Regulator seeks greater transparency in 'single source' defence contracts

Out-Law News | 02 Feb 2017 | 3:21 pm | 3 min. read

The UK body tasked with overseeing compliance with special regulations governing some defence contracts has asked to be given new powers to compel suppliers to share more information with them about those contracts.

Procurement law expert Christopher Murray of Pinsent Masons, the law firm behind, said the recommendation made by the Single Source Regulations Office (SSRO) shows that the regulator is willing to "flex its muscles".

In the UK, some defence contracts can be awarded by the Ministry of Defence (MoD) without the need for an open competition between prospective suppliers. This is unlike most other public sector contracts which are subject to extensive procurement rules.

However, special rules do apply to these qualifying defence contracts under the so-called 'single source' regime. The rules are contained in the Defence Reform Act and the Single Source Contract Regulations. The legislation entered into force in 2014. The SSRO oversees compliance with those rules.

The MoD is scheduled to conduct its first formal review of the legislation later this year. The SSRO has outlined draft recommendations for reform (55-page / 1.44MB PDF) which are open to consultation until 24 March. Final recommendations are expected to be published by the SSRO by June, and the MoD will be duty bound to consider them as part of its review.

Among its recommendations, the SSRO called for it to be given new powers to request information from defence contractors that it "reasonably considers necessary for the purpose of carrying out its [statutory] functions". Under the plans, the suppliers would have 30 days to respond with the relevant "information, explanation or documents" in a manner dictated by the regulator.

"Proper discharge of those functions is essential if the regulatory framework is to operate optimally and achieve the aims of value for money for the government and fair and reasonable prices for contractors," the SSRO said.

The SSRO also recommended that the legislation be updated to broaden "the coverage" of the rules. It said that, currently, some low value defence contracts, which fall outside the scope of the rules, are sometimes amended after they have been agreed and fulfil the criteria for contracts that are subject to the single source rules but are not treated as being in-scope.

The SSRO said those amended contracts should be considered to be new contracts under the regulatory framework so are covered by the rules.

The SSRO also recommended that more sub-contracts be brought within the scope of the rules, including by lowering the contract value threshold at which sub-contracting arrangements would be caught by the rules, from £25 million to £10m.

The rules should also be updated to allow parties to a defence contract to ask the SSRO for its view as to whether their contract is subject to the single source regime, it said.

The regulator further called for some exclusions from the rules, which apply to some defence contracts, to be tightened, and said it should be given the power to issue penalty notices against contractors that breach their reporting duties or obligations around sub-contracting assessments.

"Unlike other forms of government contract, which have to be procured competitively to ensure compliance with EU procurement rules and value for money, single source contracts can be awarded ‘behind closed doors’," Murray said. "The reasons for this are obvious in many circumstances, as the contract will be so sensitive from a military or intelligence perspective that open competition could risk national security interests."

"However, the present review and further call for evidence demonstrates that the regulator believes that more can be done to improve the single source regime, primarily from the transparency and enforcement perspectives. This is particularly current, given the various spending announcements made by the new government and its commitment to spend an increasing amount of the budget on defence," he said.

"Although the review doesn't cover procurement decisions per se, i.e. the circumstances in which a particular contract is treated as single source, or the number of such decisions, the report does note the regulator's concern that such decision may result in contracts being treated as single source when they really ought to have been openly procured. The regulator intends to leave this aspect under review, and may make recommendations in this regard in the future," Murray said.

"The recommendations are one of the first measures taken to improve the regime by the still relatively new regulator. They demonstrate that, having taken some time to properly establish itself, the regulator is now in business and may not be afraid to flex its muscles when needed," he said.