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Written statement made by Earl Howe (Conservative) on Monday, 14 March 2016 in the House of Lords, on behalf of the Ministry of Defence.

Single Source Contracts

My right hon. Friend the Secretary of State for Defence (Mr Michael Fallon) has made the following Written Ministerial Statement.

I am today announcing that I have set the baseline profit rate for single source defence contracts at 8.95% in line with the rate recommended by the Single Source Regulations Office (SSRO). I am asking the SSRO further to develop the methodology used to calculate the baseline profit rate over the next year.

I am also announcing revised Capital Servicing Rates as recommended by the SSRO at Table 1 below. These rates will come into effect from 1st April 2016.

Table 1: SSRO’s Recommended Rates agreed by the Secretary of State for Defence

Element

2015 rates

2016 rates

Baseline Profit Rate (BPR) (% on contract cost)

10.6%

8.95%

Fixed Capital Servicing Rate (% on Fixed Capital employed)

5.94%

5.08%

Working Capital Servicing Rate (% on positive Working Capital employed)

1.72%

1.40%

Working Capital Servicing Rate (% on negative Working Capital employed)

1.03%

0.74%

Taxpayers can be confident that we are getting value for money for single source defence contracts as we deliver our £178 billion equipment programme. This profit rate provides a fair return to industry while delivering savings that will be reinvested in defence.

Secondary information

Type
Written statement
Reference
HLWS601 
Session
2015-16
Subjects
Defence Procurement Profits Prices Single Source Regulations Office
Contains statistics
Yes
Link
View this Written statement on www.parliament.uk