Defence Reform Bill (HC Bill 118)

(b) references to a “sub-contractor” are to a person who provides anything
under such a contract.

(3) This subsection applies to a contract between a primary contractor and another
person if—

(a) 5the contract involves the provision by the other person of anything for
the purposes of a qualifying defence contract to which the primary
contractor is a party,

(b) the award of the contract is not the result of a competitive process,

(c) the value of the contract is of or above the amount specified in the
10regulations, and

(d) the contract meets such other requirements as may be specified in the
regulations.

(4) This subsection applies to a contract (“contract B”) if—

(a) contract B involves the provision of anything for the purposes of
15another contract (“contract A”) where contract A is—

(i) a contract to which subsection (3) applies, or

(ii) another contract to which this subsection applies,

(b) the award of contract B is not the result of a competitive process,

(c) the value of contract B is of or above the amount specified in the
20regulations, and

(d) contract B meets such other requirements as may be specified in the
regulations.

(5) The regulations must make provision for determining for the purposes of this
section whether the award of a contract is the result of a competitive process.

(6) 25The Secretary of State may direct that a particular contract is not a contract to
which subsection (3) or (4) applies even though the requirements of that
subsection are met in relation to it.

29 Determining whether a contract is a qualifying sub-contract

(1) Single source contract regulations may provide that where—

(a) 30a primary contractor proposes to enter into a contract with another
person (the “prospective sub-contractor”), and

(b) the proposed contract involves the provision by the prospective sub-
contractor of anything for the purposes of a qualifying defence contract
to which the primary contractor is a party,

35the primary contractor must assess whether the proposed contract would be a
qualifying sub-contract if it were entered into.

(2) The regulations may require the primary contractor—

(a) to keep a record of an assessment made by virtue of subsection (1), for
the purpose of its inclusion in the records which the primary contractor
40would be required to keep in relation to the proposed contract, by
virtue of section 23(3)(d) (records relating to whether a contract is a
qualifying sub-contract), if the contract were entered into;

(b) where the assessment is that the proposed contract would be a
qualifying sub-contract if it were entered into, to give notice in writing
45of that fact to the Secretary of State, an authorised person and the
prospective sub-contractor.

(3) Single source contract regulations may provide that where—

(a) a person (“the prospective primary contractor”) proposes to enter into
a qualifying defence contract with the Secretary of State (“the proposed
qualifying defence contract”),

(b) 5the prospective primary contractor also proposes to enter into a
contract (“the proposed sub-contract”) with another person (“the
prospective sub-contractor”), and

(c) the proposed sub-contract involves the provision by the prospective
sub-contractor of anything for the purposes of the proposed qualifying
10defence contract,

the prospective primary contractor must assess whether the proposed sub-
contract would be a qualifying sub-contract if it and the proposed qualifying
defence contract were entered into.

(4) The regulations may require the prospective primary contractor—

(a) 15to keep a record of an assessment made by virtue of subsection (3), for
the purpose of its inclusion in the records which the prospective
primary contractor would be required to keep, by virtue of section
23(3)(d), if the proposed contracts were entered into;

(b) where the assessment is that the proposed sub-contract would be a
20qualifying sub-contract if it and the proposed qualifying defence
contract were entered into, to give notice in writing of that fact to the
Secretary of State, an authorised person and the prospective sub-
contractor.

(5) Single source contract regulations may contain provision—

(a) 25in relation to a case where an assessment is made by virtue of
subsection (1), entitling the prospective sub-contractor to appeal to the
SSRO against an assessment that a proposed contract would be a
qualifying sub-contract if it were entered into;

(b) in relation to a case where an assessment is made by virtue of
30subsection (3), entitling the prospective sub-contractor to appeal to the
SSRO against an assessment that the proposed sub-contract would be a
qualifying sub-contract if it and the proposed qualifying defence
contract were entered into.

(6) The regulations must contain provision about the procedure to be followed by
35the SSRO in determining an appeal by virtue of subsection (5).

