Guidance on the pricing of qualifying defence contracts and subcontracts

The SSRO has published new and updated pricing guidance, and invites your views. The guidance comes into force on 1 April 2024.

The guidance includes the introduction of:

• Alternative pricing methods for contracts, which will see non-competitive defence contracts able to be priced in new ways, in addition to the existing price formula. For example, an item could be priced by reference to competitive markets: simplifying and speeding up procurement.
• More flexibility and transparency through broadening the ability for a contract to be split into different components or parts, each with its own profit rate and price (known as componentisation). This will allow contract prices to better reflect risk-sharing between the MOD and defence contractors.
• Rationalisation of how the contract profit rate is to be calculated, removing two steps from the existing six step process and simplifying the agreement of contract profit rates.

The guidance issued today takes account of industry and MOD views shared in workshops and meetings, and in their responses to our working papers issued in May 2023. The changes to contract pricing are explained in the consultation document.

Changes to the regulatory framework are being introduced by the Procurement Act 2023 and updates to the single source contract regulations.

The new and updated guidance documents are:

1. Guidance on Alternative pricing types – version 1
2. Allowable Costs guidance – version 7
3. Guidance on the baseline profit rate and its adjustment – version 8

This consultation seeks feedback on the new and updated pricing guidance. Stakeholder feedback will contribute to the further development and improvement of the guidance. We are pleased to engage with interested parties during the consultation period. We plan to hold workshops on the new and updated guidance and will provide details on this webpage and directly to our stakeholders and Operational Working Group members.

There will be corresponding changes in reporting requirements, which will also come into force from 1 April 2024. We plan to consult on these from mid-February and issue details of the reporting guidance changes from mid-March.

Later in 2024 we will update the guidance to incorporate feedback from this consultation and will benefit from the early practical experience of the MOD and defence industry contractors as they apply the new guidance and the legislation.

This consultation is open to all interested persons. We welcome comments from individuals and organisations who are users of the guidance or who may be party to a single source qualifying defence contract (or subcontract) in the future.

The consultation runs until 5.00 pm Wednesday 17 April 2024. Responses should be sent to:

• consultations@ssro.gov.uk (preferred).
• Review of Legislation – Pricing and Allowable Costs Guidance consultation responses, SSRO, 100 Parliament Street, London, SW1A 2BQ

If you wish to discuss the guidance or consultation, please contact David Goodwin, Senior Policy Adviser (david.goodwin@ssro.gov.uk or 020 3771 4790 ).

We are hosting a series of Teach Ins and Q&A sessions, to support contractors who are (or may be) subject to the regulatory framework to familiarise themselves with the key changes to pricing and reporting provisions; to understand which SSRO guidance to refer to when pricing and reporting contracts; and how to seek support from the SSRO for contract specific queries. Dates and registration details are below.

• Pricing Guidance Teach In and Q&A session 1: 20 February, 0930 – 1230.
  • What is in the new legislation?
  • The SSRO’s new and updated pricing guidance: what it covers and where to find it.
  • The new features of pricing contracts, including what componentisation means and the seven new alternative pricing methods.
  • Responding to questions from stakeholders (please do send to us by 15 February).
• Reporting Guidance Teach In and Q&A session 1: 12 March, 0930 – 1230.
  • What is in the new legislation?
  • The SSRO’s new and updated reporting guidance: what it covers and where to find it.
  • Changes to the Defence Contract Analysis and Reporting System (DefCARS).
  • Responding to questions from stakeholders (please do send to us by 5 March).
• Pricing Guidance Teach In and Q&A session 2: 10 April, 0930 – 1230.
  • The changes to existing features of pricing contracts, including the cost risk adjustment and POCO.
  • Responding to areas of interest raised in session 1 and subsequent feedback from stakeholders.
  • Clarification of any aspects of the guidance.
• Reporting Guidance Teach In and Q&A session 2: 8 May, 10:00 – 12:00.
  • Responding to areas of interest raised in session 1 and subsequent feedback from stakeholders.
  • Clarification of any aspects of the guidance.

The Teach Ins will be hybrid and held at a central London location and via Microsoft Teams. If you would like to attend, please send your name and which company your represent to helpdesk@ssro.gov.uk, stating which Teach In you would like to attend and whether in person or via Teams.