The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne)
My predecessor, the hon. Member for Mid Worcestershire (Peter Luff), announced updated Government profit formula (GPF) allowances to the House on 25 April 2012, Official Report, column 38WS, in line with recommendations made by the independent Review Board for Government Contracts. These rates are used by the Ministry of Defence (MOD) when pricing new single source contracts and amendments. The MOD has continued to consult industry on recommendations made in October 2011 by Lord Currie of Marylebone following his independent review of single source pricing and, pending the outcome, the review board has been asked to maintain the existing arrangements.
The work on new single source pricing regulations (SSPRs) and the replacement of the review board with a more empowered public body, the Single Source Regulations Office (SSRO) is proceeding well and we currently plan that these will be fully implemented in 2014-15. In the meantime the MOD will be seeking to negotiate new SSPR terms into selected high-value single source contracts during 2013-14.
One aspect of the existing regime that Lord Currie recommended should be retained is the methodology behind the Government profit formula as far as the calculation of the baseline profit rate and capital servicing allowances are concerned. Accordingly, the review board has recently completed its 2013 general review and has recommended revised GPF allowances. The Government have accepted the board’s recommendations and the updated allowances have been agreed with industry, to be implemented on new single source work from 1 April 2013. A copy of the review board’s 2013 general review report is being placed in the Library of the House, along with a copy of its 2012 annual report detailing the running costs of the review board.