SECRETARY OF STATE FOR DEFENCE
THE IMPLEMENTATION FROM 1 APRIL 2018 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 6.81%, based on an underlying rate of 7.94%. This is in line with the rate recommended by the Single Source Regulations Office (SSRO). It will come into effect from 1st April 2018.
The Secretary of State has also accepted the SSRO’s recommendation on the Capital Servicing Allowance and SSRO funding adjustment to be applied to single source defence contracts. These will also come into effect from 1st April 2018.
TABLE 1: SSRO’S RECOMMENDED RATES AGREED BY THE SECRETARY OF STATE FOR DEFENCE
| Element | 2017 rates | 2018 rates |
| Baseline Profit Rate (BPR) (% on contract cost) | 7.46% | 6.81% |
| Fixed Capital Servicing Rate (% on Fixed Capital employed) | 4.84% | 4.38% |
| Working Capital Servicing Rate (% on positive Working Capital employed) | 1.37% | 1.21% |
| Working Capital Servicing Rate (% on negative Working Capital employed) | 0.59% | 0.53% |
| SSRO Funding Adjustment | -0.025% | -0.024% |