Commentary on Sections Part 2: Single Source Contracts Sections 17 and 18: Contract profit rate
62.The SSCRs must make provision for determining the CPR for each QDC, and that determination must be taken by following the six steps that are set out in subsection (2) of section 17. The SSRO may issue guidance as to any of the steps (section 18(1)). Some of these steps themselves have further provision in other sections. The steps are:
63.Steps 2, 3 and 6 provide for amounts to be agreed, and section 17(4)(a) provides that “agreed” means agreed by the Secretary of State (or an authorised person) and the contractor. The reference to an “authorised person” is to allow for the fact that a contractor or the employee of a contractor under arrangements mentioned in section 1 of this Act may be authorised by the Secretary of State to exercise this function.
64.In some cases the Secretary of State will have many similar QDCs with one contractor (for example when let under a framework agreement). In these cases it may be more efficient to determine one CPR to be used for a group of contracts, rather than make an individual assessment for each QDC. This is provided for by section 18(2)(c).
65.Either party may ask the SSRO for a determination if they consider that an adjustment under step 2, 3 or 6 was not appropriately determined in accordance with this section, based upon information available to either party at the time the QDC was entered into (section 18(3)(a)). Where the SSRO determines that a different adjustment under step 2, 3 or 6 should have been made, it may further determine a price adjustment to the extent that that adjustment varies from the one made at the time the contract was entered into (section 18(3)(b)). Enforcement of this price adjustment is provided for by section 22.
66.The SSCRs may allow for some of the six steps to be disapplied for lower value QDCs (section 18(2)(a)) or for those steps to be applied in a modified way (section 18(2)(b)). This means that, for low value QDCs, the SSCRs will be able to make provision for a simplified process of determining the CPR.