Changing Landscape of UK Defence Contracting

Government procurement always involves navigating complex regulations, but few areas are more intricate than defence acquisitions. In our previous article, “EU’s First Joint Defence Procurement Deal“, we describe details about the European Defence Industry Reinforcement through Common Procurement Agreement (EDIRPA). EDIRPA seeks to address the longstanding fragmentation of demand among EU member states and aims to boost the competitiveness and efficiency of the EU’s industrial defence base. In this article, we will focus on the UK defence procurement sector.

The Current Single Source Regime

Defence suppliers operate in a complex web of regulations governing non-competitive awards. In the UK, single-source contracting rules aim to enable necessary sole-sourcing while delivering value for money. Recent reforms seek to balance these objectives with broader strategic goals. Suppliers must understand the shifting framework to capitalise on opportunities.

The Single Source Contract Regulations (SSCRs) were introduced in 2014 to address longstanding concerns about non-competitive defence expenditures. The SSCRs, statutory guidance and the Single Source Regulations Office provide oversight to ensure reasonable pricing and profits on sole-sourced awards.

Reform Drivers

In April 2022, the Ministry of Defence (MOD) released proposals to amend the SSCRs to support defence industrial strategy. The 30 proposed changes sought to expand eligible sectors, accelerate acquisitions, and promote innovation.

Upcoming Consultation

The MOD is now consulting on the first tranche of SSCR amendments needed to enable these reforms. The focus is on alterations to pricing approaches, profit controls and other urgent priorities. These initial changes require secondary legislation to come into force in April 2024.

What’s Included?

Proposed adjustments covered by the consultation include:

• Alternative pricing mechanisms
• Revised qualifying contract definitions
• Modifications to “Profit on Cost Once” calculations
• Implementation plans

The MOD seeks feedback before the 1 December deadline. A second consultation will address other SSCR changes later.

Implications for Suppliers

The reforms aim to balance efficiency, value for money and industrial goals. Suppliers should consider the impacts of:

• Contract opportunities – expanded eligibility may open new markets.
• Partnership models – greater flexibility could enable strategic collaborations.
• Capabilities – increased innovation incentives may shape investments.
• Compliance – pricing and profit control changes will require adjustments.

An Evolving Landscape

Practical input into the consultation can help suppliers capitalise on the evolving landscape. Key considerations include:

• Maximising value for money while ensuring sustainable returns.
• Enabling strategic partnerships and industrial ecosystems.
• Building innovative capabilities aligned with MOD priorities.
• Embedding revised pricing, profit and reporting mechanisms.

Supplier engagement with consultations and policy-making is vital for shaping an environment that unlocks benefits for all stakeholders. The changes present opportunities to advance both public value and industrial strategy.

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