Defence Procurement Minister Jeremy Quin announced this week he has set the baseline profit rate (BPR) for single source defence contracts at 8.31%. This will be used to calculate the profit payable on single source work contracted in 2022-23.
The Minister announced that in setting the rate, he had decided to remove the effects of COVID-19 completely from the calculation by using the average of the three years prior to 2021. This decision followed representations by ADS and industry to ensure the financial impact of the pandemic was removed from this year's calculation.
The Government has asked the SSRO to engage with industry and MOD officials ahead of making recommendations on the 2023-24 baseline profit rate, with a view to returning to a market based benchmark that also removes the impact of Covid-19.
ADS Chief Executive Kevin Craven said:
“We welcome this announcement, which pragmatically reflects representations around the impact of Covid-19 and that employers should be offered a rate of return incentivising the long-term investment in technology needed to support key UK defence programmes.
“Industry will continue to engage with the SSRO and the MoD over how the impacts of the pandemic are considered in future calculations.”