SSRO opinion on costs agreed prior to conversion to a qualifying defence contract
Anonymised summary of a formal opinion on the extent to which costs agreed prior to conversion of a contract to a qualifying defence contract may be Allowable.
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In accordance with the procedure published in the SSRO’s referrals guidance, the SSRO has published an anonymised summary of its opinion in relation to a proposed qualifying defence contract (QDC). The referral concerned the extent to which costs agreed prior to conversion of a contract to a QDC may be treated as Allowable under the Defence Reform Act 2014. The referral request was made by the MOD.
The SSRO considers that the approach to sunk costs set out in paragraphs 7.9 and 7.10 of the SSRO’s Single Source Cost Standards may equally be applied to the committed costs of the proposed QDC. The SSRO expects that the parties would satisfy themselves at the time of amending the enabling contract as to whether the costs agreed prior to conversion to a QDC are allowable. In the SSRO’s opinion, they may be allowable, depending on the application of the AAR test, having regard to the Single Source Cost Standards. The summary sets out the key considerations that the SSRO has had regard to in forming the opinion.
The anonymised summary has been prepared having regard to the commercial sensitivity of matters, the subject of the opinion and the SSRO’s obligations under Schedule 5 to the Act.