Guidance on the baseline profit rate and its adjustment (version 8.1)
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 value for money and fair prices are obtained. Taking effect in April 2024, legislation and regulations simplified the steps in this process from six to four.
The four-step process relates to contracts that apply the pricing formula as part of a default pricing method, and 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, ensuring that value for money is obtained for taxpayers 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 based on stakeholder feedback to our consultation, which ran from January to April 2024. The SSRO’s response to stakeholder feedback can be found here.
This document is issued alongside an update to the SSRO’s allowable costs and alternative pricing guidance, the latest versions of which should be read in conjunction with this document:
We encourage those with an interest in the regulatory framework to familiarise themselves with all of these documents. We are always interested to hear the experience of users of our guidance to help us to understand how it may be further improved.
This guidance applies to qualifying defence contracts and qualifying sub-contracts entered into or amended on and after 10 October 2024. Queries relating to the guidance should be addressed to [email protected]. Referrals to the SSRO can be made for an opinion or determination on such matters.