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<p>When placing contracts through a competitive procurement process the Ministry of
Defence (MOD) relies on competitive pressures to restrict profit margins to market
rates. Such market pressure is absent in non-competitive contracting where the MOD
relies instead upon the protections offered by Part 2 of the Defence Reform Act 2014
(DRA) and the Single Source Contract Regulations 2014 (SSCR).</p><p>Under the DRA
and SSCR the MOD can make deductions to the profit margin earned on a Qualifying Defence
Contract or Qualifying Subcontract, where that profit margin exceeds levels set out
in the legislation.</p><p>In both competitive and single source contracting, the MOD
can negotiate with a contractor Key Performance Incentives and Liquidated Damage provisions.
These will have the effect of reducing payments, and hence profit margins, when performance
is not to the agreed level.</p><p>MOD policy is not to pay suppliers for the costs
of their failed bids. In a non-competitive procurement the MOD may consider payment
of bid costs if it is the MOD that stops the tender process, at no fault of the supplier.</p><p>The
MOD will have regard to the Single Source Regulations Office 'Statutory Guidance on
Allowable Costs', when considering what if any business-related costs it is appropriate
for the Department to accept into contract prices.</p>
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