Each year, the SSRO undertakes a robust process to assess the
appropriate baseline profit rate (BPR) for single source defence
contracts using the published BPR methodology. The BPR is the
first step of the four-step process in determining the contract
profit rate that applies in determining the price of Ministry of
Defence (MOD) contracts let without competition, known as
Qualifying Defence Contracts (QDCs) and Qualifying Sub-Contracts
(QSCs). It is a vital building block to delivering fast paced
defence procurement of some of the most strategically significant
capabilities for the nation.
The BPR is only the starting point for agreeing contract profit
rates, and contractors can, and do, earn significantly higher
rates when they take on risk and perform well throughout the
contract duration, but they can also earn less when they fail to
perform.
We are proposing amendments to the criteria used in the BPR
methodology to select comparable companies in response to two
external changes:
-
The methodology relies on selecting comparable companies to
benchmark their profits using codes from a classification
system called NACE (Nomenclature of Economic Activities),
which categorises businesses based on their economic
activities. The NACE database has been updated, meaning the
BPR methodology must be updated accordingly.
-
The methodology has a company size threshold which filters
out small companies and it is proposed that this aspect of
the BPR methodology is updated to remain consistent with the
new UK regulations which revise company size thresholds.
We are also looking to conclude on the two remaining proposals
from the previous BPR activities review phase 2 consultation from
2024.
We are consulting on these changes to keep the BPR methodology
accurate, up to date and reflective of appropriate comparators.
This will help us to produce a baseline profit rate which
supports our aims of ensuring value for money for the taxpayer
and fair and reasonable prices for contractors in support of the
delivery of essential defence capabilities in the UK.
The consultation will run until 5pm on 11 August 2025. For
more information, and details of how to respond, please see
the consultation
webpage.