30 Application of Part to qualifying sub-contracts

(1) This Part and single source contract regulations apply to qualifying sub-
contracts (and to sub-contractors) as they apply to qualifying defence contracts
(and to primary contractors).

(2) 40In their application by virtue of subsection (1), this Part and single source
contract regulations are subject to—

(a) such modifications as may be set out in those regulations, and

(b) subsection (5).

(3) The regulations—

(a) 45may provide for the application of this Part and the regulations, by
virtue of subsection (1), to end at a time specified by or determined in
accordance with the regulations;

(b) may, in making such provision, provide for determining when this Part
and the regulations cease to apply to a qualifying sub-contract which
is—

(i) partly for the purposes of a qualifying defence contract or
5another qualifying sub-contract, and

(ii) partly for other purposes.

(4) The provision that may be made under subsection (3)(b) includes provision—

(a) for the sub-contractor to give notice to the SSRO that, in the sub-
contractor’s opinion, this Part and the regulations should cease to
10apply to the qualifying sub-contract, and

(b) for the SSRO to be able to overrule such a notice (and accordingly for
this Part and the regulations to continue to apply).

(5) The regulations may contain provision excluding the application of this Part
and the regulations, by virtue of subsection (1), to a qualifying sub-contract in
15respect of which no notice is given under section 29(2)(b) or (4)(b).

Compliance

31 Compliance notice

(1) The Secretary of State may give a person a compliance notice if the Secretary of
State thinks—

(a) 20that the person has contravened this section, and

(b) that there are steps that can be taken by the person to remedy the
contravention.

(2) A compliance notice is a notice which—

(a) specifies those steps, and

(b) 25directs the person to take them.

(3) A person (“P”) contravenes this section if—

(a) P fails to comply with one or more specified requirements imposed by
virtue of—

(i) section 23 (duty to keep accounting and other records), or

(ii) 30section 24 or 25 (reports),

(b) P provides a specified report under section 24 that is misleading in a
material respect and P—

(i) knows that the report is misleading, or

(ii) is reckless as to whether the report is misleading,

(c) 35P fails to comply with the duty under section 26 (duty to notify
Secretary of State of occurrence etc of a relevant event),

(d) in circumstances where P is required to make an assessment under
section 29(1) or (3) in respect of a proposed contract, P fails to make
such an assessment,

(e) 40P makes a negative assessment under section 29(1) or (3) in respect of a
proposed contract and the Secretary of State believes that that
assessment is incorrect, or

(f) in circumstances where P is required to give the notice mentioned in
section 29(2)(b) or (4)(b) in respect of a proposed contract, P fails to give
45such a notice.

(4) In subsection (3)—

(a) “specified” means specified in single source contract regulations;

(b) “negative assessment” means an assessment that the proposed contract
would not be a qualifying sub-contract if it (and, in a case within section
529(3), the proposed qualifying defence contract) were entered into.

(5) A compliance notice must be given before the end of the period specified in
single source contract regulations.

(6) A compliance notice must—

(a) give details of the contravention,

(b) 10specify the period within which the steps specified in the notice must
be taken, and

(c) state that, if P fails to take those steps, the Secretary of State may give P
a penalty notice under section 32.

32 Penalty notice

(1) 15The Secretary of State may give a person a penalty notice in the cases set out in
subsections (2) and (3).

(2) The first case is where the Secretary of State thinks that the person—

(a) has failed to take the steps specified in a compliance notice, and

(b) does not have a reasonable excuse for the failure.

(3) 20The second case is where—

(a) the person has contravened section 31, and

(b) the Secretary of State does not think that there are steps that can be
taken by the person to remedy the contravention.

(4) A penalty notice is a notice requiring the person to pay a penalty to the
25Secretary of State before the end of the period of six months beginning with the
date on which the notice is given.

(5) A penalty notice must be given before the end of the period specified in single
source contract regulations.

(6) A penalty notice must—

(a) 30specify the contravention to which the notice relates,

(b) state the amount of the penalty (as to which, see section 33),

(c) specify the date by which the penalty must be paid (subject to
subsection (8)),

(d) specify how the penalty may be paid,

(e) 35give details of the interest that would be payable by virtue of section
34(2) in relation to any part of the penalty that is unpaid after the date
specified under paragraph (c), and

(f) explain how the person may apply to the SSRO, before the end of the
period mentioned in subsection (4), for a determination of any of the
40matters mentioned in subsection (7).

