SECRETARY OF STATE FOR DEFENCE
THE IMPLEMENTATION FROM 1 APRIL 2023 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 8.29%, based on an underlying rate of 8.44%. This is in line with the rate recommended by the Single Source Regulations Office (SSRO). It will come into effect from 1 April 2023.
In light of the profit rate used in future years the SSRO has reduced the effect of COVID by removing the year 2020/21 from the three year average.
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 1 April 2023.
Table 1: SSRO’s Recommended Rates agreed by the Secretary of State for Defence
| Element | 2022 rates | 2023 rates |
| Baseline Profit Rate (BPR) (% on contract cost) | 8.31% | 8.29% |
| Baseline Profit Rate to apply to contracts between the Secretary of State and a company wholly owned by the UK Government and where both parties agree (% on contract cost) | 0.046% | 0.038% |
| Fixed Capital Servicing Rate (% on Fixed Capital employed) | 3.27% | 2.9% |
| Working Capital Servicing Rate (% on positive Working Capital employed) | 1.33% | 1.67% |
| Working Capital Servicing Rate (% on negative Working Capital employed) | 0.65% | 0.51% |
| SSRO Funding Adjustment | 0.046% | 0.038% |