Single Source Defence Contracts: Baseline Profit Rate 2025-26

I am today announcing on behalf of the Secretary of State for Defence that the baseline profit rate for single source defence contracts will be set at 8.56%, in line with the rate recommended by the Single Source Regulations Office. This an increase of 0.32% from 2024-25. The Secretary of State has accepted the methodology used by the SSRO to calculate these figures. A full explanation of the SSRO methodology is published on their website.

The SSRO’s recommendation on the capital servicing allowance to be applied to single source defence contracts has also been accepted and these rates are set out in table 1. These rates have been published in the London Gazette, as required by the Defence Reform Act 2014.

All of these new rates will come into effect from 1 April 2025.

Table 1: Recommended Rates by the Secretary of State for Defence

Element

2024-25 rates

2025-26 rates

Baseline profit rate (% on contract cost)

8.24%

8.56%

Baseline profit rate to apply to contracts between the Secretary of State and a company wholly owned by the UK Government, and where both parties agree (% on contract cost)

0%

0%

Fixed capital servicing rate (% on fixed capital employed)

3.26%

3.64%

Working capital servicing rate (% on positive working capital employed)

3.1%

4.69%

Working capital servicing rate (% on negative working capital employed)

1.61%

3.21%

[HCWS522]