Consultation outcome

Summary of consultation responses

Updated 29 September 2021

1. Introduction

This document explains the changes which the SSRO is making to its reporting guidance in September 2021 and October 2021. The changes impact the following guidance documents:

• guidance on contract reports (previously version 9.1); and
• guidance on DefCARS functionality (previously version 9.1)

We engaged with stakeholders about the changes, except for those which are minor and uncontroversial. We issued a consultation document for a period of eight weeks, from 19 March to 14 May 2021, covering the following areas:

• rounding in validations;
• linking compliance issues to owners;
• reporting sunk and committed elements in a contract;
• reporting on-demand report due dates;
• amended sub-contracts; and
• defined pricing structure (DPS) principles.

We discussed proposed guidance changes at meetings of the Reporting and IT sub-group of our Operational Working Group. The discussions covered the following topics:

• 23 March 2021: items in the consultation document;
• 7 July 2021: proportion of price sub-contracted, key deliverables and milestones, outcomes of QSC assessments, and price committed to pay.

We received four written responses to our consultation, as set out in Table 1. The Ministry of Defence (MOD) did not provide a response to the consultation.

Table 1 – Stakeholder responses to consultation

Organisation	Number of responses
ADS Group	1
Defence contractors	2
Independent consultant	1
Total	4

We would like to thank respondents for sharing their views with us. We have considered all responses and we have set out in sections 2 – 9 of this document and Appendices 1 – 7 how the feedback has been considered and the reasons for any guidance changes.

In our consultation document we explained that, subject to stakeholder feedback, any changes to the reporting guidance would be made in September 2021 or in a later version of the guidance once timescales for any associated DefCARS development had been assessed. We make clear in this document whether we intend to introduce changes in September 2021, October 2021 or later.

2. Rounding in validations

We proposed to reduce the sensitivity of DefCARS validation checks to differences in reported numbers due to rounding. Appendix 1 sets out the detailed proposals, the feedback received and our response. The new guidance will be introduced in October 2021 alongside appropriate DefCARS changes.

Stakeholders were supportive of this proposal. One industry stakeholder said that the examples included in Table 1 of the consultation paper should be added to the proposed guidance to help DefCARS users to understand how the validations will apply. ADS considered that a minor change could be made to Table 1 to improve clarity. The SSRO has added the Table 1 examples to its guidance and made a change similar to that suggested by ADS.

An industry stakeholder suggested three different tolerances for validation checks, rather than the two proposed. We did not think the additional granularity was necessary and have not amended the proposal. One stakeholder commented that the tolerances did not constitute statutory reporting guidance. The SSRO’s view is that the guidance on DefCARS functionality is statutory because it is issued under Regulation 22(9) to assist contractors to prepare reports.

3. Linking compliance issues to owners

We proposed changes to the compliance functionality in DefCARS to link each compliance issue with the person responsible for dealing with the issue at each stage. Appendix 2 sets out the detailed proposals, the feedback received and our response. The new guidance will be introduced in October 2021 alongside related DefCARS changes.

Stakeholders were supportive of this proposal. ADS confirmed that the changes make clear when a contractor has provided a response to the question and the originator is required to validate the response.

One stakeholder suggested that the SSRO should distinguish between a compliance issue and a point of clarification. This can only reliably be done at the end of the process when the issue is being closed and the contractor has had the opportunity to respond. The SSRO is implementing a new download report that will enable a contractor to identify whether a compliance issue has impacted on the quality assessment of the submission. We are not proposing to add this information to the home page in DefCARS as this already contains a great deal of data.

It was suggested that issues should be referred to as ‘forwarded to the MOD’s Single Source Advisory Team’ rather than ‘forwarded to MOD’. We think this is already covered in the SSRO’s compliance & review methodology, which explains what ‘forward to MOD’ means. One industry stakeholder suggested an accuracy change to paragraph 2.30 which the SSRO has made. Another industry stakeholder suggested that compliance issues should be linked to action owners in supplier reports, which is in line with what the SSRO proposed. A stakeholder thought that the process flow diagrams in the guidance should include issues raised by Delivery Teams with the SSAT. We have not made this change, as issues cannot be forwarded from MOD delivery teams to the SSAT within DefCARS.