(7) Those matters are—

(a) whether the person has contravened section 31 or failed to take the
steps specified in a compliance notice (or both);

(b) whether the person had a reasonable excuse for contravening section 31
45or failing to take the steps specified in a compliance notice (or both);

(c) the amount of the penalty.

(8) Where a person applies to the SSRO for a determination of a matter mentioned
in subsection (7)—

(a) the SSRO must determine the matter and the penalty is not payable
5until it has done so,

(b) in determining the matter, the SSRO may—

(i) substitute its own decision for any decision of the Secretary of
State (and may vary the amount of the penalty or cancel the
penalty notice), and

(ii) 10state the date by which the penalty must be paid (except where
the SSRO cancels the penalty notice), and

(c) the SSRO’s determination is final.

(9) A penalty notice may specify circumstances in which a penalty of a reduced
amount specified in the notice is payable.

(10) 15Single source contract regulations may replace the time limit for the time being
specified in subsection (4).

33 Amount of penalty

(1) Where the Secretary of State gives a person a penalty notice in relation to a
contravention of section 31, the amount of the penalty must not exceed the
20amount for the time being specified in relation to the contravention in
regulations made by the Secretary of State.

(2) Subsection (1) does not apply where the Secretary of State gives a person a
penalty notice in relation to a contravention within section 31(3)(b) or (c); and
in such a case the amount of the penalty is to be calculated as if the
25contravention were a breach of contract (and is to be calculated in accordance
with the general law of contract having effect in England and Wales).

(3) In determining the amount of a penalty under section 32, the Secretary of State
must have regard to guidance issued by the SSRO.

(4) The SSRO must publish guidance issued under subsection (3) in such manner
30as it thinks appropriate.

(5) Subsections (1) to (3) apply in relation to any determination by the SSRO by
virtue of section 32(8)(b) as to the amount of a penalty as they apply to the
Secretary of State.

(6) Regulations under subsection (1) may make different provision for different
35purposes (and may in particular specify penalties of different amounts by
reference to the value of the contract to which the failure relates).

(7) Regulations under subsection (1) are to be made by statutory instrument; and
an instrument containing the regulations may not be made unless a draft of it
has been laid before, and approved by a resolution of, each House of
40Parliament.

34 Enforcement

(1) This section applies where the Secretary of State has given a penalty notice to
a person.

(2) If all or part of the penalty is not paid before the payment date, the unpaid
balance carries interest from that date at the rate for the time being specified in
section 17 of the Judgments Act 1838.

(3) The “payment date” is the date by which the penalty must be paid, as stated in
5the penalty notice.

(4) But where the SSRO, in determining a matter mentioned in section 32(7), states
a new date by which the penalty must be paid, the “payment date” is that new
date.

(5) The Secretary of State may recover from the person as a debt due to the
10Secretary of State the unpaid balance and any unpaid interest.

SSRO: other functions

35 Opinions and determinations

(1) The SSRO must, on a reference made to it by a person mentioned in subsection
(2)—

(a) 15give an opinion on a matter relating to a qualifying defence contract or
a proposed qualifying defence contract, where the matter is specified
for the purposes of this paragraph, or

(b) make a determination in relation to such a matter, where the matter is
specified for the purposes of this paragraph.

20“Specified” means specified in single source contract regulations.

(2) The persons referred to in subsection (1) are—

(a) the Secretary of State;

(b) an authorised person;

(c) the primary contractor (in the case of a qualifying defence contract);

(d) 25the person who proposes to enter into the contract with the Secretary of
State (in the case of a proposed contract).

(3) The SSRO may give an opinion on any matter relating to—

(a) a qualifying defence contract, on a reference made to it by the Secretary
of State and the primary contractor;

(b) 30a proposed qualifying defence contract, on a reference made to it by the
Secretary of State and the other proposed party to the contract.

