Supply Side
SSRO Consultation – Regulating Single-Source Defence Procurement

We have covered the UK Ministry of Defence Single Source Regulation Office (SSRO) last year, when we reported on apparent issues with the quality and quantity of information it was receiving from both the industry side and MOD itself. Two chairmen of the SSRO resigned in quick succession last year, suggesting perhaps some issues with the organisation and its role too.  The SSRO addresses those UK military procurement situations where there is only one supplier, and looks to ensure that commercial arrangements are “fair” to all parties where there is no competition to drive those outcomes.

Last week, the SSRO issued a consultation document, which reflects the requirement for the Minister to review the organisation by December 2017. So the SSRO will make recommendations in the summer, with the consultation forming part of the input to those. Anyone interested can submit their thoughts and ideas via this link by March 24th.

But the consultation document is not simply asking for ideas; it puts forward the SSRO’s own suggestions and asks for comments on those. There are three key areas covered; ensuring that single source spending is appropriately covered by the regime; enhancing transparency; and providing effective enforcement of the regime.

There are also two issues which are within scope of the consultation but for which the SSRO is not putting forward its own recommendations: exclusion of government to government contracts, and enforcement of price controls. The SSRO does also make the point that the use of competition should be maximised and single-source approaches minimised; but it has not made recommendations to address that issue.

We’re not going into the detail of all the points here, but the section on “coverage of the regime” highlights both the practical problems for the SSRO and give s a sense of the “excuses” that the MOD and / or suppliers can have for not treating a contract as one that requires oversight for the SSRO. So for example, contracts worth over £5 million are in scope; but what happens if a contract starts out under £5 million but then grows ? Does it then become in-scope, and what happens then if the commercial arrangement already agreed don’t fit the SSRO model?

You can also pick up some of the tension here between SSRO and MOD. “The MOD has taken a different approach from the SSRO to construction of the legislation. The MOD’s view is that material contract amendments do not require assessment and provides advice to contractors to this effect”. So because of this loophole, there are £25 million plus contracts not covered by the SSRO. The organisation wants the legislation amended to stop this.

The treatment of sub-contractors is another major area where the document makes recommendations for more effective processes. It seems reasonable that if a key sub-contractor is being used, there should be similar scrutiny to that given to the Prime. The SSRO also wants to tighten up the rules around exceptions made for intelligence activities and for international co-operative defence programmes, so exclusions from the scheme are really justified (again, we get the sense that perhaps MOD has looked for reasons not to use the SSRO!)

But perhaps the most direct “cry for help” comes in the section on transparency.

“There have been occasions on which the SSRO has requested information that has either not been provided or something incomplete has been provided …For example, the SSRO received a contract report disclosing group sub-contracts where the profit-on-cost-once (POCO) adjustment appeared not to have been applied in accordance with either the requirements of regulation 11 or the SSRO’s statutory guidance. The SSRO raised its concern and sought additional information to understand the issue fully. This was not forthcoming and the SSRO has been left with an incomplete understanding with which to assess the functioning of the legislation and guidance”.

To summarise – “Can we have more information please”?

“No, go away”.

So, understandably, the SSRO wants more powers of the sort that other regulators like Ofcom or the CMA already have. There are further recommendations on enforcement and penalties as well, which we won’t go into here, but it all adds up to a proposal for a significant increase in the SSRO’s powers.

So do the politicians have the appetite to strengthen the power and reach of the organisation? Or would that risk upsetting the military (and civilian) power base who don’t particularly like someone sticking their noses into these sensitive deals? We’ll find out at the end of this year.