SDWH

Defence Procurement

Defence procurement is one of the most technically and commercially complex areas of government spending. Much of it takes place outside competitive markets — through single-source contracts — which creates a distinctive set of challenges around pricing, cost control and supplier return.

SDWH Limited has direct experience of the regulatory framework governing single-source defence contracts in the UK — the regime established under the Defence Reform Act 2014 and administered by the Single Source Regulations Office. That experience covers contract pricing methodology, allowable cost determination, profit rate calibration, and the review approach appropriate for a non-competitive contracting environment.

SDWH Limited does not provide regulated audit services and does not act as a representative in regulatory proceedings.

All reports referenced on this page were published by the Single Source Regulations Office. Matthew Rees led and authored this work during his appointment.

How is profit determined when there is no competitive market to set the price?

In a competitive market, price is set by competition. In single-source defence contracting, there is no competition — so profit and incentive structures are guided through a regulatory regime. Getting this right matters because single-source contracts account for a significant share of the defence equipment budget.

This work examined how cost risk and profit incentives are structured in single-source contracts, what drives variation in outcomes, and whether the regulatory framework creates the right commercial signals for both government and contractor.

Cost risk and incentives in defence contracts — SSRO report
single sourcedefencecost riskincentiveprofitcontract pricingSSRODefence Reform Act

SDWH provides independent analysis of:

  • Single-source pricing structures; cost risk and incentive design
  • The SSRO regulatory framework and its commercial implications
  • Briefing for procurement teams and finance directors

What is a fair profit rate for a defence contractor, and how should government derive it?

The baseline profit rate applied to single-source defence contracts is recommended by the SSRO through a statutory process and updated annually. Understanding how that rate is derived — the benchmarking methodology, the treatment of risk, the capital base assumptions — is essential for both government and contractors seeking to understand pricing discussions.

This work examined the inaugural review of the methodology to consider how to calibrate the balance intended between government and its strategic suppliers, and identified the key choices that determine the range of rates that emerge from benchmarking techniques.

Calibrating profit rates for single-source contracts — SSRO report
contract profit rateSSRObaseline profit ratebenchmarkingcapital basesingle sourcepricing

SDWH provides independent analysis of:

  • Profit rate derivation methodology; benchmarking approaches and their limitations
  • The SSRO regulatory framework
  • Analytical context for understanding contract pricing

What costs can a defence contractor legitimately charge to government?

The allowable costs framework is the foundation of single-source contract pricing. It defines which costs are attributable, reasonable and appropriate — and therefore recoverable under a government contract. Getting this right protects both the public interest and the contractor's legitimate cost recovery.

This was the first edition of the allowable costs guidance, published to establish the single-source contracts regime. It remains the definitional reference for anyone working within the SSRO framework. The SSRO is the custodian of subsequent editions and readers should consult the SSRO website for the most recent version.

Allowable costs guidance for defence procurement — SSRO report
allowable costsattributablereasonablesingle sourceSSROdefencecost recoveryDefence Reform Act

SDWH provides independent analysis of:

  • Allowable cost framework design; cost attribution principles
  • The structure and intent of the single-source regime
  • Briefing on the allowable costs guidance