The Secretary of State for Defence has today (13 March 2026) confirmed the baseline profit rate that will apply for 2026/27, which will be used as the first-step in the process for agreeing the contract profit rate on critical defence contracts awarded by the Ministry of Defence (MOD) in the absence of a competitive process.
The baseline profit rate which applies for 2026/27 is 9.10%. This has risen from the 2025/26 rate of 8.56%, reflecting wider market trends.
The baseline profit rate and capital servicing rates remain as the crucial starting points for agreeing contract profit rates for qualifying single source contracts. The SSRO’s assessment enables the MOD to set contract profit rates that are internationally competitive, fairly reward risk and maintain strong incentives for improved performance, efficiency and productivity.
Contractors that assume greater risk and deliver strong performance 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 Defence Industrial Strategy and the Strategic Defence Review.
The SSRO’s assessment of the appropriate rates to be used in calculating the contract profit rate for qualifying non-competitive defence contracts during the 2026/27 financial year is 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.
The SSRO has published analysis of non-competitive contracts that fall within its oversight. The graph below provides an illustration of the rates of profit available in the defence single source regime. It shows that contract profit rates agreed at the outset of a contract can now typically be between 7% and 19%, which is an increase from last year.
Source: Slide 7 in SSRO’s baseline profit rate, capital servicing rates, and government owned contractor rate recommendation: 2026/27 – supporting analysis (March 2026).
As of 2024/25 contractors reported (on average) achieving a higher rate of profit than was originally agreed, earning or forecasting to earn an average profit rate of 11.67%.
The rates will apply to qualifying non-competitive defence contracts and non-competitive defence subcontracts that use the pricing formula, entered into from 1 April 2026 and can be found in The Gazette and in the SSRO’s guidance on the baseline profit rate and its adjustment.