George Jenkins OBE was appointed chairman of the UK government’s Single Source Regulations Office
(SSRO) in January 2017. A non-departmental body sponsored by the Ministry of Defence (MoD), the SSRO was created in
2014 to regulate non-competitive military
procurement under that year’s Defence
The objective was to give the government greater bargaining power over sole-source procurement, which it felt had resulted in higher costs. The first major procurements to proceed under the SSRO were the Successor submarine (Dreadnought) and Type 26
Global Combat Ship programmes. During its first year of operations the SSRO noted that 56% of the MoD’s annual spend on contracts was ‘non-competitive’, which amounted to GBP8.6 billion
(USD11.2 billion). In 2016–17, meanwhile, this figure was
GBP8.1 billion. These contracts typically represent more than 50% of new defence contracts each year.
Commenting on the relationship with the MoD and Industry, Jenkins told Jane’s, “We’re a minnow of an organisation going into a very full room with two very large people – who’ve had to make space for us.”
He said the SSRO has had to establish amodus vivendi with both sides, adding, “My priority is to build trusted relationships
with [all] stakeholders.”
Moreover, Jenkins noted that he has spent 18 months reinforcing the SSRO’sindependence and transparency and that,
“We can only do this if we have good relationships.”
The chairman said he takes criticism of the single-source regime seriously and described how he responded to comments
made in a recent stakeholder survey. “Any barbed comments were followed up with a personal phone call,” he explained, “to
find out what the issue was and how can we improve.” With comments from the MoD and Industry, Jenkins suggested that this
exercise was useful for all involved because it helped to clarify “what we are here to do and not to do”.
Meanwhile, although the SSRO is a small organisation, Jenkins is satisfied that he has the staff numbers he needs. “The
organisation is well positioned with the right mixture of people to do the job,” he said, although he added that the SSRO will be
doing more to improve its skills base by widening its use of defence advisers, “those with very particular skills, when we need to”.
The role of the SSRO is to establish how much profit defence contractors can make under a single-source contract, which is
known as the baseline profit rate. The first rate was set in March 2016 at 8.95%: 15% below the level applied in 2015 and applicable
from 1 April 2016. The rate is a base point, with issues such as risk, performance incentives, and capital servicing rates also taken into account. A base rate of 7.46% was set for the financial year from 1 April 2017, while a rate of 6.81% was allocated for the financial year from 1 April this year.
“The whole raison d’être of the SSRO is to see that the public gets value for money and that a reasonable profit goes to industry,” Jenkins explained. He noted that his office is conscious of “those companies who invest in this country” and emphasised that this consideration also extends to the ability of the United Kingdom to retain its sovereign defence capabilities. Recognising the importance of winning the trust of industry, Jenkins reasoned, “If
[industry] recognises that the SSRO sets a reasonable price, then companies will continue to invest in jobs.”
Additionally, although Jenkins has received negative comments from one or two sources, he does not believe these represent the majority of contractors and emphasised the mostly positive response from industry. “The majority [of contractors] recognise our transparency,” he said.
“The rate is defined in the public domain; it’s a well-known regime.”
Moreover, Jenkins pointed out that before a company gets involved in a singlesource contract it can discuss any considerations
with SSRO staff. “We can help industry and the MoD by giving an opinion on how a contract might be treated and what are allowable costs,” he explained.
Describing the contract process, the chairman said that, once a contract is signed, it can be re-visited and SSRO staff can form a determination, based on legislation. The resulting decision is binding in law. Jenkins believes that this aspect of the SSRO’s work is becoming more important because it can help to avoid a contractual
dispute further down the line. Turning to the SSRO’s methodology,
Jenkins is confident that it can cope with the increasing levels of IT contained within defence acquisitions.
“The methodology sets baseline profit and is not contract specific; it is based on international and sector comparators. This includes cyber and space,” he confirmed, adding that what is contract specific is then negotiated via five additional steps that, looking to the future, would take account of new technology.
Nick Watts is a JDW Correspondent, based in London
First published online: 07/11/2018