The Ministry of Defence has unveiled its biggest overhaul of the Single Source Contract Regulations in years, recasting how profit is calculated on non-competitive defence deals and tying more of the reward to delivery, timing and risk-taking. According to the department, the changes are designed to curb waste and delays after it said 96% of major programmes had suffered cost or delivery problems. (
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Under the new framework, suppliers that meet agreed performance targets will be able to earn incentive payments of up to 10% of costs, up from 2%. The MoD said firms that deliver faster, improve productivity and accept more risk should benefit, while those that miss the mark will see lower returns. (gov.uk)
The package also lowers profit floors on lower-risk contracts and allows stronger returns on higher-risk work, a shift that officials say is intended to make remuneration better reflect the risk being carried. That sits alongside the Single Source Regulations Office’s existing role in supporting the regime, which was created under the Defence Reform Act 2014 and the 2014 regulations. (gov.uk)
A separate Innovation Uplift is being introduced to reward suppliers, particularly smaller firms and new entrants, that spend their own money developing products without a guaranteed contract. The government says the aim is to open the door more widely to businesses that can bring new technologies into service, rather than leaving them to shoulder development risk alone. (gov.uk)
In a further move likely to ease pressure on smaller suppliers, the threshold for mandatory reporting under the regime will rise from £5 million to £25 million. The MoD says that will remove compliance requirements for nearly all SMEs while keeping 97% of single-source contracting value inside the model. (gov.uk)
Luke Pollard, the minister for defence procurement and industry, said the government had inherited a programme in which most major projects were failing on cost or schedule, and argued that better delivery should now mean higher reward. Rupert Pearce, the National Armaments Director, said the changes would give officials better tools to reward innovation and ensure public money delivered value. (gov.uk)
The reforms come against a backdrop of recent SSRO guidance showing the 2025/26 baseline profit rate at 8.56%, with capital servicing rates averaging 3.85%, underscoring how the single-source framework already sets a regulated starting point for profit before any contract-specific adjustments. The new measures would add a sharper performance-based layer on top of that system. (ssro.gov.uk)
The government is laying a statutory instrument this week to raise the available incentive payments, with a second instrument covering the remaining changes to follow before the summer recess. Officials said they will consult on the detail in the coming weeks. (gov.uk)
Source: Noah Wire Services
