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Baseline Profit Rate 2020-21 for Single Source Defence Contracts

Statement made on 13 March 2020

Statement UIN HLWS152

Statement

My right hon. Friend the Secretary of State for Defence (The Rt Hon Ben Wallace MP) 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 8.22%, in line with the rate recommended by the Single Source Regulations Office (SSRO). The baseline profit rate is calculated on a three year rolling average of underlying profit rates. The underlying profit rate decreased from 8.50% for 2019-20 to 8.23% for 2020-21. I have accepted the methodology used by the SSRO to calculate these figures.

I am also announcing new Capital Servicing Rates and an SSRO funding adjustment as recommended by the SSRO, which can be found at Table 1 below. These rates have been published in the London Gazette, as required by the Defence Reform Act 2014.

All of these new rates will come into effect from 1 April 2020.

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

Element

2019 rates

2020 rates

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

7.63%

8.22%

Fixed Capital Servicing Rate (% on Fixed Capital employed)

3.98%

3.66%

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

1.18%

1.22%

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

0.53%

0.61%

SSRO Funding Adjustment

-0.042%

-0.052%

Statement from

Ministry of Defence