• Test 1

SSRO, penalties and AOF


The Act includes the creation of an independent Single Source Regulation Office (SSRO) to replace the Review Board for Government Contracts. The SSRO's responsibilities will be extensive and will include:

  • Keeping the framework under review, consult with the parties and publish draft its recommendations.
  • Calculating and recommending profit allowances to the Secretary of State each year.
  • The establishment and publication of statutory guidance (link) on whether costs (either direct or indirect) are allowable.
  • Establishing the Defined Pricing Statement formats, content and statutory guidance (link).
  • Establishing reporting templates and statutory guidance (link).
  • Establishing the contract profit rate (link).
  • Binding expert determinations for a broad range of disputes referred by either party e.g. (1) when it believes that either the regulations or Statutory Guidance has not been followed in price or rate agreements or (2) the parties cannot agree allowable cost (pre or post contract award). A full list of available determinations and expert opinions on references to the SSRO is in Part 9 of The Single Source Contract Regulations 2014 here.

The SSCRs state that the SSRO must make a determination on:

a)   adherence to pricing principles

b)   actual rates agreements;

c)   the appropriate final price adjustment under PEPL

d)   the appropriate price adjustment according to agreed pain / gain share provisions (e.g. TCIF contracts);

e)   on whether a potential sub-contract is a QSC;

f)    on whether a current QSC is no longer a QSC

g)   on contract reporting requirements should a CRP not be provided or be considered inadequate by SofS

h)   on whether an obligation of confidence entered into by a supplier that would stop them providing information under open book or in the standard reports was entered into for genuine commercial reasons.

The draft SSCRs state that the SSRO must give an opinion on:

a)   applicability to contracts, for value, competitive process and ‘significant proportion’

b)   profit adjustments for risk, POCO and for capital servicing allowances

c)   estimated / forecast rates agreements and estimated allowable costs; and

d)   unreasonable use of open book rights by the MOD

  • Publishing contract cost and overhead report templates and associated statutory guidance
  • Making binding expert determination on appeal by sub-contractors on assessment by a higher tier contractor that an intended sub-contract is a qualifying sub-contract and thereby subject to the law
  • Appeal body for civil penalties


Penalty Tariffs, maximums and guidance

Part 8 of The Single Source Contract Regulations 2014 here sets out the procedure to be followed and maximum penalty tariff. The SSRO will publish statutory guidance on the factors that the MOD must have regard to in determining the penalty amounts up to the maximum specified in the Penalty Regulations. The SSRO will also hear appeals for civil penalties.

It should be noted that the Act Section 33 (2) allows MOD to calculate penalties as if the contravention were a breach (i.e. without regard to the maximums) where it either provides a specified report and knows that the report or is reckless as to whether the report is misleading; or it is a failure to comply with Section 26 duty to notify … a relevant event.

SSRO statutory guidance on penalties is available (here).


Access to the ASG section of their website is critical to defence contractors undertaking work with the UK MOD; indeed UK MOD describes the ASG as "...the authoritative source of policy and guidance on acquisition for UK MOD and our Industry partners."

Much of the content of the ASG though improving should still be considered with caution in that:

  • There will soon be 3 separate and distinct pricing and contracting arrangements to which the AOF needs to offer commercial guidance to its staff.
    • Pre-existing contracts and amendments continue under existing Yellow Book arrangements and DEFCONs applicable to the contract at the time of award
    • New qualifying contracts and qualifying sub-contracts (QDCs and QSCs) for which Single Source Contract Regulations 2014 will apply
    • New contracts and sub-contracts which are not qualifying contracts or qualifying sub-contracts will be subject to new and revised pricing DEFCONs that have to be negotiated on a case by case basis
    • New competitive contract single source changes
  • For new qualifying contracts the ASG is yet to fully incorporate changes to existing guidance to reflect the Single Source Contract Regulations 2014 recently approved by Parliament.
  • Statutory guidance is still awaited from the SSRO on a wide range of topics
  • The SSRO are responsible for interpretation of the Act and its supporting regulations. The ASG contains MOD’s commercial guidance; commercial guidance has no legal status as it represents the opinion of MOD and not that of the SSRO

The new law will only apply to those contracts which are established as qualifying defence contracts (QDCs); contracts which are not QDCs remain to be subject to negotiated contract agreements.