Navy Net - Royal Navy Community

Register a free account today to become a member! Once signed in, you'll be able to participate on this site by adding your own topics and posts, as well as connect with other members through your own private inbox!

Press release: Multiple profit rates on contracts could save MOD millions

MoD_RSS

War Hero
The margin on some contracts could be reduced by almost two-thirds, the Single Source Regulations Office has said in launching its consultation on Multiple Profit Rates.

On one exclusive ‘single source’ agreement the SSRO discovered it could save the taxpayer £8.4 million if a 4 per cent ‘construction’ profit rate was used on a building deal awarded an 11 per cent margin.

Companies who now enter exclusive ‘single source’ contracts with the Ministry of Defence receive a fixed profit rate of 8.95 per cent. No discretion is made between those who build highly complex weapon systems or those who clean barracks.

Clive Tucker, the SSRO’s Interim Chairman said:


It is the SSRO’s view that having a number of baseline profit rates for different activities would better reflect risk and reward.


A contract to build a missile or submarine does not compare to one to clean an office or construct a facility. Some contracts carry little risk and we argue should not be rewarded with high profit margins.

The consultation document is part of the SSRO’s significant reform to the ‘Yellow Book’ guidelines that date back to 1968. Previously profit rates were determined from too broad a range of companies not relevant to defence and with widely varying margins. These included pharmaceutical firms with margins of more than 20 per cent or tobacco companies with profits of 30 per cent. It also included food companies such as Tesco’s with a margin of less than 3 per cent.

The independent defence watchdog last year examined profit rates of both defence and civilian companies to find a fair method of charging.

The multiple profit rates would be calculated using the new 2016/17 transparent methodology with a more appropriate and more international range of companies

The SSRO has in its new consultation suggested six different categories for single source contracts.

Under one of the categories, ‘develop and make’, a separate profit rate will be awarded to companies that manufacture equipment to order – such as the Astute submarine or Brimstone 2 missile. This includes purchase of long-lead items, systems integration and upgrade, along with research, design and development of intellectual property.

A different rate will be calculated for firms that ‘provide and maintain’ kit. This includes items where the contractor owns assets or contract work that covers servicing MOD equipment, such as RAF Hawk jets. Similarly ‘asset hours’, such as flying hours on a leased aircraft should be included as well as training.

A ‘composite rate’ is proposed for projects that combine both ‘design and make’ and ‘provide and maintain’. It will be a mean average of the two.

Substantial savings could be made if a ‘construction’ category is available. Profit rates across the construction industry are around 4 per cent. Under the current agreed Baseline Rate of 8.95 per cent firms building docks and warehouses are in some cases making double the civilian sector profit.

Similarly firms that have been enjoying sizeable profits for ‘ancillary services’, such as cleaning, gardening or IT support services should receive a lower margin.

“An appropriate reward for the routine work carried out under these contracts should be differentiated from more complex activities,” the consultation document said.

Mr Tucker said:


In situations where the activity is complex the reward should properly be greater.

The sixth category is labelled ‘zero rate’ mainly for military charities who are not permitted or do not wish to make a profit. It could also apply when a contractor feels a zero rate is appropriate.

Mr Tucker said:


Setting a fair baseline profit rate is critical to maintaining the credibility of single source procurement.


Single source suppliers derive significant advantages from long-term contracts with HM Government that stem from the 10-year planning horizon set out in the defence equipment plan which accompanied the SDSR. By its own admission, last year was a prosperous* one for the defence sector, and we want to make sure that industry receives a fair and reasonable return for its work.

The SSRO will submit its recommended rates to the Secretary of State for Defence in January next year.

  • ADS publication: ‘UK Defence Outlook 2016’

NOTES

  1. The consultation is open from Friday 8 July to Thursday 18 August.
  2. A contract is a Qualifying Defence Contract (QDC) if the Secretary of State for defence purchases goods, works or services for defence purposes, and the contract is not the result of a competitive process and has a value of £5 million or more.
  3. Contracts with a foreign government, for the purpose of intelligence activities, for the acquisition, management or maintenance of land/buildings, and contracts made within the framework of a cooperative international defence programme are excluded.
  4. The 8.95 per cent profit rate compares favourably with Western Europe defence companies, which have an average profit of 7.26 per cent and North America with 8.28 per cent.
  5. The SSRO has already saved the taxpayer and MOD £13.4 million by, among other actions, bringing the baseline profit rate down from 10.70 per cent to 8.95 per cent. A further £61 million of costs are currently being challenged.
  6. Single source contracts represented 53 per cent of new MOD contracts worth £8.3 billion in 2014/15

Continue reading...
 
