STATUTORY INSTRUMENTS
draft v4 – 20140620
2014 No. xx
public procurement
The Single Source Contract Regulations 2014
Laid before Parliament in draft
Made----[xxDecember 2014]
To come into forcein accordance with Regulation 1.
Contents
PART 1
General
1.[j1] Citation and Commencement
2.[j2] Interpretation
3.[j3] Meaning of “defence purposes” [section 14(8)]
3.–4.[was in j2] Meaning of “contract completion date” [section 42(1)]
ERROR
5.[j4] Calculating the value of a contract [section 43(2)]
6.[j5] Pre-Contract opinion on application of these Regulations [section 35(1)(a)]
PART 2
Qualifying Defence Contracts (“QDCs”)
7.[j6] Application to qualifying defence contracts [section 14(1), (2)(1), (8)]
8.[j7] Exclusions [section 14(2)(c)]
ERROR
9.[j8] Competitive process for single QDCs [section 14(6)]
10.[j9] Competitive process for QDCs made under a framework agreement [section 14(6)]
11.[j 10] Interpretation [section 14(6)]
PART 3
Qualifying sub-contracts
12.[j11] Application to qualifying sub-contracts [section 28 and 30(5)]
13.[j12] Exclusions [section 28(3)(d) and (4)(d)]
ERROR
14.[j13] Competitive process for single qualifying sub-contracts [section 28(5)]
15.[j14] Competitive process for qualifying sub-contracts made under a framework agreement [section 28(5)]
16.[j15] Cessation of application to qualifying sub-contracts [sections 30(3) and 42(1)]
17.[j16] Modifications of these Regulations in their application to qualifying sub-contracts [30(2)(a)]
18.[j 17] Modifications of Part 2 of the Act [section 30(2)(a)]
19.[j18] Interpretation
PART 4
Assessment of qualifying sub-contracts
20.[j 19] Assessment of proposed qualifying sub-contract [sections 29(1) and (2), section 30]
21.[j20] Assessment of proposed conditional qualifying sub-contract [section 29(3) and (4), section 30]
22.[j21] Appeal against assessment [section 29(5) and (6)]
PART 5
Pricing of contracts
23.[j22] Choice of regulated pricing methods [section 15(2)]
24.[j23] Recalculation of contract price [section 15(3)]
25.[j24] Firm pricing method [section 15(2) and (4); s. 43(2)(b)]
26.[j25] Fixed pricing method [section 15(2) and (4);s. 43(2)(b)]
27.[j26] Cost-plus pricing method [section 15(2) and (4)]
28.[new – j100] Estimate-based fee pricing method [section 15(2) and (4); s. 43(2)(b)]
29.[new – j101] Volume-driven pricing method [section 15(2) and (4); s. 43(2)(b)]
30.[j27] Target cost incentive fee (“TCIF”) pricing method [section 16; s. 43(2)(b)]
ERROR
31.[j28] Steps in determining contract profit rate [section 17(2), 42(1)]
32.[j29] Calculation of profit on cost once (“POCO”) adjustment [section 17(2) step 3]
33.[j30] Agreeing rates for groups of contracts [section 18(2)(c)]
34.[j31] Final price adjustment [section 21]
35.[j32 and j34] Pre-contract opinion on pricing matters [section 35(1)(a)]
36.[j33] Determination of contract profit rate adjustments [section 18(3) and (4), 22(3) and section 35(1)(b), section 41(2)]
37.[j35] Determination of allowable costs [sections 20(5) and (6); 41(1) and (2); 42(1)]
38.[j36] Determination of final price adjustments [section 21(3)(b), 22(3), section 41(2)]
PART 6
Records
39.[j37] Duty to keep relevant records [section 23]
40.[j38] Period for which relevant records must be kept [section 23(4)]
41.[j39] Examination of relevant records [section 23(5)]
42.[j40] Application to SSRO to review exercise of function relating to relevant records [section 41(1)]
43.[j41] Contravention of requirements relating to records [section 23(1) and (4); 31(3)(a)(i)]
PART 7
Contract reports
44.[j42] General requirements [sections 24(1), (2)(a), (c) and (d)]
45.[j43] Contract pricing statement [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
46.[j44] Contract reporting plan [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
47.[j45] Determination of contract reporting requirements [section 35(1)(b), 41(1) and (2)]
48.[j46] Contract notification report [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
49.[j47] Quarterly contract report [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
50.[j48] Interim contract report [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
51.[j49] Contract completion report [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
51.–52.[j50] Contract costs report [sections 24(2)(a) and (b); 31(3)(a)(i) and (b)]
53.[j51] On-request contract report [section 24(2)(a) and (3)]
PART 8
Supplier reports
54.[was in j53] Interpretation
55.[j52] Obligation to provide supplier reports [section 25(1)-(4)]
56.[j53] General requirements for supplier reports [sections 25(1) and (6)]
