Background to the New Single Source Contract Pricing Framework
The pricing framework that applied to UK MoD single source contracts prior to the 2014 Defence Reform Act coming into effect was known as the Government Profit Formula and its Associated Arrangements (GPFAA) that carried the nickname of the "Yellow Book". The new pricing framework was nicknamed the "Orange Book" during the period that the Bill to enact the Defence Reform Act was passing through Parliament. We provide some general background to both pricing frameworks below.
The GPFAA (Yellow Book)
Between 1968 and 2014 the pricing of UK MoD single source contracts (also known as non-competitive contracts) was undertaken under the Government Profit Formula and its Associated Arrangements (GPFAA) based on a 1968 Memorandum of Agreement (MoA) signed between the Confederation of British Industry (CBI) and the UK Government that established the Review Board for Government Contracts. The primary function of the Review Board has been to keep the GPFAA under review through a process of Annual and General Reviews (3 yearly) undertaken with inputs from the UK MoD on behalf of Government and the Joint Review Board Advisory Committee (JRBAC) on behalf of industry. This has resulted in numerous changes over the years in the GPFAA including some major revisions.
The intent of the Government Profit Formula was to allow contractors undertaking UK MoD non-competitive contracts to earn a return equal on average to that being earned by British industry having reference to both capital employed and the cost of production. This principle is known as the comparability principle.
The primary components of the GPFAA where as follows:
(a) The Government Profit Formula - detailed the steps involved in calculating the profit sum on the single source contract
(b) The Government Accounting Conventions (GACs) - detailed the costs that were allowable costs with respect to both the cost of production (direct and indirect costs) and capital employed.
The GPFAA was supported by the adoption of contractual conditions governing equality of information and post costing.
The New Single Source Contract Regulatory Pricing Framework
The New Single Source regulatory pricing framework maintained at its inception in December 2014 many of the underlying principles found in the GPFAA however a number of significant changes were instigated primarily in the areas of (i) the transparency and reporting of cost and pricing data, (ii) the eligibility and justification of contract costs and (iii) the contractors obligations now being delineated in published legislation and associated SSRO issued statutory guidance rather than being explicitly delineated in the single source contract. This website provides some further top level information relating to the key features of the new pricing framework.
Unregulated Single Source Contracts
Single source contracts that fall outside the scope of the new regulatory regime due to their value or due to the fact that they are either excluded or exempted from the regime are subject to UK MoD pricing conditions in a new 810 series of DEFCONS that seek to impose on the contractor similar obligations as those set out in the regulatory regime.