HC Deb 23 May 1985 vol 79 cc496-7W
Mr. Willie W. Hamilton

asked the Secretary of State for Defence if he is satisfied with current methods of controlling the profits of defence contractors; and if he will make a statement.

Mr. Butler

Yes, Sir. It is MOD policy to place contracts following competition whenever possible, since we believe that effective competition is the best method of ensuring that the MOD secures best value for money. Under the 1968 agreement between the Government and industry, the profit paid on non-competitive Government contracts is determined according to a profit formula which is subject to triennial general reviews and, from 1984, intermediate annual reviews, by an independent review board. Following consultation with industry, the implementation of its recommendations is a matter for the Government. My right hon. and learned Friend the Chief Secretary announced on 30 April—columns 97 and 98—the outcome of the first annual review by the review board, and I provided further details in my reply of 16 May—columns 207–8—to my hon. Friend the Member for Mid-Worcestershire (Mr. Forth).

The 1968 agreement provides also for equality of information between the parties up to the time the price is fixed and for post-costing to establish the actual cost of a contract. Post-costing acts as a check on the MOD's pricing procedures, assists in the pricing for follow-on contracts and enables adjustments to be made to any price which was agreed on the basis of materially inaccurate or incomplete information.