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Baseline Profit Rate 2020-21 for Single Source Defence Contracts

Ministry of Defence written statement – made on 13th March 2020.

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Photo of Ben Wallace Ben Wallace The Secretary of State for Defence

I am today announcing that I have set the baseline profit rate for single source defence contracts at 8.22%, in line with the rate recommended by the Single Source Regulations Office (SSRO). The baseline profit rate is calculated on a three year rolling average of underlying profit rates. The underlying profit rate decreased from 8.50% for 2019-20 to 8.23% for 2020-21. I have accepted the methodology used by the SSRO to calculate these figures.

I am also announcing new Capital Servicing Rates and an SSRO funding adjustment as recommended by the SSRO, which can be found at Table 1 below. These rates have been published in the London Gazette, as required by the Defence Reform Act 2014.

All of these new rates will come into effect from 1 April 2020.

Table 1: Recommended Rates agreed by the Secretary of State for Defence

Element

2019 rates

2020 rates

Baseline Profit Rate (BPR) (% on contract cost)

7.63%

8.22%

Fixed Capital Servicing Rate (% on Fixed Capital employed)

3.98%

3.66%

Working Capital Servicing Rate (% on positive Working Capital employed)

1.18%

1.22%

Working Capital Servicing Rate (% on negative Working Capital employed)

0.53%

0.61%

SSRO Funding Adjustment

-0.042%

-0.052%