The Secretary of State for Defence has confirmed the rates that will apply for 2026/27, in line with the SSRO’s assessment. Reflecting wider market trends, the baseline profit rate has increased to 9.10 percent for 2026/27, up from last year’s rate of 8.56 percent. The capital servicing rates have risen by an average of 0.65 percentage points to 4.49 percent. These rates will apply to qualifying contracts entered into on or after 1 April 2026 and are published in The Gazette and in the SSRO’s guidance on the baseline profit rate and its adjustment.
The baseline profit rate and capital servicing rates remain as the crucial starting points for agreeing contract profit rates for qualifying single source contracts using the pricing formula. The SSRO’s assessment enables the Ministry of Defence (MOD) to set contract profit rates that are internationally competitive, fairly reward risk and maintain strong incentives for good performance, efficiency and productivity. Contractors that assume greater risk and manage it well over the life of the contract may therefore earn profits well above the baseline, while those that underperform may earn less. Taken together, our approach promotes a stable contracting framework that supports long-term investment, aligned with the government’s agenda and the published Defence Industrial Strategy and the Strategic Defence Review.
The SSRO’s rigorous methodology and supporting processes provide a reliable and consistent basis from which the MOD can agree contract profit rates with suppliers, tailored to the specific characteristics of each qualifying contract. At a time when the effective and efficient delivery of the UK’s critical defence capabilities is of paramount importance, the SSRO’s work supports fair prices for contractors while safeguarding value for money for the taxpayer.
Transparency underpins the SSRO’s approach. We therefore continue to publish our methodology, which explains the process undertaken to calculate this year’s rates. Alongside this, we have released factsheets summarising the results and a supporting information pack to assist those wishing to scrutinise or replicate the assessment. Additionally, we have published a set of key questions and answers relating to this year’s rates which provides further explanation of the rates assessment.
We consider our assessment to be robust, appropriate and consistent with the SSRO’s statutory objectives of securing good value for money in government expenditure whilst ensuring contractors receive fair and reasonable prices.
Consistent with last year’s approach, the SSRO has again recommended a baseline profit rate of zero for contracts between the Secretary of State and companies wholly owned by the UK Government, where both parties agree to this. This rate was first introduced by the Secretary of State in 2021 and the reasons for its introduction can be found here: https://www.thegazette.co.uk/notice/4579528.