The SSRO sought views on email notifications which are issued by DefCARS to users. One stakeholder responded on this to suggest that automated emails relating to supplier reports should identify the QBU to which the query relates. The SSRO welcomes this suggestion and intends to implement this change while also considering whether other automatic email notifications are clear for stakeholders.

4. Reporting sunk and committed elements in a contract

We proposed to update the guidance to better explain how contractors should report sunk and committed price elements when a contract has become a qualifying contract following an amendment. Appendix 3 sets out the detailed proposals, the feedback received and our response. We will make changes to the guidance in September 2021. This will include providing a Yes/No option in DefCARS so contractors can make clear whether they are reporting sunk or committed costs.

Stakeholders indicated that reporting of sunk and committed elements in a contract could be complex and these elements could be treated differently in contracts. We accept this point and we would like to provide additional guidance to assist contractors. One respondent thought that a better approach than applying the pricing formula to parts of contracts would be complete repricing (by agreement) or establishing a new and separate contract for the work that is to go. This relates to commercial practice and is not a matter we propose to address in the reporting guidance.

Stakeholders considered that legislative change was needed to clarify this issue and ADS suggested that the guidance should be put on hold until any legislative change was clear. The SSRO has recommended legislative change in this area, most recently in June 2021,^{[footnote 1]} but we consider that we should support contractors to report consistently until changes are made. One stakeholder said that the proposed guidance reflected the approach which contractors were already taking to reporting these contract elements. As stated, we would like to support a consistent approach pending any change in the law.

One industry stakeholder stated that the current approach to reporting sunk and committed elements in DefCARS should be maintained. By contrast, ADS suggested that contractors should only report the total quantum of these costs without the requirement to annually profile them. The legislative requirement is to provide an annual profile of all Allowable Costs excluding any risk contingency element and the SSRO intends to continue to provide guidance consistent with the legal requirement.

One stakeholder thought that the SSRO could further define and describe specific terms. It was suggested that the SSRO should not confuse sunk costs relating to the contract prior to the amendment and costs relating to the amendment that are incurred prior to the amendment taking place. The SSRO has made changes to its proposed Allowable Costs and contract reporting guidance to make it clearer through more consistent use of terms.

Stakeholders were asked for their views on when Allowable Costs guidance should be updated. One industry stakeholder suggested that the changes should be made as soon as possible. Another said that such changes should be deferred until 1 April 2022 so they could be implemented simultaneously with any required changes associated with the MOD’s Review of Legislation, as frequent updates to guidance could be confusing for contractors. The SSRO considers that implementation as planned in September 2021 is appropriate. A further update to the Allowable Costs guidance may also take place in April 2022, if necessary.

5. Reporting on-demand report due dates

The SSRO proposed to update its guidance and DefCARS to assist contractors to report due dates of on-demand reports. Appendix 4 sets out the detailed proposals, the feedback received and our response. We will make changes to the guidance and DefCARS in September 2021.

One industry stakeholder thought that the proposal was clear but sought clarification about whether the Regulations require a contractor to submit a new Contract Reporting Plan (CRP) each time a written direction from the Secretary of State is received for an on-demand report. The legislation does not require the submission of a new CRP, unless there is written direction for an on-demand CRP, although a contractor may do so by agreement. It will be beneficial for contractors to submit a new CRP if on-demand reports are required, to keep DefCARS up to date as a complete record of all reports which are due to be submitted.

ADS suggested that the SSRO should limit its guidance to only those on-demand reports where no written direction has been given. This seems an overly narrow approach, as Regulation 24(2)(b) requires contractors to list every Interim Contract Report (ICR) and Contract Costs Statement (CCS) in the CRP, together with their due dates. This includes any on-demand ICR or CCS mandated by written direction from a CRP, since they would be required for the contract.

In the case of the CPS and CRP which are required to be submitted on-demand by written direction, there is no clear requirement to report these in the CRP. The SSRO is not suggesting that it is mandatory to include these reports, but a contractor may wish to include them for completeness of their record of reports to be submitted. The SSRO can receive this information as a way to keep under review the extent to which contractors are complying with reporting requirements. We have amended the guidance to make this intent clearer.

