Secretary of State for Defence
THE IMPLEMENTATION FROM 1 APRIL 2016 OF NEW PROFIT RATES FOR SINGLE SOURCE DEFENCE CONTRACTS
As required by Section 19(4) of the Defence Reform Act 2014, the Secretary for Defence has announced that he has set the baseline profit rate for single source defence contracts at 8.95%. This is in line with the rate recommended by the Single Source Regulations Office (SSRO). It will come into effect from 1st April 2016 onwards. The Secretary of State will ask that the SSRO further develop the methodology used to calculate the baseline profit rate over the next year.
Secretary of State has also announced new Capital Servicing Rates as recommended by the SSRO, which can be found at Table 1 below.
Table 1: SSRO’s Recommended Rates agreed by the Secretary of State for Defence
| Element | 2015 rates | 2016 rates |
| Baseline Profit Rate (BPR) (% on contract cost) | 10.6% | 8.95% |
| Fixed Capital Servicing Rate (% on Fixed Capital employed) | 5.94% | 5.08% |
| Working Capital Servicing Rate (% on positive Working Capital employed) | 1.72% | 1.40% |
| Working Capital Servicing Rate (% on negative Working Capital employed) | 1.03% | 0.74% |