Government Profit Formula

Thursday 31st March 2011 Written Statements

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

I announced to the House on 26 January 2011 that I had asked my noble Friend Lord Currie of Marylebone to undertake a fundamental review of the Government’s single source pricing regulations, which include the Government Profit Formula (GPF) overseen by the review board for Government contracts. In the announcement I said that the review board has been asked to maintain the existing arrangements pending the outcome of Lord Currie’s review (which is due to report in July 2011), and to complete their 2011 annual review of the GPF.

The Government have subsequently considered and accepted the review board’s recommendations in their 2011 annual review, and all changes have been agreed with industry. This will reduce the profit and capital servicing allowances payable by the Ministry of Defence (MOD) on new single source work that is placed after 1 April 2011. An agreed change to the GPF methodology will be of benefit to small and medium-sized enterprises; and agreed changes to Government accounting conventions setting out the treatment of costs in single source pricing will improve the MOD’s negotiating position. The board’s recommendations will be implemented in accordance with arrangements subsequently agreed with the industry side and recorded in an addendum to the published report. I will be placing a copy of the report in the Library of the House. The recommendations will be implemented for new single source work with effect from 1 April 2011.