Defence companies and MOD바카라 사이트檚 procurement agency 바카라 사이트榝ailing바카라 사이트� contract regulations
Defence companies are failing to comply with new regulations over non-competitive contracts, a report by the independent watchdog has shown.
The Single Source Regulations Office has challenged 拢61 million of potentially non-allowable costs, whereby contractors charge unnecessarily for goods or services that could result in savings to the taxpayer. The independent regulator has examined a number of 바카라 사이트渟ingle source바카라 사이트� contracts, where the MOD chooses to work exclusively with a company.
In one instance the SSRO found a defence contractor had charged the MOD 拢32,500 for a 바카라 사이트渃haritable donation바카라 사이트�. In other cases a company charged 拢34,000 for 바카라 사이트渟taff welfare바카라 사이트�, that included a Christmas party and another billed 拢10,000 for 바카라 사이트渆ntertaining costs바카라 사이트�. The suppliers then get profit on top of these amounts.
In its first opinion, the SSRO challenged charges of labour inflation at 拢6 million and 바카라 사이트榣earning curve바카라 사이트� of 拢12.9 million.
Other 바카라 사이트榥on-allowable바카라 사이트� costs, such as charging to remedy faulty workmanship and bills for hotels and exhibitions have all been met by the taxpayer.
Examples of questionable costs included in contracts
| Price risk | Rates and inflation |
| Sales and marketing costs | Warranty costs |
| Accommodation costs | Learning curve |
| Bid costs | Faulty workmanship |
| Depreciation costs | Hospitality and entertaining costs, Christmas parties |
| Pre-contract costs | Capital costs |
| MOD information and regime costs | Profit rate adjustments |
| Charitable donations | Share options |
Clive Tucker, the SSRO바카라 사이트檚 chairman, said:
For too long single source defence procurement went without effective scrutiny, and this is precisely the sort of inappropriate expenditure that the Defence Reform Act was enacted to kill off. Through the single source regime we want to encourage improvements from both industry and the MOD resulting in better value for money for the taxpayer. The findings on military equipment in Sir John Chilcot바카라 사이트檚 report are a timely reminder of the importance of efficient and effective defence procurement and strong contract management and oversight to ensure equipment reaches the frontline commands on time and on budget.
The SSRO has already saved the MOD and the taxpayer 拢9.9 million by reducing the baseline profit rate on contracts signed in 2015/16 from 10.7 per cent to 10.6 per cent, and 拢3.5 million based on the first four contracts we바카라 사이트檝e had in using the 2016/17 rate of 8.95 per cent.
We currently have a further 拢61 million of potentially non-allowable costs charged by contractors which we have challenged,
Mr Tucker said.
This amount of money could pay the salaries of over 2,000 corporals and sergeants or fund nearly 4,000 service personnel to buy a home through the Forces Help to Buy Scheme.
The SSRO바카라 사이트檚 Interim Compliance Statement, published today (14 July), found that contractors바카라 사이트� conformity to the regulations has been 바카라 사이트減oor바카라 사이트�.
Using a traffic light system of Red Amber Green, the SSRO found that six out of eight indicators flashed up 바카라 사이트楻ed바카라 사이트�. One indicator reports that only 9 per cent of MOD contractors바카라 사이트� reports provided the required information.
The quality of information submitted remains a 바카라 사이트渟erious concern바카라 사이트� with 바카라 사이트渋ncomplete calculations, facts and information바카라 사이트�.
The report said: 바카라 사이트淭his does not always reconcile to other supporting information received. In many cases contractors fail to provide the required information on metrics, outputs and defined pricing structure.바카라 사이트� This means the SSRO is unable to determine if an item is legitimate.
The MOD also faced criticism for failing to notify the regulator of new contracts within the correct time frame.
When the MOD does provide information on a contract this appears at odds with that supplied by the contractor. 바카라 사이트淚n 13 cases there has been a disparity between the contract price notified by the contractors and the information provided by the MOD,바카라 사이트� the report said. 바카라 사이트淭he budget implications for the difference in contract values equates to 拢379 million바카라 사이트�.
The report concludes that more has to be done by both defence companies and the MOD바카라 사이트檚 procurement agency (DE&S) to comply with regulations.
바카라 사이트淐learly significant progress is still required by contractors and the MOD to increase compliance.바카라 사이트�
Mr Tucker said:
It should be noted that this is an interim statement. We would like to give industry and DE&S a chance to improve performance before we publish our final compliance report in which we will name parties failing to comply.
In its first 바카라 사이트榙etermination바카라 사이트� published in May 2016 the SSRO recovered 拢1.3 million from Rolls Royce바카라 사이트檚 Hawk jet contract over marketing costs and an 바카라 사이트渙verstatement of risk of future cost variation바카라 사이트�.
Mr Tucker said:
Contractors have usually been willing to remove any non-allowable costs we identify. This binding determination showed that if contractors don바카라 사이트檛 follow the guidance, we are able to come to our own decision.
To date the SSRO has been notified of only 34 single source contracts to oversee, which is considerably less than it had expected.
Key figures
| 拢11.1 billion | Value of QDCs notified to the SSRO in 2015/16 |
| 拢11.9 million | Confirmed savings relating to 2015/16 QDCs |
| 拢60.9 million | Costs under investigation with 18 of 34 QDCs |
| 拢3.5 million | Savings on the profit of 4 QDCs in Q1 of 2016/17 |
| 拢5.6 million | Annual running costs of the SSRO |
A copy of the full report can be found on our website.
NOTES
- The total value of single source contracts amounted to more than 拢11 billion in 2015/16.
- If companies contravene the regulations - such as breaching record keeping - then the MOD can issue a 바카라 사이트減enalty notice바카라 사이트� with a fine of up to 拢1 million. The SSRO is not aware of the MOD yet having issued any penalty notices.
- Single source procurement is used, for example, where there is only a single contractor able to deliver the requirements, where there are strong reasons for maintaining national capability, or for reasons of national security.
- Approximately 拢8.3 billion was spent by the MOD on such contracts in 2014/15, which by their nature are non-competitive. Single source procurement in defence represented 53 per cent of the value of new MOD contracts placed in 2014/15.
- The proposal to reform the single source procurement regime and establish a regulator received cross-party support in Parliament and was introduced under the Defence Reform Act (2014).
For further information contact SSRO enquiries@ssro.gov.uk, or by telephone at 0044 790 991 8996.