Single Source Regulations Office (SSRO)
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2024 contract profit rate

The Secretary of State for Defence has announced his determination of the baseline profit rate and capital servicing rates.

The Secretary of State for Defence recently (15 March 2024) announced his determination of the baseline profit rate and capital servicing rates and we welcome his decision to accept our recommendation. The baseline profit rate for 2024/25 is 8.24 per cent, 0.05 percentage points down on last year and the capital servicing rates are on average up by 0.96 percentage points to 2.66 per cent. These rates will apply to qualifying contracts entered into from 01 April 2024 and can be found in The Gazette and in the SSRO’s guidance on the baseline profit rate and its adjustment. At a time when UK defence has many active priorities, especially in Ukraine and the Middle East, the SSRO’s annual profit rate assessment helps ensure pace and agility in the way that single source contracts can be priced.

Each year, the Single Source Regulations Office (SSRO) is required to provide the Secretary of State with an assessment of the rates which are to be used to determine the contract profit rate for qualifying defence contracts (QDCs) and qualifying sub-contracts (QSCs).

This year’s assessment uses the SSRO’s established methodology, which provides a predictable and stable basis for the MOD and its suppliers to agree profit rates for single source defence contracts. This process has been further streamlined this year, lowering the steps from six to only four, reducing complexity and increasing the accessibility of the regime. The baseline profit rate is the first of four steps that together determine the rate of profit on a contract, and from which a range of contract profits can be agreed to suit the specific contract in question, at rates comparable to those earned by the MOD’s main suppliers on their broader portfolio of business.

In making this year’s assessment, we have also considered current economic conditions, such as higher inflation and interest rates, and have taken measures to ensure these are reflected fairly in the rates. For example, we are recommending higher capital servicing rates to reflect the higher borrowing costs for industry. The baseline profit rate continues to be the most significant determinant of contract profit rates. Limited change in the BPR this year supports a stable ongoing position that helps industry plan and promotes investment, consistent with the defence and security industrial strategy. We believe that our assessment is both robust and appropriate and supports the SSRO’s aims to ensure good value for money in government expenditure and fair and reasonable price for contractors.

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