Update to the Single Source Contract Regulations 2014

Changes to the rules for pricing amendments to QDCs, which took effect on 1 April 2019

21 August 2019

The Defence Reform Act 2014 (the Act) and the Single Source Contract Regulations 2014 (the SSCR) set out a regulatory framework for pricing, recordkeeping and reporting in contracts for goods, works and services above £5M in value that are placed by the Ministry of Defence without competition (known as Qualifying Defence Contracts or QDCs).

Central to the regulatory framework is a requirement that the price payable under a QDC, and any amendments to the price made during the contract term, are determined using a prescribed formula – (CPR x AC) + AC – in which AC means the contractor’s allowable costs under the contract and CPR means a contract profit rate calculated using six steps set out in the regulations.

On 1 April 2019, the Single Source Contract (Amendment) (No. 2) Regulations 2018 (the 2018 Amendment No. 2 Regulations) came into effect [1], which significantly changed the way in which the MoD and contractors are required under the SSCR to re-determine the price payable under a QDC when it is amended. The parties must still use the same (CPR x AC) + AC formula, but the way in which it applies now depends on which one of six categories the amendment falls into:

  • Changes to the pricing method for the contract
  • Changes to the pricing method for a defined component of the contract
  • Changes to a defined element of allowable costs
  • Changes to the contractual requirement (for non cost-plus contracts)
  • Changes to the contractual requirement (for cost-plus contracts where the allowable costs resulting from the amendment are distinguishable from original costs)
  • Changes to the contractual requirement (for cost-plus contracts where the allowable costs resulting from the amendment are not distinguishable).

The new rules on pricing of amendments are now set out in a Schedule to the SSCR, which replaces the problematic mechanism for pricing amendments that was previously set out in Regulation 14. Most importantly, they limit the circumstances in which the pricing formula must be re-applied to the whole of the contract price (rather than the amendment itself). But they leave a number of questions unanswered, and in their complexity are likely to introduce new challenges for MoD and contractors when applying the six categories to the multitude of commercial scenarios they face in practice.

[1]  Part of the 2019 Amendment No. 2 Regulations which is unrelated to the subject of this article came into effect on 31 January 2019.


Get in touch

Please contact Chris Chesterman or Melissa Walford if you would like to discuss any of these changes or what they mean for your contracts.

Read the other articles in this series

Update to the Single Source Contract Regulations 2014: Changes to the categories of contracts that cannot be QDCs and QSCs

Update to the Single Source Contract Regulations 2014: New reporting requirements for contractors

Key contact

Chris Chesterman

Chris Chesterman Director

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