(4) When giving an opinion or making a determination in relation to any matter
under or by virtue of this Part, the SSRO may require the payment of such costs
as the SSRO considers appropriate—

(a) 35in the case of a qualifying defence contract, by one party to the contract
to the other, or

(b) in the case of a proposed contract, by one proposed party to the contract
to the other.

(5) The costs that the Secretary of State may be required to pay under subsection
40(4) include, in particular, costs incurred by a primary contractor in taking a step
specified in a compliance notice under section 31, where the SSRO determines
that it was unreasonable for the primary contractor to be required to take that
step.

(6) Subsection (7) applies where, in the case of a contract entered into before the
relevant date, the contract requires the Review Board for Government
Contracts to make a determination or give an opinion in relation to any matter
referred to it.

(7) 5If a party to the contract refers the matter after the relevant date, the
determination or opinion is to be made or given instead by the SSRO.

36 Recording, review and analysis functions

(1) The SSRO must keep an up-to-date record of—

(a) qualifying defence contracts and qualifying sub-contracts, and

(b) 10the duration of those contracts.

(2) The SSRO must keep under review the extent to which persons subject to
requirements under section 24 or 25 (reports) are complying with them.

(3) The SSRO must, where requested to do so by the Secretary of State—

(a) analyse reports provided to it under section 24 or 25, and

(b) 15provide the results of such analysis to the Secretary of State or an
authorised person.

(4) In analysing reports provided to it under section 24 or 25, the SSRO may have
regard to such matters (other than matters contained in the reports) as it
considers appropriate.

37 20Provision of other services to Secretary of State

(1) The SSRO and the Secretary of State may make arrangements for the SSRO to
provide assistance or other services to the Secretary of State or an authorised
person.

(2) Arrangements made under subsection (1)—

(a) 25may in particular include arrangements for the SSRO to provide
information relating to the results of analysis carried out by the SSRO
under section 36(3), and

(b) may provide for the making of payments by the Secretary of State to the
SSRO.

30Disclosure of information

38 Disclosure of information

Schedule 5 contains provision about disclosure of information obtained under
this Part.

Review

39 35Review of Part and regulations under it

(1) The SSRO must keep under review the provision made by—

(a) this Part, and

(b) regulations under this Part which are for the time being in force.

(2) The SSRO may recommend to the Secretary of State such changes to the
provision mentioned in subsection (1) as it considers appropriate.

(3) Before the end of each review period, the Secretary of State must—

(a) carry out a review of the provision mentioned in subsection (1), and

(b) 5in doing so, have regard to any recommendations made under
subsection (2) at least 6 months before the end of the review period.

(4) In subsection (3), “review period” means—

(a) the period of 3 years beginning with the relevant date;

(b) each subsequent 5-year period.

40 10Power to repeal Part

(1) The Secretary of State may by order repeal this Part (apart from this section).

(2) An order under subsection (1) may transfer the SSRO’s property, rights and
liabilities.

(3) An order under subsection (1) may make consequential, supplementary,
15incidental or transitional provision.

(4) An order under subsection (1) is to be made by statutory instrument.

(5) An order under subsection (1) may not be made unless a draft of the
instrument containing it has been laid before, and approved by resolution of,
each House of Parliament.

20General

41 Single source contract regulations: time limits and determinations

(1) Single source contract regulations may make provision imposing limits in
relation to the time within which an application, reference or appeal to the
SSRO under this Part or the regulations may be made.

(2) 25Single source contract regulations may specify matters to which the SSRO must
have regard in making a determination under this Part or the regulations.

42 Single source contract regulations: general

(1) Single source contract regulations may make consequential, supplementary
incidental or transitional provision.

(2) 30Single source contract regulations may make different provision for different
purposes.

(3) Single source contract regulations are to be made by statutory instrument.

(4) A statutory instrument containing single source contract regulations is subject
to annulment in pursuance of a resolution of either House of Parliament.

