UK Foreign Office scraps price formula to speed up defense contracts

The Single Source Regulation Office (SSRO) – a non-service public body that oversees non-competitive procurement – ​​has updated the changes to pricing guidelines, which are due to come into force on 1 April 2024.

Ultimately, this will accelerate the rate at which the UK Ministry of Defense (MoD) acquires new and innovative systems from single-source contractors in the commercial sector.

“Currently, the regulations provide that qualifying contracts must only be priced using a specific price formula, which in some cases has proven inflexible as exemptions can only be granted with the direct approval of the Secretary of State and are time-consuming for all parties”, explained a representative of the Ministry of Foreign Affairs.

With the new changes, “it will now be possible, in appropriate circumstances, to set aside the pricing formula and use specified alternative methods to price a specific contract,” the Foreign Office added.

“This will have the effect of allowing fairer and more appropriate pricing to bring more single-source contracts under regulatory protection.”

In addition, the MoD points out that greater flexibility and transparency will be achieved by expanding the ability to split a contract into different components or parts. Each component will be allocated its own profit rate and price (known as ‘componentisation’).

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From GlobalData

This will allow contract prices to better reflect the sharing of risk between the DoD and defense contractors: a common complaint developed by lesser-known, emerging vendors that offer unique feature solutions.

The British military and their suppliers too often find themselves debating how far either side should risk spending to demonstrate a future concept before the Foreign Office moves to secure a contract.

UK procurement reform

Since the Defense Administration Document published in July last year, the Ministry of Defense began its campaign to deliver military capabilities much more quickly than it had done in previous years. The document argued:

“….we need to buy simpler platforms faster and design into them the ability to upgrade at speed…” and “[we] we have to force ourselves to accept solutions that are good enough…”.

At the time the policy was released, British security think tank, the Royal United Services Institute, suggested that further details and clearer plans will be required to measure progress towards these goals. One such detail of the new, rapidly evolving delivery process will include institutional changes such as the removal of the price formula.

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