The BPR is the starting point for the agreement of contract profit rates and is 8.56 per cent for 2025/26. The BPR has been applied to contracts worth over £124 billion since April 2015. The BPR is only the first in a series of steps used by the contracting parties to derive the contract profit rate, which is typically higher than the BPR. Where contractors take on risk and perform well through the life of the contract, they can achieve even higher contract profit rates whilst those who fail to perform can earn less.
In June 2025, the SSRO launched a consultation to review and refine the methodology used to assess the baseline profit rate (BPR), as part of its commitment to transparency and continuous improvement. The consultation aim was to ensure the BPR calculation remains up-to-date, relevant, and representative of the activities involved in delivering defence contracts. Stakeholders were invited to give feedback on several proposed updates to the methodology, including:
- Adoption of updated industry classification codes: using the latest Nomenclature of Economic Activities (NACE) Rev. 2.1 industry classification system for selecting comparable companies in the BPR assessment. NACE codes are a European system of classifying economic activities for the purpose of statistical and other analysis.
- Revising company size criteria: updating the financial size thresholds that determine which companies are considered “comparable” for the profit rate benchmark.
- Review of activity scope: Retiring two previously proposed methodology changes from 2024 – one to include technical support services in the set of activities considered within the BPR assessment, and another to classify labour outsourcing under the “Ancillary Services” activity type.
After carefully considering the consultation feedback, the SSRO has published a consultation response detailing the outcome and the reasoning behind its decisions. No immediate changes will be made to the BPR methodology for the next assessment cycle (2026/27). This means the upcoming 2026/27 baseline profit rate will be calculated using the existing methodology. However, the SSRO has mapped out updates for subsequent years:
- Incorporating NACE Rev. 2.1 codes from 2027/28: the SSRO will integrate the updated NACE Rev. 2.1 industry classification database into its rates assessment methodology starting with the 2027/28 BPR assessment. This update is contingent on the complete and correct adoption of NACE Rev. 2.1 in the Moody’s Orbis financial database (which provides the company data for analysis). The Orbis database’s full update to the new coding system was not available in time for the 2026/27 assessment, so the change is deferred to 2027/28.
- Updating company size thresholds from 2027/28: new company size thresholds for selecting comparable companies will be applied from the 2027/28 assessment. These thresholds are being aligned with regulations that take effect for company financial periods beginning on or after 6 April 2025. By waiting until the 2027/28 cycle, the SSRO ensures that company financial data reflecting the new size definitions are available and that the BPR comparison set appropriately matches the updated criteria.
- No expansion of activities scope at this time: the two remaining methodology changes proposed in 2024 – incorporating technical support services as a relevant activity within the BPR benchmark and treating labour outsourcing as part of Ancillary Services activity group – will not be implemented. Stakeholder feedback during the consultation, combined with further SSRO analysis, indicated that introducing these changes would not improve the accuracy or representativeness of the profit rate assessment at this stage. As a result, the SSRO has decided to retain the current set of activities used for benchmarking company profits. This decision concludes the activities review that began with the 2024 consultation, without adding the previously suggested categories.
By continuously reviewing and, where necessary, refining the BPR methodology, the SSRO helps ensure that the profit rates for non-competitive contracts remain aligned with market norms and that both the MOD and suppliers are treated equitably. The SSRO thanks all those who responded to the consultation for their insights and contributions. Where respondents gave permission, their full responses have been made publicly available, reflecting the SSRO’s dedication to transparency in regulatory decision-making.