory Committee members would be informed about the scoping and prioritisation of areas covered by the review at its meeting in May 2019. Action: Matthew Rees.

5.4. The baseline profit rate methodology was itself undergoing change. The Board would be asked to consider a draft consultation document on the methodology at its June meeting, and the final methodology would be submitted to the Board for approval in September 2019.

5.5. In discussion the Board raised points about the completed contracts and the linkages between this project and the recommendation of the baseline profit rate for 2020/21.

The Board:

• noted the presentation.

6. Corporate Plan and 2019/20 budget

6.1. David Galpin, Director of Legal and Policy, presented the proposed 2019-2022 Corporate Plan for approval. The Plan has been further developed following a process of engagement throughout February with the MOD, ADS and industry. The SSRO had agreed the key issues to be addressed in the draft Plan with the MOD and had met with the MOD throughout the planning process. Feedback received within the four-week consultation period had been included in full within the paper for the Board’s consideration.

6.2. Stakeholders had been largely supportive of the draft Plan. Its stated priorities were in line with those of the MOD and industry. Several respondents from industry had commented on pricing guidance issues related to the definition of the allowable costs principles and the treatment of indirect business costs; others had welcomed proposals for further work on guidance in relation to the cost risk adjustment. The SSRO was aware that the Tailored Review might impact upon the SSRO’s priorities within its Corporate Plan and this had been referred to in the draft.

6.3. The Plan would be provided to the MOD and published on the SSRO’s website on 29 March 2019.

6.4. Board members commented on the draft Corporate Plan, noting the synergies between the work on cost risk in allowable costs and the cost risk adjustment. Further comments related to what more could be done to address any perceived skills gaps, and the wording around engagement with specific sections of the MOD.

The Board:

• approved the Corporate Plan and 2019/20 budget;
• agreed that the Corporate Plan should be formally submitted to the MOD and published on 29 March 2019;
• approved the proposed Stakeholder Feedback Summary and agreed that it should be provided to stakeholders who were invited to comment on the proposed Plan;
• authorised the Chairman, after consultation with the Chief Executive, to agree the final documents before publication, provided they remained consistent with the Board’s views.

7. Workforce Strategy

7.1. Graham Payne, Interim Director of Corporate Resources, introduced a report seeking the Board’s approval of the SSRO’s first Workforce Strategy. The Board had received a presentation on the principles and key elements of the Strategy at its meeting of 4 December 2018 and the draft reflected the Board’s comments at that meeting and those of the Executive Committee and staff following the subsequent consultation exercise.

7.2. The Strategy set out a vision of a skilled, agile and engaged workforce. It introduced a set of people values to reflect that people were the SSRO’s greatest asset and a set of actions to deliver the Strategy, which had also been reflected in the corporate and business plans. The actions included ensuring that business planning had regard to the staff resources needed and where; that recruitment processes should ensure that the best candidate was appointed; undertaking a review of the organisation’s structure; undertaking a review of the SSRO’s approach to remuneration and reward; and that people were given responsibility for developing and owning their own personal training plan.

7.3. In discussion, Board members asked how the SSRO planned to maintain and optimise skills, as current monitoring did not record specific SSRO staff skills; it was noted that this was now an element of the separate annual training planning exercise. A further question was asked about the reference in the Strategy to the removal of personal information from application forms and CVs at the recruitment sift stage; it was confirmed that this practice was now being followed. The SSRO should challenge itself to consider whether it could do more to be robust to new challenges or to manage new pressures.

7.4. The Board considered whether the Workforce Strategy should be published, and it was agreed that an abridged, public version would be uploaded onto the SSRO website. Action: Graham Payne.

The Board:

• reviewed and commented on the final draft of the SSRO Workforce Strategy 2019-2022; and
• approved the Workforce Strategy.

