Regulation 11 Steps in determining contract profit rate

The contract profit rate for any qualifying defence contract F1or component of such a contract must be calculated by taking the following F2... steps.

Take the baseline profit rate in force at the time of agreement, which is—

Adjust the baseline profit rate by an agreed amount which is within a range of plus or minus 25% of the baseline profit rate, so as to reflect the F3financial risks to the primary contractor of entering into the contract or component, taking into account the particular type of activities to be carried out by the primary contractor under that contract or component.

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Where the Secretary of State determines that the amount resulting from step F72 should be increased so as to give the primary contractor a particular financial incentive as regards the performance of provisions of the contract F8or component specified by the Secretary of State F9(the relevant provisions), increase that amount by an amount (“the incentive adjustment”) specified by the Secretary of State, that amount not to exceed F10ten percentage points.

In specifying the relevant provisions, the Secretary of State must also specify an outcome that must be achieved in order for the incentive adjustment to be payable, and that outcome must—

If assessing the outcome or the performance of the relevant provisions includes any element of judgement by one or both of the contracting parties, or any person associated with the primary contractor, that element must be capable of being determined by a suitably qualified independent person.

In determining the amount of the incentive adjustment, the Secretary of State must be satisfied that it is reasonable in the circumstances, having regard to the potential public benefit arising from its use.

Take the amount resulting from step F133 and add to or subtract from it an agreed amount (“the capital servicing adjustment”), so as to ensure that the primary contractor receives an appropriate and reasonable return on the fixed and working capital employed by the primary contractor for the purposes of enabling the primary contractor to perform the contract F14or component.

In agreeing the capital servicing adjustment, the primary contractor and the Secretary of State—

The capital servicing rates are—