I am today announcing that I have set the baseline profit rate for single source defence contracts at 7.46%, in line with the rate recommended by the Single Source Regulations Office (SSRO). I have also accepted the methodology used by the SSRO to calculate this figure.
I am also announcing new Capital Servicing Rates and an SSRO funding adjustment as recommended by the SSRO, which can be found at Table 1 below. These rates have also been published in the London Gazette, as required by the Defence Reform Act 2014, and will come into effect from 1 April 2017.
Table 1: Recommended Rates agreed by the Secretary of State for Defence
Baseline Profit Rate (BPR) (% on contract cost)
Fixed Capital Servicing Rate (% on Fixed Capital employed)
Working Capital Servicing Rate (% on positive Working Capital employed)
Working Capital Servicing Rate (% on negative Working Capital employed)
SSRO Funding Adjustment
Taxpayers can be confident that we are getting value for money as our defence budget rises by 0.5% above inflation each year of this Parliament and we deliver our £178 billion equipment programme. The defence sector is important for our prosperity, supporting highly skilled jobs, and this rate provides a fair return comparable with that in other international markets