57.[j54] Actual rates claim report [section 25(1) and (6)]
58.[j55] Business unit actual cost analysis report [section 25(1) and (6)]
59.[j56] Estimated rates claim report [section 25(1) and (6)]
60.[j57] Estimated rates agreement pricing statement [section 25(1) and (6)]
61.[j58] Business unit estimated cost analysis report [section 25(1) and (6)]
62.[j59] Rates comparison report [section 25(1) and (6)]
63.[j60] Strategic industry capacity report [section 25(1) and (6)]
64.[j61] Small or medium enterprises (“SME”) report [section 25(1) and (6)]
PART 9
Confidentiality
65.[j62] Disapplication of requirements to give information [section 27(1) and (2) ]
66.[j63; HoL 51] Reference to SSRO to investigate obligation of confidentiality [section 27(3)]
PART 10
Compliance
67.[j64] Actionable contraventions [sections 31(3)(a)(i), 31(3)(a)(ii), and 31(3)(b)]
68.[j65] Compliance notice time limits [section 31(5)]
69.[j66] Penalty notice time limits [section 32(5)]
70.[j67] Prescribed maximum penalty – requirements relating to records [section 33(1) and (6)]
71.[j68] Prescribed maximum penalty – reporting requirements [section 33(1) and (6)]
72.[j69] Prescribed maximum penalty – persistent reporting failures [section 33(1) and (6)]
73.[j70] Prescribed maximum penalty – assessment of sub-contracts [section 33(1) and (6)]
74.[j71] Interpretation
PART 11
SSRO –opinionsand determinations
75.[j72] Applications in relation to legacy contracts [section 41(1) and (2)]
76.[j73; HoL 60] Form of applications to the SSRO [section 42]
77.[j74] Time limits for applications for opinions [section 41(1)]
78.[j75] Matters to which SSRO must have regard in determinations [section 41(2)]
PART 12
Disclosure of information
79.[j76] Specified information – transparency requirements [Schedule 5 para 1(1)(c)]
80.[j77] Specified information – references to SSRO [Schedule 5 para 1(1)(c)]
81.[j78] Specified information – SSRO analysis [Schedule 5 para 1(1)(c)]
A draft of these Regulations has been laid before Parliament and approved by a resolution of each House of Parliament.
The Secretary of State, in exercise of the powers conferred by sections [all vires are in the headings for now] of the Defence Reform Act 2014([a]), makes the following Regulations:
PART 1
General
[j1] Citation and Commencement
- These Regulations may be cited as the Single Source Contract Regulations 2014 and come into force on the day after the day on which it is made.
[j2] Interpretation
- —(1)In these Regulations-
“the Act” means the Defence Reform Act 2014, and references to schedules and sections are references to schedules and sections of that Act;
“actual allowable costs” includes standards and variances as defined by professionally recognised accounting systems [section 43(2)(b)(i)];
[“business unit” means an operational sub-division of a company for which separate financial accounting statements are produced, and in particular those units in relation to which cost recovery rates for the purposes of pricing contracts are agreed;]
“calendar quarter” means any of the following three month periods of the government financial year–
1 April to 30 June,
1 July to 30 September,
1 October to 31 December, and
1 January to 31 March;
“contract completion date” has the meaning given by regulation 4;
“contracting authority” means –
(a)in the case of a QDC, the Secretary of State;
(b)in the case of a qualifying sub-contract, the party which is liable to pay for the goods, works or services provided under the qualifying sub-contract;
(c)in the case of a proposed sub-contract, the party which will be liable to pay for the goods, works or services provided under it if it becomes a binding contract.
[“cost-plus contract” means a contract, or defined component of a contract, priced in accordance with the cost-plus pricing method described in regulation 27;]
“cost recovery base” means the unit of measure for a cost recovery rate;
“cost recovery rate” means a rate calculated for a business unit that is used for the determination of allowable costs, being a rate per unit of a cost recovery base that is multiplied by the quantum of that cost recovery base to determine a cost;
“DEFCON” means standard conditions of contract published by the Ministry of Defence;
“direct cost” means a cost that is not determined using a cost recovery rate;
“financial year” means–
(a)in the case of a UK-registered company, its financial year determined in accordance with section 390 of the Companies Act 2006;
(b)in any other case, the government financial year.