8. Long Term Accommodation

8.1. Graham Payne, Interim Director of Corporate Resources, introduced a report updating the Board on the SSRO’s plans for its future accommodation. The SSRO’s lease at Finlaison House ended in mid-2023, and the Cabinet Office had written to the Chief Executive to seek an indication of whether the Board wished to submit a business case for the SSRO to remain in London after this point.

8.2. Planning for new accommodation would commence shortly and was required to reflect the government’s estates and people strategy, ‘Places for Growth’. Any business case for exceptional treatment under the policy would be considered against specific criteria. Future accommodation options assessed against the criteria as a basis for the business case would be brought to the next meeting of the Board for consideration. Action: Graham Payne.

8.3. Board members provided points to consider in the development of the SSRO’s business case, based on experience at other organisations. It was important for the case to be made early, and the process required a structured approach, with non-central London locations fully considered. Other factors to be considered included financial implications, legal costs and mobility implications.

The Board:

• agreed the response to the Cabinet Office; and
• instructed the Executive Committee to prepare and submit options for the Board to consider, at its meeting of 27 June, including an option that the SSRO should remain located in London.

9. Corporate Performance Report

9.1. Graham Payne, Interim Director of Corporate Resources, introduced the Corporate Performance Report, which provided a regular update on how the organisation was delivering against its priorities as set out in the Corporate Plan. The report drew together all relevant matters relating to the SSRO’s performance, including progress against key performance indicators, budgetary updates and the delivery of key tasks.

The Board:

• reviewed and commended on the Corporate Performance Report.

10. Corporate Risk Register

10.1.Graham Payne, Interim Director of Corporate Resources, introduced a paper on the Corporate Risk Register. The Board had agreed at its meeting on 4 December that it would annually review the SSRO’s Corporate Risk Register in full. The Register was reviewed by the Audit Committee at each meeting. At the Board meeting following each Audit Committee, the Chair of the Committee provided an overview of its consideration of the Register, and the Board discussed the associated risk appetite for the risks and the balance of risks and risk appetite.

10.2.The Board considered the register and the risks and risk appetites within it, including that risks 6 (data quality) and 7 (inadequate evidence) should be assigned a single risk owner. Action: Graham Payne.

10.3.The Executive Committee was meeting to consider all risks and ratings within the Register in depth before the next Audit Committee, and the Chairman asked for the Register to be circulated again at the June Board meeting, following this exercise. Action: Graham Payne.

The Board:

• considered the corporate risk register.

11. Minutes from Regulatory Committee on 23 January 2019 and draft minutes from 20 March 2019

11.1.Peter Freeman, Chair of the Regulatory Committee, presented the minutes of the Committee’s meeting on 23 January 2019 and the draft minutes from 20 March 2019.

11.2.At its March meeting the Committee had been provided with a detailed presentation on the review of the contract profit rate, had noted the importance of the work and was content that it should proceed. The Regulatory Committee had also reviewed the referrals guidance, which had subsequently been published on 1 April 2019.

The Board:

• noted the minutes

12. Draft minutes from 20 March 2019 Audit Committee

12.1.Marta Phillips, Chair of the Audit Committee, presented the draft minutes of the Committee’s meeting held on 20 March 2019.

12.2.The Committee had considered risk management at its meeting and had been content to endorse the Corporate Risk Register for presentation at this Board meeting. The Committee had requested and received a detailed presentation on risks related to the SSRO’s legal services, which put in focus how legal services spread across the organisation in terms of the risks tackled.

12.3.The Committee had also considered the recent reviews by internal audit and had been introduced to a new representative from GIAA who would be undertaking more of the detailed audit work.

12.4.It had received feedback on the financial accounts at nine months by the NAO and had considered plans for how the Annual Report and Accounts would be produced.

The Board:

• noted the minutes

13. Future agendas and any other business

13.1.The next meeting of the Board would take place on 27 June 2019 at 2pm.

14. Non-executive member private session

14.1.Non-executive Board members had a private session to discuss the Chief Executive’s performance over the past year, in order to inform the annual appraisal.