11. Pricing accuracy as revealed by selective post-costing is measured by expressing the total profit variation as a percentage of the costs estimated at pricing. These latest results comprise eight contracts, six of which yielded profits higher than the contract target profit. The total variation of profit on all eight contracts amounted to £42.3 million, being 3.26% on the total estimated cost of £1,296 million. However, £11.4 million of this additional profit was recovered by MOD (see para 13 below), bringing the variation down to £30.9 million, or 2.38% on the total estimated costs.
12. The GPF arrangements provide that where outturns exceed a "trigger figure"1, contracts may be referred to the Review Board for Government Contracts for a possible price adjustment, binding on both parties. The trigger figure is expressed in terms of a variation between estimated and outturn costs of 10%) or more.
13. On three of the eight contracts the variation between estimated costs and actual outturn costs exceeded the Review Board's +/-10% trigger figure. One of these contracts was referred to the Review Board, and a £9 million repayment achieved for the MOD. On another contract which exceeded the trigger figure a contractual gainshare arrangement was in place, giving MOD a £2.4 million (58%) share of a £4.2 million profit variation.
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1 See explanation at Annex C