Third, there is still some uncertainty in legal pricing. With respect to eligible costs, the SSRO recently issued its first conclusion that Rolls Royce could not argue that certain marketing and distribution costs were eligible costs.  However, this was not a very difficult case: attempts to improve the company`s business profile are unlikely to be in-flight. The SSRO still needs to be tested with a real borderline case. With regard to basic earnings, it was clear that a single basic profit rate is not suitable for application to all contracts and that several interest rates may be required to reflect differences in nature and complexity. Initially, there had been concerns about the introduction of several tariffs, including the limited resources available within MOD to manage their variable application.  Despite this, the SSRO recently approved several base interest rates.  If it is difficult to determine eligible costs and profit rates, it is likely that contractors will have similar difficulties in estimating the cost risk and types of adjustment of capital services possible under this formula. It should be recognized that initial uncertainty is to be expected, as the SSRO will refine its approach through guidance and provisions. However, it is equally important to recognize that the SSRO guidelines are not consultative, but are mandatory by law. In the end, any legal uncertainty must be determined by the SSRO at trial and must only be confirmed by a referral for finding.
In addition, revisions to the guidelines will not be published following a regular review, but rather sporadically when necessary. This allows for an adaptable approach, but does not necessarily promote legal certainty. Contractors may also be reluctant to refer contracts to the SSRO for evaluation, as no contractor wants their contractual costs to be declared non-compliant. www.telegraph.co.uk/finance/newsbysector/industry/defence/12113333/New-controls-on-defence-contract-profit-margins-delayed-by-government.html. Between 1968 and 2014, the prices of Uk MoD individual telephony contracts (also known as non-competitive contracts) were executed under the government`s profit formula and associated agreements (GPFAA) on the basis of a 1968 agreement between the Confederation of British Industry (CBI) and the UK Government, which established the Government Review Council for Government Agreements.