Reports and Publications

• Annual Report 2005
  • Contents
  • Part 1 Overview
  • Part 2: Statement of responsibility and audit report
  • Part 3: Departmental financial statements
  • Part 4: Non-departmental schedules
  • Part 5: Other information

Within this section

Output Class - Management of equipment procurement

• Description
• Outcome
• Service performance
  • Quantity and timeline

1. Acquisition of new maritime forces vessels for the Navy

2. Replacement helicopter capability Acquisition of light operational

3. Vehicles for the Army

Annual Report for the year ended 30 June 2005

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Part 3: Departmental financial statements (continued)

Statement of objectives and service performance
For the year ended 30 June 2005

Output Class - Management of equipment procurement

Description

Under this output class the Minister of Defence will purchase the following:

• management of procurement, or refurbishment, on behalf of the Crown, of significant equipment contributing to a capability of the New Zealand Defence Force. This will involve management of procurement functions from the initial identification of a requirement through ministerial approval-in-principle and commitments; the subsequent acquisition process, including project investigation, risk assessment, quality assurance, equipment selection, negotiation and execution of contract arrangements up to the point when the equipment is delivered to the New Zealand Defence Force; advice on introduction into service and the management of any warranty provisions. It also covers investigation of associated financing arrangements and on-sale to the New Zealand Defence Force
• maintenance of an information base on industrial capability, and the provision of advice to industry on defence requirements.

Outcome

New Zealand armed forces equipped to the level appropriate for the protection of New Zealand and its external interests according to the Government's defence policy.

Service performance

Quantity, quality and timeliness

1. Acquisition of new maritime forces vessels for the Navy This project proposes the acquisition of patrol vessels to meet inshore and offshore requirements for maritime surface surveillance in New Zealand's Exclusive Economic Zone in the South Pacific. The Ministry is purchasing a multi-role vessel to replace HMNZS Canterbury to provide tactical sealift for the New Zealand Defence Force, support disaster relief and peace support operations, conduct resource protection patrols, provide diplomatic and military presence, and for training.
Target	Delivered
In 2004/05 the Ministry expects to negotiate a contract with a preferred supplier, or suppliers, with construction of the ships commencing late in the financial year.	A contract with Tenix Defence Pty Ltd, Melbourne, Australia, was signed on 28 July 2004. First steel for the offshore patrol vessel (OPV) was cut at the Williamstown Yard, Melbourne on 22 February 2005. Two modules are under construction. First steel for the multi-role vessel (MRV) was cut at the Merwede Shipyard, Netherlands on 11 April 2005. Construction is underway on eight block modules. First steel for the inshore patrol vessel (IPV) was cut at Tenix's facility, Whāngarei on 24 June 2005. Construction is also underway at the Whāngarei facility on the first offshore patrol vessel (OPV) superstructure.
Further project milestones will be known once a contract is awarded.	Detailed design is being finalised at the same time as initial construction commences. Delivery of the two offshore patrol vessels (OPV) is planned for April 2007 and October 2007. Delivery of the four inshore patrol vessels (IPV) is planned between October 2006 and August 2007. Delivery of the multi-role vessel (MRV) is planned for December 2006.

Financial summary of pre-acquisition costs charged to departmental output class - Management of equipment procurement in 2004/05 (GST exclusive)
	$
Budget for pre-acquisition costs	147
Expenditure to 30 June 2005	147
Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive)
	$
Project approval	499,724,161
Foreign exchange variances to date and forecast to complete	(3,972,769)
GST	62,466,000
Total approved cost	558,217,392
GST exclusive
Expenditure to 30 June 2004	-
Expenditure 2004/05	114,034,511
Future commitments and forecasts	381,709,594
	495,744,105
GST
GST to 30 June 2004	-
Expenditure 2004/05	1,976,000
Future commitments and forecasts	60,490,001
	62,466,001
Total forecast cost to complete	558,210,106

• Foreign exchange variances at 30 June 2005 are favourable by $3.973 million due to the purchase rates for foreign currencies being better than the exchange rates used in the Cabinet paper for financial approval.

