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Allowable Costs under the Single Source Contract Rules: Costs for work undertaken at risk before entering into a defence contract

By Dr Luke Butler, Lecturer in Law (University of Bristol Law School).

38611963In an earlier blog, I introduced the Defence Reform Act 2014 (DRA), the Single Source Contract Regulations (SSCR) and the Single Source Regulations Office.[1] Collectively, these regulate the pricing of defence contracts awarded by the Ministry of Defence to a single source contractor. It is recalled that contractors can recover certain “Allowable Costs” incurred under a Qualifying Defence Contract (QDC) if they are appropriate, attributable to the contract, and reasonable in the circumstances (the so-called “AAR test”).[2]

But what if, ahead of the agreement of the contract, work relating to the contract is undertaken at risk pursuant to an “intention to proceed” (ITP) arrangement?[3] Unless the ITP fulfills the requirements for a legally binding contract, it cannot itself constitute a QDC.[4] This leaves the question whether this kind of pre-contractual work can constitute an Allowable Cost recoverable under the QDC once the QDC is in place. Continue reading