Annual Report for the year ended 30 June 2006
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Part 3: Departmental financial statements (continued)
Output Class - Management of equipment procurement
Defence Industry
Target |
Delivered |
- The Ministry of Defence will continue to facilitate effective communication between Defence and New Zealand industries to provide appropriate goods and services as required.
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- The Ministry considers it has communicated effectively with New Zealand industry during 2005/06. The Ministry believes the place for New Zealand industry to register its capabilities is with Industrial Capability Network (ICN), which is part of New Zealand Trade and Enterprise, and maintains a working relationship with that group.
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- It will provide support for the Defence Industry Committee of New Zealand (DICNZ).
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- The Ministry provided support to DICNZ meetings on 16 August 2005, 7 December 2005 and 5 April 2006.
- The New Zealand Defence Industry Awards of Excellence for 2005 were presented by the Minister of Defence on 19 October 2005.
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- It will ensure that local, including domestic, suppliers are afforded opportunities to compete for work consistent with the government procurement policy as set out in the Office of the Controller and Auditor-General's 2001 publication Procurement: A Statement of Good Practice and Policy Guide for Purchasers, issued by the Ministry of Economic Development in July 2002.
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- The ICN has assisted prime contractors to engage New Zealand industry in current defence business. Industry involvement programmes for recent projects exceed $166 million for New Zealand industry.
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- It will complete material for the Australia and New Zealand Industry Defence Equipment and Capability Catalogue database and update databases on industrial capability.
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- Database templates are available on the Ministry of Defence website for ease of access to New Zealand business entities.
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- It will conduct industry briefing sessions on current Defence projects and activities.
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- Future industry liaison ideas were discussed at the 2005 New Zealand Defence Industry Association (NZDIA) Forum at Te Papa in October 2005.
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- Using the Industry Capability Network as an agent will ensure that prospective overseas-based prime contractors are fully aware of the abilities of domestic industry to participate in the supply and support of capability being acquired through projects managed by the Ministry.
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- Suppliers and prime contractors have been referred to the ICN database.
- There is on-going dialogue with ICN to ensure that local industry is offered the appropriate assistance.
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Output Quality Measures and Standards
| |
Comment
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- New capabilities and major refurbishment will be acquired within approved budgets, to the quality standards negotiated for each project, and within the agreed delivery schedule.
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- The financial summaries of project costs include a valuation of future commitments and forecasts using an average exchange rate of forward contracts still to be settled, plus actual exchange rates for currencies in the bank. As at 30 June 2006 the financial summary for each project indicates that each project will be acquired within its approved budget.
- The quality standards for each project are reviewed during the due diligence process and supply contracts are with companies that operate quality management systems. Equipment produced under contract is deemed to be subject to those quality management systems with acceptance being linked to milestone payments.
- Any significant changes in time frames are discussed in preceding information about individual acquisition projects.
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- All acquisitions and contracts will meet the Government's policy requirements.
- All contracts will be negotiated in a timely manner, and payments will be made on time if the provider is meeting the terms of the contract.
- Contract awards will be subject to considerations of through-life cost, quality and delivery schedules.
- Prices agreed for projects will be based on a competitive tender process where possible. When tendering is not possible, prices will be based either on independent benchmarks, or on full cost disclosure by the provider.
- Payments will be made at the agreed sum, to the correct supplier, and no payments will be made in excess of the agreed sum.
- Any significant variations or potential risks will be identified, together with corrective actions required or taken.
- Assumptions behind advice will be explicit, and argumentation will be logical and supported by facts.
- Evidence will be given of adequate consultation with interested parties, and possible objections to proposals will be identified.
- Problems of implementation, technical feasibility, timing, and consistency with other policies will be addressed.
- Defence industry advice reports will clearly state their purpose and address any issues raised by the Minister.
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- The Ministry has maintained quality control procedures to support the expectations for acquisition activities under this output class:
- prices agreed for new projects approved by the Government during the financial year have been based on a competitive tender process, where applicable and contract awards have been subjected to consideration of through-life costs, quality, risk, delivery schedule and local industrial participation
- potential risks for all projects have been identified together with corrective actions required or taken
- all payments made have been at the contracted prices to the correct suppliers upon the achievement of agreed milestones
- assumptions behind advice have been explicit, logical and supported by facts, adequate consultation has taken place with interested parties and objections to proposals identified
- problems with implementation, technical feasibility and time have been addressed
- ISO 9001 certification has been maintained.
