Guidance on the baseline profit rate and its adjustment (version 8)
The SSRO’s guidance on adjustments to the baseline profit rate is statutory guidance to which the Ministry of Defence and its contractors must have regard when determining the contract profit rate for qualifying defence contracts
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The contract profit rate for single source defence contracts and subcontracts is determined through a clear and transparent process that ensures that value for money and fair prices are obtained. New legislation and regulations have simplified the steps in this process from six to four.
The four step process relates to contracts that apply the price formula, which sits alongside a range of alternative and flexible approaches to pricing contracts. Together these support the MOD and industry to price contracts with speed and simplicity, and ensure that value for money is obtained on qualifying contracts and that contractors are paid a fair and reasonable price under those contracts.
This updated version of the guidance has been amended to incorporate changes made to the legislative framework. In particular:
- the removal of an aspect of the previous six step contract profit rate that addressed the double application of profit (POCO) and the funding of the SSRO, which are now dealt by other means; and
- changes to the scope of risk that may be reflected in the profit of a single source contract.
We have also taken the opportunity to make improvements to the existing guidance in response to feedback from users.
This document is issued alongside an update to the SSRO’s existing allowable costs guidance, as well as the new guidance on alternative pricing, the latest versions of which should be read in conjunction with this document:
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Allowable costs guidance – Version 7.
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Guidance on alternative pricing types – Version 1.
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 is hosting a series of guidance Teach Ins and Q&A sessions to support contractors who are (or may be) subject to the regulatory framework. Further details can be found here.
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.
Updates to this page
Published 24 January 2024Last updated 12 February 2024 + show all updates
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Details of teach-ins added
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First published.