“firm priced contract” means a contract, or defined component of a contract, priced in accordance with the firm pricing method described in regulation 25;
“fixed priced contract” means a contract, or defined component of a contract, priced in accordance with the fixed pricing method described in regulation 26;
“government financial year” means the 12 months ending with 31st March;
“output metrics” means a list of the quantifiable descriptors (including quantities, dimensions, and physical capabilities) that describe goods, works or services that will be provided under a contract;
“regulated pricing method” means one of the six pricing methods listed in regulation 23(1);
“primary contractor” has the meaning given by regulation 7(1)(a);
“QDC” means a qualifying defence contract to which these Regulations apply by virtue of Part 2;
“qualifying sub-contract” means a contract to which these Regulations apply by virtue of Part 3;
“qualifying sub-contractor” means a party to a qualifying sub-contract who is entitled to receive payment for the goods, works or services provided under it;
“relevant time” means–
(a)in the case of a contract to which these Regulations apply by virtue of regulation 7(2) or 12, the time the contract is entered into;
(b)in the case of a QDC to which these Regulations apply by virtue of regulation 7(3) or 7(4), or the price of which is recalculated under regulation 24, the time the QDC is amended;
(c)in the case of a contract the price of which is recalculated under regulation 24, the time the contract is amended.
“SME” means an enterprise which–
(a)employs fewer than 250 people; and
(b)either–
(i)has an annual turnover not exceeding EUR 50 million, or
(ii)has an annual balance sheet not exceeding EUR 43 million.
“SSRO” means the Single Source Regulations Office;
“TCIF contract” means a contract, or defined component of a contract, priced in accordance with the target cost incentive fee pricing method described in regulation Error! Reference source not found..
“working day” means any day excluding–
(a)any day which one party to the contract gives to the other party 15 calendar days written notice that it considers to be a holiday; and
(b)in the case of a contractor which is a company that is not registered in the United Kingdom, Saturday, Sunday, and any day which is a statutory holiday in the country in which the company is registered;
(c)in all other cases, Saturday, Sunday, Christmas Day, Good Friday or Bank Holiday within the meaning of the Banking and Financial Dealings Act 1971([b]);
(2)Expressions used both in these Regulations and in the Act have the same meaning for the purposes of these Regulations as they have for the purposes of the Act.
[j3] Meaning of “defence purposes” [section 14(8)]
- A contract is entered into for defence purposes if the Secretary of State for Defence is party to the contract.
[was in j2] Meaning of “contract completion date” [section 42(1)]
- —(1)Subject to paragraph (2), “contract completion date” means–
(a)the date described in the contract as being the contract completion date, or
(b)if no such date is described in the contract, the date on which the contractor completes all obligations which entitle it to final payment under the contract (excluding any payment under regulation 34 (final price determination), any payment relating to the effect of specified indices or rates (regulation 26(2)(b)), any final TCIF adjustment (regulation Error! Reference source not found., or any amount which is determined by the SSRO to be payable).
(2)If a contract is terminated before either of the dates described in paragraph (1), “contract completion date” means the date that the contract is terminated.
[j4] Calculating the value of a contract [section 43(2)]
- —(1)Subject to paragraph (2), the value of a contract means the actual or estimated value of the total consideration (net of value added tax) which the contracting authority expects to be payable under that contract.
(2)For the purposes of regulation 32 (calculation of POCO), paragraphs (4) to (8) are disapplied.
(3)The value of a contract is its value calculated at the relevant time.
(4)In calculating the value of a contract, a contracting authority must—
(a)where appropriate, take account of–
(i)the actual or estimated contract price;
(ii)any form of option;
(iii)any renewal of the contract;
(iv)any effect which inflation or deflation may have on the value of allowable costs it expects to be included in the contract price;
(b)exclude the value of any equipment, information, personnel or other resource that is provided by the Secretary of State;
(c)convert any amounts priced in a foreign currency to pounds sterling, using a rate consistent with the contracting authority’s accounting policies.
(5)Subject to paragraphs (6) and(9), where–
(a)a contracting authority has a single requirement for goods, works or services (“single requirement”);
(b)two or more contracts have been entered into or are to be entered into to fulfil that requirement; and
(c)those contracts are all with the same person or associated persons;
the estimated value for the purposes of paragraph (2) of each of those contracts is the aggregate of the value of the consideration which the contracting authority expects to be payable under each of those contracts.
(6)Paragraph (5) does not apply to any contract (unless the contracting authority chooses to apply that paragraph to a contract) if—
(a)the contract has an estimated value of less than £1,000,000; and
(b)the aggregate value of that contract and any other such contract is less than 20% of the aggregate value of the consideration which the contracting authority has given or expects to be payable under all the contracts entered into or to be entered into to fulfil the single requirement.