	Approval Rate	Forecast Average Rate
AUD	0.8821	0.8980
CAD	0.8210	0.8424
EUR	0.5059	0.5112
GBP	0.3464	0.3448
JPY	65.5436	70.9000
NOK	4.2444	4.3129
SEK	4.6683	4.8496
USD	0.6215	0.6496

• Commitments and forecasts are valued at an average exchange rate of forward contracts still to be settled, plus the actual exchange rates for currency in the bank. The exchange rates used to calculate commitments and forecasts at 30 June 2005 were:

AUD	0.8972
CAD	0.8413
EUR	0.5056
GBP	0.3437
JPY	70.9000
NOK	4.2654
SEK	4.8496
USD	0.6600

2. Replacement helicopter capability This project proposes the replacement of the Iroquois utility helicopter and the Sioux training helicopter.
Target	Delivered
In 2004/05 it is planned to: prepare specifications issue tender documentation evaluate the responses undertake consultation	An Invitation to Register for the medium utility helicopter was completed in July 2004. Due diligence was completed in November 2004. Government approved NH Industries as the preferred tenderer on 9 March 2005. The Ministry will continue to discuss details of the intended purchase and support with NH Industries for the NH90 helicopter. The Ministry is also discussing with the Australian Department of Defence matters of mutual interest as Australia has contracted to purchase the NH90. An Invitation to Register for the training helicopter was issued to industry on 18 June 2005.
The intention is to take costed proposals back to Government during 2005.	Costed proposals for both the medium utility helicopter and the training helicopter are expected to be made to Government by December 2005.

Financial summary of pre-acquisition costs charged to departmental output class - Management of equipment procurement in 2004/05 (GST exclusive)
	$
Budget for pre-acquisition costs	125,000
Expenditure to 30 June 2005	119,141

3. Acquisition of light operational vehicles for the Army This project provides the Army with a modern light operational military vehicle. They are the primary means of transport in peacekeeping operations, peace enforcement operations (including in support of the light armoured vehicle) and may provide support for evacuation operations in the South Pacific.
Target	Delivered
The project milestones in 2004/05 are to: complete the delivery of the first tranche of 188 vehicles by 30 June 2005	The first batch of eight Pinzgauer vehicles was handed over to the New Zealand Army on 7 October 2004 and 131 vehicles had been delivered at 30 June 2005. The final vehicles from the first tranche are expected by September 2005. A retrofit to correct a transmission cooling problem delayed the introduction into service up to two months.
enter into a contract for a second tranche of 133 vehicles (including 60 armoured) by 30 September 2004	A contract for the second tranche was signed on 25 June 2004. Deliveries of the second tranche are expected to commence in September 2005 and continue to May 2006. There has been a two month delay in the planned delivery of these vehicles due to consideration of armour protection requirements.
establish further project milestones once a contract is awarded.	All vehicles are expected to have entered into service by September 2006.

Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive)
	$
Project approval	93,333,000
Foreign exchange variances to date and forecast to complete	1,191,099
GST	11,666,000
Total approved cost	106,190,099
GST exclusive
Expenditure to 30 June 2004	3,627,961
Expenditure 2004/05	54,072,184
Future commitments and forecasts	36,716,735
	94,416,880
GST
GST to 30 June 2004	11,473
Expenditure 2004/05	4,791,361
Future commitments and forecasts	6,911,079
	11,713,913
Total forecast cost to complete	106,130,793

• Foreign exchange variances at 30 June 2005 are unfavourable by $1.191 million due to the purchase rates for GBP currency being less than the GBP exchange rates used in Cabinet papers to obtain financial approval.
  
  Average GBP approval rate = 0.3556
  GBP forecast average rate = 0.3513
  
  Commitments and forecasts are valued at an average of the exchange rates of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank. The exchange rate used to calculate commitments and forecasts at 30 June 2005 was GBP = 0.3437.

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