Profit on Cost Once (POCO)
Basis of POCO adjustment
9.1 Section 17(2) of the Act, and Regulation 11(4), set out the requirement for the POCO adjustment:
“Deduct from the amount resulting in Step 2 the adjustment determined in accordance with regulation 12 (“the POCO adjustment”), so as to ensure that profit arises only once in relation to those Allowable Costs under the contract that relate to the price payable under any group sub-contract (including any further group sub-contract)”.
9.2 This adjustment ensures that if a party to a qualifying defence contract enters into a single source sub-contract with another group member, and this group sub-contract is necessary to enable the performance of the qualifying defence contract, then profit arises only once in relation to Allowable Costs included in the group sub-contract price.
10. Application of POCO adjustment
10.1 The POCO adjustment applies to a qualifying defence contract if, at the time of the agreement, the primary contractor is party to, or proposes to enter into, a group sub�contract.
a. The purpose of this guidance is to provide a consistent methodology for contractors and the MOD to follow when agreeing a POCO adjustment amount.
b. The POCO adjustment does not apply: i. to non-competitive sub-contracts with a value less than £100,000; ii. to any profit included in sub-contracts to non-group members; iii. to any profit included in sub-contracts to group members if these sub-contracts were awarded competitively; or iv. to any profit included in the price of the sub-contractor outside the delivery of the qualifying defence contract