(7)Subject to paragraph (9), where a contracting authority has a requirement over a period for goods or services and for that purpose enters into—
(a)a series of contracts, or
(b)a contract which under its terms is renewable,
the estimated value of the contract shall be the amount calculated under paragraph (8).
(8)The contracting authority shall calculate the amount referred to in paragraph (7) either—
(a)by taking the aggregate of the value of the consideration payable under the contracts which—
(i)have similar characteristics, and
(ii)are for the same types of goods or services,
during the last government financial year of the contracting authority ending before, or the period of 12 months ending immediately before, the relevant time, and by adjusting that amount to take account of any expected changes in quantity and cost of the goods or services to be provided in the period of 12 months commencing with the relevant time; or
(b)by estimating the aggregate of the value of the consideration which the contracting authority expects to be payable under contracts which have similar characteristics, and which are for the same type of goods or services during—
(i)in the case of supply contracts, the period of 12 months from the first date of the delivery of the goods to be provided, or in the case of services contracts, from the first date on which the services will be performed; or
(ii)the government financial year if that is longer than 12 months.
(9)[Notwithstanding paragraphs (5) and(8), in relation to a supply contract or a services contract, when the goods or services are required for the sole purposes of [a discrete operating unit] and—
(a)the discretion whether to procure those goods or services has been devolved to such a unit, and
(b)that decision is taken independently of any other part of [the contracting authority?],
the valuation methods described in paragraphs [(5) and (8)] shall be adapted by aggregating only the value of the consideration which was payable or [the contracting authority] expects to be payable, as the case may be, under a supply contract or a services contract which was or is required for the sole purposes of that unit].
(10)A contracting authority shall not enter into separate contracts nor exercise a choice under a valuation method with the intention of avoiding the application of these Regulations to those contracts.
[j5] Pre-Contract opinion on application of these Regulations [section 35(1)(a)]
- —(1)The Secretary of State or a person who proposes to enter into a contract may, at any time before entering into that contract, apply to the SSRO seeking its opinion as to–
(a)the value of that contract;
(b)whether, if the contract is entered into, it would be the result of a competitive process;
(c)whether a significant proportion of the output of that contract is required for the purposes described in regulation 12(2)(d) or 12(3)(d).
(2)For the purposes of this Regulation, “competitive process” means a process described in regulation 9, 10, 14 or 15.
PART 2
Qualifying Defence Contracts (“QDCs”)
[j6] Application to qualifying defence contracts [section 14(1), (2)(1), (8)]
- —(1)Subject to regulation 8 (exclusions), these Regulations apply to a contract if–
(a)it is a contract under which the Secretary of State procures goods, works or services for defence purposes from another person (a “primary contractor”);
(b)the value of the contract is of or above £5,000,000; and
(c)paragraph (2), (3) or (4) applies to the contract.
(2)This paragraph applies to a contract if–
(a)the contract is entered into on or after the day on which these regulations come into force; and
(b)the award of the contract is not the result of a competitive process.
(3)This paragraph applies to a contract if–
(a)the contract was entered into on or before the day before the day on which these regulations come into force ;
(b)the award of the contract was not the result of a competitive process;
(c)the contract is amended on or after the day on which these regulations come into force; and
(d)in amending the contract, the Secretary of State and the primary contractor agree that it is to be a contract to which these Regulations apply.
(4)This paragraph applies to a contract, whether entered into before or after the day on which these regulations come into force, if–
(a)the award of the contract was the result of a competitive process;
(b)the contract is amended on or after the day on which these regulations come into force;
(c)the amendment is not the result of a competitive process; and
(d)in amending the contract, the Secretary of State and the primary contractor agree that it is to be a contract to which these Regulations apply.
(5)Where paragraph (3) or (4) applies to a contract–
(a)these Regulations apply to the contract from the date that the Secretary of State and the primary contractor enter into the agreement referred to in those paragraphs; and
(b)for the purposes of these Regulations, the date of that agreement is deemed to be the date that the contract was entered into.
[j7] Exclusions [section 14(2)(c)]
- A contract is not a QDC for the purposes of Part 2 of the Act or these Regulationsif it is a contract—
(a)with a foreign government;
(b)made within the framework of a cooperative international defence programme which is–
(i)based on research and development;
(ii)conducted jointly by the Ministry of Defence and at least one foreign government; and
(iii)for the development (and, where applicable, the later phases of all or part of the life cycle) of a new product;
(c)the purpose of which is wholly for one or more of the following purposes–
(i)for the acquisition of land, including existing buildings and other structures, land covered with water, and any estate, interest, easement, servitude or right in or over land;
(ii)for the management or maintenance of any land or buildings or other structures; or