MoD supply chain to come under pressure from need to save costs and expansion of Single Source Contracts Regulations

Written on 2 Feb 2017

On 27 January, the National Audit Office released a report on the Ministry of Defence’s Equipment Plan for 2016 – 2026, which concluded that the Plan is “at greater risk than any time since its inception”. The entirety of MoD’s previously set-aside headroom for emerging requirements over the next 10 years has already been committed, so to ensure the affordability of the Plan in its current form, MoD will have to find at least £5.8bn of savings.

Against this backdrop, the Single Source Regulations Office this week opened the final stage of its consultation on changes to the Single Source Contracts Regulations 2014. The Regulations (in conjunction with the Defence Reform Act 2014) govern the pricing of contracts between MoD and suppliers where there is only one provider of the relevant equipment or services in the market. Limited classes of sub-contracts are also caught under the current Regulations.

The SSRO consultation proposes an expansion of the Regulations to bring more sub-contracts into scope, including in particular any existing sub-contracts which are ‘materially amended’. The SSRO calculates that this change alone will claw back savings for MoD of £1.8bn.

If these proposals are implemented, it would require many sub-contractors currently outside the regime to alter and ensure compliance of their pricing structures. It would also require end-suppliers to MoD to monitor the prices that they are charged, as well as their own contract prices.

Osborne Clarke is preparing a response to the SSRO consultation. If you would like to discuss the consultation, participate in our consultation response or have any queries about how the Regulations might affect your business, please get in touch with one of our experts.