ADS asked what evidence the SSRO had that DefCARS and the guidance need to be improved to better enable contractors to submit details of on-demand reports. The SSRO has found the reporting of on-demand reports to be sub-optimal due to missing details and incorrect reporting of due dates. It is in this context that we proposed guidance and system changes to help the contractor understand all the on-demand reports they would be required to submit and by which date.

One industry stakeholder requested that the SSRO should make clearer that an on-demand CRP is required in order to make amendments to the CRP after submission of the initial reports. This accords with the SSRO’s understanding and we have made the suggested change.

6. Amended sub-contracts

We proposed removing the term “QSC by amendment” from the guidance and DefCARS and providing greater clarity over the limited circumstances in which a contract may be amended in such a way that a new contract results. Appendix 5 sets out the detailed proposals, the feedback received and our response. The revised guidance will be implemented in September 2021 along with a DefCARS change to remove the contract label “QSC by amendment”.

One stakeholder thought the guidance changes clarified the requirement, while another suggested that the SSRO had not gone far enough in setting out the circumstances in which an amendment to a contract would result in its rescission. The SSRO’s reporting guidance is not intended to act as legal advice and, in any event, could not cover every situation in which a contract amendment may result in a rescission. We are content with providing a broad statement of the legal position, with a recommendation that contractors take legal advice as needed.

ADS thought that the SSRO should not include this topic in the proposed guidance, arguing that such situations are rare and affect a reducing number of contracts. We cannot comment on the frequency of such amendments, other than to observe that DefCARS contains details of contracts which have been reported as falling into this category. It is unclear why such amendments would reduce in future, nor does it follow that guidance should not support contractors in being able to submit reports for such contracts. ADS asserted that references to common law would not be understood by most users but did not explain why. The term is used elsewhere in the guidance and we think individuals who are unfamiliar with it can readily find a definition. We have nevertheless included a foot note to indicate that it is the part of English law that is derived from custom and judicial precedent rather than statutes.

One industry stakeholder agreed that the term ‘QSC by amendment’ should be removed from DefCARS but thought it was not helpful to refer to ‘a QSC following an amendment’ since it may cause confusion with a QDC by amendment. We accept that the term ‘QDC by amendment’ denotes QDCs which come into the regime under section 14(4) or (5) of the Act. We accept that there is no similar provision for QSCs and to maintain this distinction we have changed all references in the proposed guidance to QDCs or QSCs which arise “following an amendment” to refer to contracts which become QDCs or QSCs “following an amendment and rescission of the previous contract.”

A stakeholder submitted that if a new sub-contract is proposed it will require assessment to determine if it is a QSC, and wording to that effect should be included in the guidance. The consultation paper provided a general statement of how the SSRO considers the requirement to undertake a QSC assessment may be triggered in the context of a new sub-contract which is created following an amendment and rescission. Regulation 61 confirms the circumstances in which a QSC assessment is required and it is not intended that the SSRO’s reporting guidance re-state that position.

A stakeholder proposed that guidance should not refer to amendment and rescission but only to a new sub-contract being created following rescission. The SSRO does not agree with this change because the proposed guidance is intended to deal with the situation involving an amendment which results in a new contract being created, rather than the rescission of contracts generally.

7. Defined Pricing Structure (DPS) principles

The SSRO proposed guidance as to the matters that contractors should raise with the MOD when discussing the appropriate DPS. We also set out an approach to support contracts and provided assistance on output metrics. Appendix 6 sets out the detailed proposals, the feedback received and our response. The guidance changes will be implemented in September 2021 and there are no DefCARS changes associated with this new guidance.

The SSRO has previously commented on the DPS data not being fully utilised by the MOD and identified the need for engagement between the MOD and the contractor to ensure the right data is being collected. One stakeholder confirmed that this lack of engagement was still an issue. Another stated that references to the MOD’s involvement and the reporting of equipment support contracts was helpful.

Two stakeholders objected to the guidance stating that the DPS structure should include output metrics that will be provided by sub-contractors. The SSRO’s proposed guidance is that the DPS should include outputs provided by sub-contractors, not output metrics. We will make clear that it is the price of a sub-contract which is an Allowable Cost in the QDC and should be included in reporting by the DPS.

