The Ministry of Defence is overhauling the way it rewards suppliers in a bid to push more contracts toward on-time, on-budget delivery and reduce the long-running strain caused by cost overruns across major programmes.
Under the changes laid before Parliament on 14 May, profit incentives under the Single Source Contract Regulations will be more tightly linked to performance. Companies that meet agreed delivery targets will be able to earn substantially higher incentive payments...
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, rising to 10% of costs from the previous 2% ceiling. At the same time, those working on lower-risk contracts but failing to meet expectations will face lower profit floors, while more demanding, higher-risk projects will offer stronger returns to encourage firms to take them on.
The government says the package is designed to improve value for money in contracts awarded without competition, a system that remains central to UK defence procurement where only one supplier is available or appropriate. According to the Ministry of Defence, single-source arrangements account for a significant share of defence spending, and the framework has not been substantially updated since 2014.
A further change will raise the threshold at which contracts come under the rules from £5 million to £25 million. Ministers say that will remove reporting obligations from most small and medium-sized enterprises while still keeping the overwhelming majority of single-source spending within the regime. The government has also created a new Innovation Uplift to reward smaller firms and new entrants that invest their own money in developing products before securing a formal government commitment.
Defence minister Luke Pollard said the reforms were a response to what he described as an inherited system in poor shape. He said suppliers that deliver better outcomes and take on appropriate risk would be rewarded, while those that do not would make less profit. The National Armaments Director, Rupert Pearce, said the changes would give officials better tools to encourage innovation and improve performance across the defence enterprise.
The Ministry of Defence says the package fulfils commitments made in the Strategic Defence Review and the Defence Industrial Strategy, both of which call for sharper procurement performance alongside higher defence spending. The Single Source Regulations Office, which oversees the rules, is expected to work with the department and industry as the changes are implemented.
A statutory instrument covering the incentive payment changes is being introduced immediately, with a second instrument for the remaining reforms due before the summer recess. Industry consultation is expected in the coming weeks.
Source: Noah Wire Services