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- The Defence Industry Committee of New Zealand will be asked to confirm annually that the Ministry and its agent, the Industry Capability Network, have appropriately promoted domestic suppliers' capabilities to prospective overseas-based prime contractors.
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- Industrial Capability Network (ICN) has outlined the activities it conducted on projects during the financial year to ensure that competitive local industry was given full, fair and reasonable opportunity to compete for Ministry project work. This included ensuring local capability was a consideration in the bids of potential overseas prime contractors.
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- The quality of management of equipment procurement will be assessed in terms of whether it is credible, respected, and contributes to the achievement of the Government's defence policy objectives by:
- seeking the Minister's views
- seeking the views of key stakeholders in management of equipment procurement.
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- Process management issues are discussed regularly with the Minister.
- The views of other stakeholders are obtained at Executive Capability Board and DICNZ meetings.
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- The Acquisition Division will implement recommendations agreed by the Ministry from audits or reviews.
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- Recommendations from three audits are being implemented.
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Cost of Output Class - Management of equipment procurement (GST exclusive)
For the year ended 30 June 2006
| |
30/6/2005 Actual
$000
| 30/6/2006 Actual
$000 |
30/6/2006 Main
estimates
$000 |
30/6/2006 Supp.
estimates
$000 |
| Revenue |
|
|
|
|
| Crown |
3,458 |
3,412 |
3,547 |
3,547 |
| Other |
594 |
294 |
27 |
383 |
| Total revenue |
4,052 |
3,706 |
3,574 |
3,930 |
| Expenditure |
|
|
|
|
| Personnel |
1,139 |
1,091 |
1,391 |
1,428 |
| Operating |
715 |
388 |
134 |
506 |
| Other |
1,873 |
1,933 |
2,049 |
1,996 |
| Total expenditure |
3,727 |
3,412 |
3,574 |
3,930 |
| Surplus /(deficit) |
325 |
294 |
- |
- |
The appropriation (GST inclusive) for this output class was increased by $389,000 for:
| |
$(000)
(GST incl) |
Helicopter capability
New provision for pre-acquisition costs in 2005/06. Funded by recovery from New Zealand Defence Force as Revenue Other.
|
118 |
Army Engineering
New provision for pre-acquisition costs in 2005/06. Funded by recovery from New Zealand Defence Force as Revenue Other.
|
222 |
State Sector Retirement Savings Scheme
New provision for implications arising from the take up of the State Sector Retirement Savings Scheme.
|
49 |
| Total change for financial year |
389 |
Non-departmental project financial performance
For the year ended 30 June 2006
Project payments made in 2005/06, and recoveries from the New Zealand Defence Force, were:
Expenditure |
Recoveries
from NZ
Defence Force |
| |
2005/06
Main
estimates $000 |
2005/06
Supp.
estimates
$000 |
30/6/2006
Actual
$000 |
2005/06
Supp.
estimates $000 |
30/6/2006
Actual
$000 |
| ANZAC Ships |
- |
6 |
180 |
478 |
478 |
| B-757 aircraft |
10,666 |
45,151 |
35,128 |
16,430 |
16,430 |
| Light armoured vehicles |
- |
8,062 |
7,818 |
16,333 |
16,333 |
| Tactical communications |
- |
1,387 |
1,505 |
847 |
847 |
| Light operational vehicles |
11,707 |
36,430 |
32,726 |
32,128 |
32,128 |
| Medium range anti-armour weapon |
6,747 |
8,325 |
5,248 |
9,533 |
9,533 |
| Air defence system |
2,728 |
3,484 |
3,402 |
3,928 |
3,928 |
| P-3K Orion systems upgrade |
120,436 |
119,295 |
110,719 |
112,469 |
112,469 |
| Project Protector vessels |
177,040 |
171,315 |
152,024 |
148,550 |
148,550 |
| C-130H Life extension |
113,793 |
99,035 |
65,889 |
55,186 |
55,186 |
| Sub total |
443,117 |
492,490 |
414,639 |
395,882 |
395,882 |
| GST on imported goods and NZ payments |
18,200 |
27,395 |
12,945 |
- |
- |
| Total |
461,317 |
519,885 |
427,584 |
395,882 |
395,882 |
(Figures are GST exclusive)
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