As required by Section 19(4) of the Defence Reform Act 2014, the Secretary for Defence has announced that he has set the Baseline Profit Rate (BPR) for single source defence contracts at 8.31%.

SofS decided that in the interests of fairness to remove the effects of COVID-19 completely from the BPR calculation. The reason for this is that whilst this BPR will be used to calculate the profit payable on single source work contracted in 2022/23, much of the work will be undertaken several years in the future, given the long-term nature of many Defence contracts This is achieved by using the average of the three years prior to 2021, 2021 being the most COVID-10 effected year, which means the BPR for 2022/23 will remain at 8.31%. For the same reasons SofS has decided that the Capital Servicing Rates will also remain as recommended by SSRO last year. The only changes that will take effect from 1st April 2022 to the BPR are the government-to-government rate will reduce to 0.046% and the SSRO funding adjustment which will increase to -0.046%.

We believe the rate announced today is fair and should not deter companies from taking on single source work under the regulations. We remain committed to ensuring that the defence industry is appropriately rewarded for its efforts and for taking on risk by accepting defence contracts.

Last year the Secretary of State introduced a net zero Baseline Profit Rate for Government-to-Government Contracts. The SSRO has incorporated this into their recommendation this year.

Table 1: Rates agreed by the Secretary of State for Defence