Defence procurement reform: The Single Source Contract Regulations

In 2014 the Government created a new framework for single source procurement for defence. Single source procurement is when contracts are not competed. Historically the Ministry of Defence has awarded a significant proportion of contracts without an open competition. The MOD says it is likely that the proportion of non-competitive procurement will increase as it implements its new defence industrial strategy (2021). Some of the proposed reforms will require changes to primary and secondary legislation. The legislative proposals are the subject of this paper.

A new regime comes into force

Before 2014 the governance of non-competitive contracts was reliant on a non-legally binding framework dating from 1968, known as the Yellow Book, which was overseen by the Review Board for Government Contracts.

A review by Lord Currie led to the Better Defence Acquisition White Paper in 2013 and the new framework was brought into effect in part 2 of the Defence Reform Act 2014 (the 2014 Act) and the Single Source Contract Regulations 2014 (the SSCRs).

The single source framework has three main components: the regulations, statutory guidance, and a body to manage and monitor the framework, known as the Single Source Regulatory Office (SSRO).

The SSCRs apply when a defence contract, with a value of over £5 million, is awarded without being competed, unless it is specifically excluded from the regulations. Exclusions include government to government sales.

Reviewing the framework

The 2014 Act requires the Secretary of State for Defence to review single source procurement legislation within three years of it coming into force (i.e 2017) and each subsequent five-year period (i.e. 2022 and thereafter).

The Act also requires the SSRO to keep  the single source contract regulations under review, and make recommendations to the Defence Secretary as appropriate.

Following the 2017 review, the MOD amended the 2014 regulations via three statutory instruments. These changes are discussed briefly in this paper and in more detail in Library paper The defence single source regulatory framework under review (CBP 8930, June 2020).

The MOD began the next review process in mid-2019, with the SSRO submitting its initial recommendations in 2020 and its final recommendations in 2021. The MOD confirmed its intention to reform the SSCRs and outlined the broad parameters of its proposals in a new defence and security industrial strategy (DSIS) published in March 2021. The DSIS indicated plans to simplify and speed up the single source regime and introduce new ways of “incentivising suppliers to innovate and support government objectives.”

The MOD subsequently published a command paper outlining its proposed reforms of the regulations in April 2022.

Professor Luke Butler, who specialises in procurement law and has written at length about the single source contract framework, notes that the regime involves “fundamental public policy questions regarding value for money and transparency.” However, he also says that “the general impress of the proposals is that there are few, if any, elements of the reforms that could be said to be truly transformational in terms of fundamentally altering the regulatory design.”

Proposed legislation

Many of the proposed legislative changes will be made in secondary legislation. At the time of writing these have not been published.

However, the MOD does intend to amend the 2014 Act, largely to enable further regulations to be made. This will be achieved by the Procurement Bill. The Bill was introduced in the House of Lords on 11 May 2022 and completed all stages on 13 December. Second Reading of the Bill in the House of Commons is scheduled for 9 January 2023. The Procurement Bill is intended to reform the UK’s public procurement regime and the amendments relating to the single source framework is a small part of the Bill.

The Procurement Bill will also repeal the current Defence and Security Public Contracts Regulations 2011 (DSCPR), which regulates competitive defence procurement. These changes are discussed in Library paper Defence procurement reform: The Defence and Security Public Contract Regulations, CBP 9666.

A more detailed explanation of defence procurement can be found in Library paper Defence Procurement Reform, CBP 9566.