The fundamental principle of the SSCR is that the price to be paid for defence capability should be fair and equitable. In terms of calculation, the basic formula is as follows: contract price = (contractual gain rate x eligible costs) + eligible costs. Reduced to the essentials, the first key element of the equation is the contractual rate of gain. This calculation is calculated using a six-step method as follows: (1) Determination of a base profit rate (defined by the SSRO); (2) make, if necessary, an upward adjustment of risks; (3) proceed once the contract is concluded to a downward revision of profits; (4) make an SSRO financial adjustment (contractors pay a percentage to ensure the operation of the SRO); (5) a discretionary adjustment of incentives for exceptional benefits; and (6) adjustment of capital premiums (recovery of fixed costs and reasonable working capital). [9] The second key element concerns „eligible costs“. Eligible costs are costs that are considered „reasonable, unthinkable and reasonable“ with respect to the burden on the contractor. [10] To this end, the SSRO has published legal guidelines on eligible costs. [11] Third, there remains some uncertainty about the legal price formula. With regard to adjustable costs, SSRO recently issued its first finding, in which it found, inter alia, that Rolls Royce was not in a position to claim that certain marketing and distribution costs were eligible costs.
[20] However, this was not a very harsh case: attempts to pass on costs that improve the company`s business profile are unlikely to fly. The SSRO has yet to be tested with a true borderline case. With regard to the base rate, it has become clear that a single base rate is not suitable for application to all contracts and that several rates may be necessary to reflect differences in nature and complexity. Initially, there were concerns about the introduction of several tariffs, in particular due to the limited resources available within the MOD to manage their variable application. [21] Despite this, the SRO recently approved several base interest rates. [22] If it is difficult to determine the eligible costs and rates of profit, it is likely that contractors will encounter similar difficulties in estimating the cost risk and the types of capital service adjustments that are possible under the formula. It should be recognized that initial uncertainty is to be expected, as the SRO refines its approach through guidelines and provisions. However, it is equally important to recognize that the directions of the SSRO are not consultative, but prescribed by law. In the end, any legal uncertainty on the part of SSR is established at first instance and can only be confirmed by a reference for a finding. In addition, revisions to the guidelines are not published after periodic review, but sporadically if necessary. This allows for an adaptable approach, but one that does not necessarily promote legal certainty.