Allowable costs guidance (version 7)
The allowable costs guidance is statutory guidance to which the Ministry of Defence and its contractors must have regard when determining whether costs are allowable in qualifying defence contracts.
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For a cost to be allowable in the price of a single source contract, it must meet the requirements of being an allowable cost. This means it must be appropriate, attributable to the contract and reasonable in the circumstances. It is important that parties understand these requirements and how to judge whether they have been met. Understanding this helps ensure that that contractors are paid a fair and reasonable price for their services and that good value for money is obtained on contracts.
To support this, the SSRO has issued updated guidance to assist the MOD and contractors to understand and apply the requirements of allowable costs when determining the price of single source contracts using the price formula.
Updates in this version of the allowable costs guidance include:
- clarification of how costs associated with risk or uncertainty should be treated, and
- changes in respect of the allowability of costs that arise in relation to certain subcontracts placed within a corporate group.
We have also taken the opportunity to make improvements to the existing guidance in response to feedback from users.
This document is issued alongside the SSRO’s new alternative pricing guidance and an update to its existing guidance on the baseline profit rate and its adjustment, the latest version of which should be read in conjunction with this document:
- Guidance on alternative pricing types – Version 1.
2.Guidance on the baseline profit rate and its adjustment – Version 8.
We encourage those with an interest in the regulatory framework to familiarise themselves with these documents.
This guidance has been issued to support the implementation of changes to the legislative framework governing single source defence contracts. Further information about the legislative changes and how the SSRO is responding to them can be found here.
The guidance takes effect on 1 April 2024. We are currently running a consultation on this guidance that will conclude on 17 April. Information on this consultation and how to respond can be found here. The SSRO will host a series of stakeholder seminars and workshops on pricing and reporting topics that we are consulting on.
Queries relating to the guidance should be addressed to [email protected]. We are always interested to hear the experience of users of our guidance to help us to understand how it may be further improved. Referrals to the SSRO can be made for an opinion or determination on such matters.