Part 13: General Schedule 10: Single source defence contracts Definition of qualifying defence contract
Schedule 10 of the legislation amends Part 2 of the Defence Reform Act 2014 (the" DRA").  Part 2 of the DRA creates a framework for regulating single source contracts, with the detail being set out in regulations (single source contract regulations or SSCRs) made under that Act.  The SSCRs are engaged when a defence contract is awarded with a value above a threshold specified in the SSCRs (currently £5 million) without any competition, unless one or more of the specific exclusions set out in the SSCRs apply. These contracts are known as qualifying defence contracts (QDCs), with non-competitive sub-contracts made in connection with them and above a specified value threshold known as qualifying sub-contracts (QSCs). The DRA does not specify whether a contract should be competed. Where the DRA and SSCRs are engaged they make provision for the pricing of QDCs and QSCs. They also make provision for transparency and record-keeping requirements, from the beginning of a qualifying contract to its completion. The DRA also creates the Single Source Regulations Office (the SSRO) which issues guidance on the application of the regime and adjudicates between the Secretary of State and contractors.
	At present, for a contract to be a QDC section 14(2)(a) of the DRA provides that it must be a contract under which the Secretary of State procures goods, works or services for defence purposes from another person. Paragraph 2(2) amends section 14(2)(a) of the DRA to provide that a contract would be a QDC if it is a contract under which the Secretary of State procures goods, works or services wholly or substantially for defence purposes from another person. This amendment would permit cross Government contracts which are substantially for defence purposes to be QDCs. The whole contract will then be subject to the SSCRs. This is necessary because it would usually not be practicable to price the defence component using a different method from the wider contract.
	Paragraph 2(4) amends section 14 of the DRA by inserting subsection (8A) which provides the Secretary of State with a power to make SSCRs to specify when a contract is to be treated as substantially for defence purposes. Whether a contract is "substantially for defence purposes" might be based on a percentage value of the contract and/or whether the defence part of the contract is more than a specified monetary value.
	An issue which has practical significance to the operation of Part 2 of the DRA is whether entering into an agreement to perform new work by amending an existing contract is a new contract for the purposes of the DRA. Under the DRA, where an amendment to an existing contract which is not already a QDC is agreed, the new work will not come under Part 2 of the DRA and the SSCRs unless there is an agreement between the Secretary of State and the contractor to convert the whole of the existing contract to be a QDC. See in particular sections 14(4)(d) and (5)(d) of the DRA. Conversely, if the new work that is being contracted for is a new contract, and meets the criteria required by the legislation, such consent is not required. Whether or not an agreement for additional goods, works or services is to be regarded as an amendment to an existing contract or a new contract in its own right can be a matter of some uncertainty. Currently, it would be a matter for the SSRO (upon referral) and ultimately the Court (if an SSRO decision was challenged) to decide whether an agreement was a new contract or an amendment to an existing contract. The practical effect is that it is not possible to know if a purported amendment to an existing contract will be a QDC.
	Paragraph 2(3) amends section 14 of the DRA by inserting subsection (5A) to provide the Secretary of State with a power to specify in the SSCRs the circumstances in which an agreement to enter into new work is or is not to be treated as a new contract for the purposes of Part 2 of the DRA and the SSCRs. The amendment does not have wider significance beyond Part 2 of the DRA and the SSCRs. It is anticipated that the SSCRs may specify that an agreement would be a new contract by reference to such criteria as the relationship between the new work and the scope of work under the existing contract, and in particular whether it would be possible to contract for the new work through a standalone contract without necessitating change to the existing contract.