LONDON — The organisation tasked with vetting noncompetitive defense contracts in the U.K. has saved the Ministry of Defence £313 million (U.S. $412 million) since its inception three years ago. However, it is facing a refusal by some suppliers to provide information on costs and prices, according to a report from the government’s financial watchdog.

Most suppliers accept the need to work within the new noncompetitive procurement legislation introduced in 2014, but some are “resisting them [the regulations] and their interpretation by the MoD and the Single Source Regulations Office (SSRO) with some failing to provide the required information” said the National Audit Office in a report released Oct. 24.

“There is currently disagreement between the Department [the MoD] and certain suppliers, who are either refusing to be subject to the Regulations or will not provide the required information about costs and prices. The Department is considering what action to take in these situations,” the report said.

The National Audit Office did not name the companies who have failed to provide the required cost and price information.

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The report warned the regulatory effort “will fail if contractors can evade them by not cooperating. The Department faces a particular challenge in gaining agreement from contractors to bring existing contracts brought within the regime.”

The report noted tensions between the SSRO and the MoD and industry over several issues, including exactly what the remit of regulations office is.

“The early stages of the regulations have been characterised by differences of opinion between industry and the regulatory body, in part, prompted by the SSRO’s sometimes confrontational public tone. However, the SSRO and the MoD have also disagreed about the former’s interpretation of its remit,” the report said.

The tensions have led to the SSRO losing two chairman in three years, and earlier this month they were joined by SSRO Chief Executive Marcine Waterman, who also announced she was resigning.

The government watchdog said that in the short term, the MoD needs to eliminate disagreements between key stakeholders and the continued opposition to aspects of the regime from some defense suppliers.

“The SSRO’s interpretation of its remit has created additional friction, in part because it is seeking changes to its powers. The legislation does not confer on the SSRO many of the characteristics of an economic regulator and there are limitations on its ability to act independently of the MoD when it is seeking accurate and complete contract cost information,” the report said.

The report urged the MoD to “resist calls to dilute” the new regulations.

Consultation on proposed changes are ongoing for the moment, but an industry source said SSRO efforts to introduce a flexible baseline profit scheme — which allocates returns based on the complexity of the task rather than the current one-size-fits-all approach — has quietly been put on the back burner.

An SSRO proposal that the organization should scrutinize single-source government-to-government deals like foreign military sales is also being sidelined, according to the source.

To date, it is estimated the SSRO has saved £313 million, principally by disallowing costs to the tune of £154 million. Overall, though, the drive is to save £1.7 billion over 10 years as part of the MoD’s wider, so-called efficiency drive to help free up funds for a £178 billion equipment procurement program over the next decade.

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The MoD is as much as £20 billion overcommitted on the equipment budget, as a result of hikes in the cost of major programs like the Dreadnought nuclear missile submarine, the weakness of the sterling against the dollar and the Euro, and other issues.

A government-published national security capability review, which also covers defense, is expected soon, cutting some capabilities but giving greater priority to other sectors like space and cyber.

The SSRO was set up to replace a largely discredited, decades-old government scheme known as the Yellow Book, which set allowable costs and other parameters for noncompetitive contracts.

The Defence Reform Act 2014 gave the SSRO a remit to recommend an annual baseline profit for noncompetitive contracts to the defense secretary and, among other things, adjudicate on allowable costs on contracts referred to it by the MoD.

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Single-source deals are big business in Britain. The MoD spent £8.8 billion on noncompetitive contracts in the 2015-16 financial year — more than half of the entire procurement and support budget.

Nearly 2,000 single-source contracts are active in the U.K., but by July 2017 only 110 contracts with a combined value of £23.9 billion had been brought within the scope of the regulations.

The largest industrial players in single-source work in the U.K. include BAE Systems, Babcock International, MBDA, Rolls-Royce, Raytheon UK and Qinetiq.

Nuclear submarines, frigates, missiles and combat jets are among the platforms acquired by the MoD through single-source deals.

A spokesman for the SSRO said the organization welcomes the report, ”which makes a number of helpful recommendations.”

Andrew Chuter is the United Kingdom correspondent for Defense News.

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