43 35Interpretation etc

(1) In this Part—

• “authorised person” means a person authorised by the Secretary of State;

Defence Reform BillPage 28

• “financial year” means a year beginning with 1 April;

• “primary contractor” has the meaning given by section 14(9);

• “qualifying defence contract” has the meaning given by section 14(2);

• “qualifying sub-contract” has the meaning given by section 28(2);

• 5“relevant date” has the meaning given by section 14(9);

• “single source contract regulations” has the meaning given by section
  14(9);

• “SSRO” means the Single Source Regulations Office;

• “sub-contractor” has the meaning given by section 28(2).

(2) 10In this Part—

(a) references to the value of a contract—

(i) are to its value as determined in accordance with single source
contract regulations, and

(ii) include references to its value as estimated in accordance with
15such regulations;

(b) references to costs include references to—

(i) costs as estimated in accordance with single source contract
regulations;

(ii) a combination of actual costs and costs as so estimated.

(3) 20For the purposes of this Part, one person is “associated” with another if they are
group undertakings in relation to each other.

(4) In subsection (3), “group undertaking” has the meaning given by section 1161
of the Companies Act 2006.

(5) So far as there is any inconsistency between a provision of this Part or
25regulations made under it (provision A) and a provision of a qualifying
defence contract (provision B), provision A prevails.

Part 3 Reserve forces

44 Renaming of Army Reserve and Territorial Army

(1) 30The Army Reserve is renamed the Regular Reserve.

(2) The Territorial Army is renamed the Army Reserve.

(3) Accordingly, wherever it appears in the enactments mentioned in subsection
(4) (unless the context requires otherwise)—

(a) for “Army Reserve” substitute “Regular Reserve”, and

(b) 35for “Territorial Army” substitute “Army Reserve”.

(4) The enactments are—

• section 68 of the Marriage Act 1949,

• the Reserve Forces Act 1980 (including any headings),

• section 22 of the Criminal Appeal Act 1995,

• 40the Reserve Forces Act 1996 (other than paragraph 9 of Schedule 8), and

• the Armed Forces Act 2006.

(5) In any enactment passed before the relevant date (other than those dealt with
by subsections (3) and (4)), and in any instrument or other document made
before that date—

(a) references to the Army Reserve are to be read, in relation to any time on
5or after that date, as references to the Regular Reserve, and

(b) references to the Territorial Army (including references which are
treated as references to the Territorial Army) are to be read, in relation
to any time on or after that date, as references to the Army Reserve.

(6) The “relevant date” is the date on which this section comes into force.

45 10Call out of members of reserve forces

(1) In Part 4 of the Reserve Forces Act 1996 (special agreements for call out), in
section 28(3)(a) (maximum period of service), for “9 months” substitute “12
months”.

(2) Part 6 of that Act (call out for permanent service) is amended as follows.

(3) 15In section 54(1) (call out for warlike operations), after “order” insert “under this
section”.

(4) In section 56 (call out for certain operations), for subsections (1) and (1A)
substitute—

“(1B) The Secretary of State may make an order under this section
20authorising the calling out of members of a reserve force if it appears to
the Secretary of State that it is necessary or desirable to use members of
a reserve force for any purpose for which members of the regular
services may be used.”

(5) In the heading of that section, for “operations” substitute “purposes”.

(6) 25In section 57 (maximum duration of service for call out under section 56)—

(a) in subsection (4), for “9 months” substitute “12 months”,

(b) in subsection (6), for “9 months” substitute “12 months”,

(c) in subsection (8)(c), for “3 months” substitute “6 months”, and

(d) in subsection (11), for “27 months” substitute “3 years”.

(7) 30In section 57A (agreement to alter limits in section 57), in subsection (3), for “9
months” substitute “12 months”.

(8) In section 64 (interpretation of Part 6)—

(a) number the existing text as subsection (1), and

(b) after that subsection insert—

“(2) 35The powers under sections 52, 54 and 56 to make a call-out
order are each to be interpreted as including power to do so in
circumstances in which an order could also be made under
another of those sections.”

(9) Schedule 6 contains provision about transitional classes.

(10) 40In consequence of the amendments made by this section, omit section 28 of the
Armed Forces Act 2011.