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Defence Procurement: Single-source Contracts

Volume 614: debated on Monday 12 September 2016

8. What recent assessment he has made of the value for money obtained from single-source defence procurement contracts. (906246)

Competition remains the best way of securing value for money but sometimes we need to place single-source contracts. We therefore established a new regime backed by statute with an independent regulator to ensure contract costs and profit rates are both reasonable and transparent.

I thank the Minister for that answer. If the Single Source Regulations Office to which she refers seeks to proceed with its current proposal to reform the profit rates on those contracts, will she commit that those changes will this time have the Government’s support?

Yes, in March this year we reduced the profit rate on single-source contracts from 10.6% to 8.95%. The regulator will then recommend a rate for 2017, which we will consider carefully, along with its recommendation on multiple profit rates.

What steps will the Minister take to ensure that, where single-source contracting is placed abroad with, say, American companies, there are appropriate levels of set-aside, so that apprenticeships and the seed-corning for future capability in British defence companies are protected and facilitated?

The hon. Lady will be aware that that is an ongoing subject of discussion, and of the commitment that General Dynamics has made in Wales in the part of the world she represents to create 250 jobs in the supply chain for the Ajax vehicles.

Whether contracts are derived from single source or open competition, unnecessary costs can be incurred when design specifications are changed after the contract has started, for example with the Type 45s. What steps is the Minister taking to ensure that late changes after contracts have started no longer occur?

My hon. Friend is right to highlight one of the major themes that came out of the review into how we can improve defence procurement. As he rightly points out, there were problems with the design of the Type 45, which was ordered at the beginning of the previous decade, that have subsequently been costly to rectify. That is why we now take such care on design: to prevent such things from happening in future.

I welcome what the Minister said in answer to an earlier question about targets that are in place to ensure small and medium-sized enterprises in the UK benefit from defence procurement. When she is considering value for money and single-source contracts, can she assure the House that value for money includes British jobs, British skills and, as my hon. Friend the Member for Bridgend (Mrs Moon) said, investment in apprenticeships?

I thank the hon. Gentleman for mentioning apprenticeships and our commitment to continuing to work with our single-source suppliers. We can clearly see that they are some of the lead providers of apprenticeships across the defence procurement area.