Single Source Contract Regulations - The Contract Profit Rate (CPR)
The Contract Profit Rate or CPR is established as the output of a six step calculation starting with the SSRO recommended Baseline Profit Rate or BPR that is agreed and subsequently issued by the Secretary of State for Defence. The BPR is issued annually in mid March for application from the 1st April of that same year.
Step 1 - Baseline Profit Rate - Take the appropriate BPR
Step 2 - Cost Risk Adjustment - adjustment to the BPR for the risk that actual allowable costs may vary from estimated allowable costs. Risk range +25% to -25%. The -25% adjustment is applied to contracts that have no risk that allowable costs will vary from estimated costs i.e. those contracts that are priced based on actual costs incurred.
Step 3 - Profit on Cost Once Adjustment (POCO) - Allows only one profit add-on to the total of allowable costs within one organisation having multiple group legal entities working on the single source contract through a subcontract chain.
Step 4 - SSRO Funding Adjustment - deduction from profit rate in order to fund 50% of the cost of maintaining the SSRO
Step 5 - Incentive Adjustment - up to + 2% profit rate as incentive to perform above contracted level with benefit to MoD
Step 6 - Capital Servicing Adjustment - adjustment for the contractors investment in fixed and working capital
The profit formula Cost Risk Adjustment is an area where Defcon Training Limited has been able to assist its clients to support a claim for a positive cost risk adjustment factor and defend against UK MoD demands for this to be a negative adjustment factor. This can make a significant difference to the final profit percentage agreed.
Link to SSRO publications page for SSRO Statutory Guidance on adjustments to the Baseline Profit Rate
Baseline Profit Rate (BPR) summary for years 2017/18 to 2022/23:
|
Element |
Current Year 2023/24 |
Prior Year 2022/23 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
Baseline Profit Rate (BPR) (% on contract cost) |
8.29% |
8.31% |
6.81% |
7.63% |
8.22% |
8.31% |
|
Fixed Capital Servicing Rate (% on Fixed Capital Employed) |
2.90% |
3.27% |
4.38% |
3.98% |
3.66% |
3.27% |
|
Working Capital Servicing Rate (% on positive Working Capital employed) |
1.67% |
1.33% |
1.21% |
1.18% |
1.22% |
1.33% |
|
Working Capital Servicing Rate (% on negative Working Capital employed) |
0.51% |
0.65% |
0.53% |
0.53% |
0.61% |
0.65% |
|
SSRO Funding Adjustment |
-0.038 |
-0.046% |
-0.024% |
-0.042% |
-0.052% |
-0.057% |
Protection against excessive profits or losses
The Single Source Contract Regulations include a mechanism to protect against excessive profits or losses on contracts. (This is referred to as a Final Price Adjustment). The Final Price Adjustment applies to contracts priced under the Fixed, Firm or Volume Driven regulatory pricing methods. Details are set out in Regulation 16 & 17.