ADS stated that the SSRO should not provide guidance on the level and content of reporting under the DPS or issue guidance on metrics as only the MOD know what is required. The basis for this assertion is unclear, as there is a requirement for contractors to report costs split by the DPS and, under Regulation 22(9), the SSRO can provide guidance on the preparation of reports.

The DPS is being reviewed as part of the Secretary of State’s review of legislation. Further changes may be required to the DPS guidance if there are legislative changes to the requirement for costs to be split by the DPS. The SSRO will monitor any proposed legislative changes so that it can take appropriate action.

8. Other matters raised in the consultation

ADS suggested that one area that should be addressed in legislation is submission of the Strategic Industry Capacity Report on a 3 to 5 year cycle and by exception when a strategic change is expected. This was on the basis that the current annual cycle can take a great deal of effort and strategic changes do not happen that frequently. This proposal is outside the scope of changes to the SSRO’s statutory reporting guidance, as the frequency of SICRs is set by legislation. We would wish to see evidence of the matters asserted by ADS before recommending a legislative change.

9. Changes discussed with the Reporting and IT sub-group

On 7 July 2021, the SSRO discussed four reporting guidance changes with representatives from the MOD and industry.

We intend to proceed with two of the proposed changes without further consultation. These changes are intended to:

• Provide additional definitions for deliverables and milestones.
• Clarify how to report the outcome of QSC assessments.

Appendix 7 sets out the detailed proposals, the feedback received and our response. Based on the feedback received at the Reporting and IT sub-group, we consider that the changes should be made, and we intend to implement guidance as set out in Appendix 7. We consider that an eight-week public consultation is not needed to further explore the implications of the proposed changes and that it may be a disproportionate use of resources to take that step.

The two other proposals that we discussed with the Reporting and IT sub-group were intended to:

• Consider whether the total price of the QDC/QSC attributable to sub-contracts should include the prime contractor’s profit attributable to the sub-contracts or not; and
• Give further guidance on ‘price the contracting authority is committed to pay’, specifically examples where the price committed to pay may be different from the contract price.

We will not be implementing such guidance changes for these two matters at this stage. We remain open to further relevant input from stakeholders on these topics.

10. Other reporting guidance changes

The SSRO is making the following change to the reporting guidance which were informed by early work in the SSRO’s Amendments and Variance project:

• The guidance on the submission of an on-demand Contract Pricing Statement is being updated to incorporate improvements which have been identified as part of the SSRO’s project on the reporting of amendments and variances. Paragraph 9.2 and 9.19 have been amended in Chapter 9 and changes have been made to paragraphs 5.21, 6.22 and 7.17 to ensure consistency of approach.

We consider these changes to be minor and uncontroversial and have not subjected them to stakeholder engagement.

11. Conclusion

This document and version 10 of the contract reporting guidance have been published on the SSRO website on 29 September 2021. Version 10 of the guidance on DefCARS functionality and validation set 8 will be published on 20 October 2021. The SSRO continues to welcome feedback on improvements to its reporting guidance. For any assistance with reporting please contact [email protected] or 0203 771 4785.

12. Appendices

The following appendices set out the SSRO’s detailed response to the consultation topics. The appendices detail the updated guidance alongside relevant paragraph numbers in the ‘final guidance’ column:

• Appendix 1 - Rounding in validations;
• Appendix 2 - Linking compliance issues to owners;
• Appendix 3 - Reporting sunk and committed elements in a contract;
• Appendix 4 - Reporting on-demand report due dates;
• Appendix 5 - Amended sub-contracts;
• Appendix 6 - Defined Pricing Structure (DPS) principles; and
• Appendix 7 - Reporting guidance changes discussed with the Reporting and IT sub-group relating to proportion of price sub-contracted, key deliverables and milestones, outcomes of QSC assessments, and price committed to pay.

1. Recommendations to the Secretary of State Review of Part 2 of the Defence Reform Act 2014 and the Single Source Contract Regulations 2014, published 14 June 2021. ↩