The Single Source Regulations Office (SSRO) has today updated its statutory guidance on the incentive adjustment alongside a public consultation inviting stakeholder views. Changes to the current incentive adjustment that increased its maximum amount and put in place new statutory safeguards over its use in qualifying defence contracts (QDCs) were announced on the 14 May by the Minister for Defence Readiness and Industry: Reforms to the Single Source Contract Regulations.
The incentive adjustment (step 3 of the contract profit rate calculation) allows the Secretary of State to increase the profit on single source defence contracts to provide financial incentives linked to specified aspects of contract performance.
The guidance changes reflect amendments made by the Single Source Contract (Amendment) Regulations 2026 which come into force on 5 June and are intended to deliver against the commitments made in the Defence Industrial Strategy 2025 and the Strategic Defence Review 2025. By increasing the potential profit available for achieving faster delivery and greater productivity, the changes aim to drive innovation and accelerate capability to the frontline, maximising value from defence spending.
The SSRO has issued revised guidance to assist the Ministry of Defence (the MOD) and contractors in applying the updated framework in practice. The SSRO’s guidance plays a vital role in ensuring consistent, transparent and proportionate use of the incentive adjustment so that the intended benefits of the reforms can be realised. Alongside the MOD, the SSRO will be keeping under review the impact of these reforms to ensure that they deliver the public value intended.
The revisions to the Regulations introduce a strengthened and more flexible approach to the use of incentive adjustments in QDCs. In particular:
- The maximum incentive adjustment for qualifying defence contracts has increased from two percentage points to ten percentage points. The maximum incentive adjustments for qualifying subcontracts remains at two percentage points.
- New safeguards governing the design and operation of incentive adjustments have been introduced
- The SSRO’s power to give formal opinions in relation to pricing has been clarified to include consideration of the appropriate incentive adjustment.
The updated guidance provides a principles-based framework for designing and applying these new provisions in practice.
The SSRO has also made related updates to other guidance materials to ensure alignment with the amended Regulations, including clarifications on contract-level incentive adjustments, reporting requirements and references to the revised maximum adjustment.
The SSRO is inviting feedback on the revised guidance on the incentive adjustment through a public consultation. A consultation document is provided on this web page.
- View the updated Contract Profit guidance v8.4
- View the updated Alternative Pricing guidance v1.4
- View the updated FPA calculator v1.2
Responding to the consultation:
The consultation runs for 12 weeks until 5.00 pm Monday 24 August 2026. Written responses should be sent to:
- consultations@ssro.gov.uk (preferred); or
- Incentive adjustments guidance consultation responses, SSRO, 100 Parliament Street, London, SW1A 2BQ.
If you wish to discuss the guidance or consultation, please contact us on 020 3771 4785