Thread starter Similar threads Forum Replies Date
MoD_RSS Press release: Horse researcher jailed for multiple fraud offences MoD News 0
MoD_RSS Statistical press release: Energy Consumption in the UK 2020 MoD News 0
MoD_RSS UK energy statistics: statistical press release - September 2020 MoD News 0
MoD_RSS Statistical press release: Digest of UK Energy Statistics 2020 MoD News 0
MoD_RSS UK energy statistics: statistical press release - June 2020 MoD News 0
MoD_RSS UK energy statistics: statistical press release - March 2020 MoD News 0
MoD_RSS FCO press release: Change of Her Majesty’s Ambassador to Morocco - September 2020 MoD News 0
MoD_RSS FCO press release: Change of British High Commissioner to India - Spring 2020 MoD News 0
MoD_RSS FCO press release: Change of Her Majesty’s Ambassador to the Republic of Niger - March 2020 MoD News 0
MoD_RSS FCO press release: Change of British High Commissioner to Tonga - February 2020 MoD News 0
MoD_RSS Press Release: UKin...Pavia MoD News 0
MoD_RSS UK energy statistics: statistical press release - December 2019 MoD News 0
MoD_RSS UK energy statistics: statistical press release - September 2019 MoD News 0
MoD_RSS Statistical press release: Digest of UK Energy Statistics 2019 MoD News 0
MoD_RSS Press release: Traineeships help young people to access jobs and further study MoD News 0
MoD_RSS Press release: UK House Price Index for April 2019 MoD News 0
MoD_RSS Press release: Insurance fraud lands boss 12-year bankruptcy restrictions MoD News 0
MoD_RSS Press release: Broad new measures to ensure small businesses get paid on time MoD News 0
MoD_RSS Press release: Young engineer Ahmed takes national title MoD News 0
MoD_RSS Press release: PM Theresa May: we will end UK contribution to climate change by 2050 MoD News 0
MoD_RSS Press release: Rural sports clubs, schools and churches to go green thanks to £10 million Clean Energy Fund MoD News 0
MoD_RSS Press release: Thousands of farmers in stewardship agreements to be paid in July MoD News 0
MoD_RSS Press release: UK and Colombia mark new climate partnership with £8.5 million investment MoD News 0
MoD_RSS Press release: Record number of schoolgirls make digital waves but women still under-represented in the cyber security sector MoD News 0
MoD_RSS Press release: Joint Intelligence Committee Chair appointed: Sir Simon Gass MoD News 0
MoD_RSS Press release: UK and Indonesia agree to deepen partnership MoD News 0
MoD_RSS Press release: Big wins for British businesses as Vice Premier Hu Chunhua visits MoD News 0
MoD_RSS Press release: Lord Ahmad visits Bosnia and Herzegovina to mark the UN’s Day for Elimination of Sexual Violence in Conflict MoD News 0
MoD_RSS Press release: UK aid funds world’s biggest educational technology research project MoD News 0
MoD_RSS Press release: New Chair appointed to the Royal Botanic Gardens Kew Board MoD News 0
MoD_RSS Press release: Suppliers of antidepressants accused of illegal anti-competitive conduct MoD News 0
MoD_RSS Press release: Change of Her Majesty’s Ambassador to Sweden - August 2019 MoD News 0
MoD_RSS Press release: New housing statistics show increase in affordable homes MoD News 0
MoD_RSS Press release: Israeli space tech firm hiSky expands to the UK MoD News 0
MoD_RSS Press release: New powers to fine firms that exploit consumer loyalty MoD News 0
MoD_RSS Press release: Review finds family ties 'utterly indispensable' to rehabilitation of female offenders MoD News 0
MoD_RSS Press release: Education Secretary confirms T Level roll-out from September 2020 MoD News 0
MoD_RSS Press release: PM and Chancellor meeting with Chinese Vice Premier Hu: 17 June 2019 MoD News 0
MoD_RSS Press release: £230M boost for British beef as China agrees market access MoD News 0
MoD_RSS Press release: APPOINTMENTS TO THE EQUALITY COMMISSION FOR NORTHERN IRELAND MoD News 0
MoD_RSS Press release: Measures to end unequal mental health treatment kickstarted by PM MoD News 0
MoD_RSS Press release: APPOINTMENTS TO THE EQUALITY COMMISSION FOR NORTHERN IRELAND MoD News 0
MoD_RSS Press release: Big wins for British businesses as Vice Premier Hu Chunhua visits MoD News 0
MoD_RSS Press release: Lift off for new investment in UK SMEs to develop new aerospace technology MoD News 0
MoD_RSS Press release: Lord Ahmad visits Serbia to promote Preventing Sexual Violence in Conflict campaign MoD News 0
MoD_RSS Press release: PM's meeting with the President of Afghanistan: 17 June 2019 MoD News 0
MoD_RSS Press release: PM's meeting with the President of Colombia: 17 June 2019 MoD News 0
MoD_RSS Press release: Northern healthcare firms target new opportunities in Africa MoD News 0
MoD_RSS Press release: £230M boost for British beef as China agrees market access MoD News 0
MoD_RSS Press release: One of a kind Victorian ceramic crab at risk of export MoD News 0
Similar threads


















































Latest Threads

New Posts

Top