Annual Report for the year ended 30 June 2007
Part 3: Departmental financial statements (continued)
Output Class - Management of equipment procurement
Defence Industry
Objective
- The Ministry of Defence will continue to facilitate effective communication between Defence and New Zealand industries to provide appropriate goods and services as required.
- It will provide support for the Defence Industry Committee of New Zealand.
- 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, and the Mandatory Rules for Procurement by Departments.
- It will complete material for the Australia and New Zealand Industry Defence Equipment and Capability Catalogue database and update databases on industrial capability.
- It will conduct industry briefing sessions on current Defence projects and activities.
Performance
The Ministry attended the Defence Industry Association meeting in October 2006 and briefed members on current defence projects and activities. Support was given to the Defence Industry Committee meetings in September 2006 and February 2007. No new projects were initiated during this period that required engagement with industry to ensure local industry has full and fair opportunity to participate.
The updating of the Defence Equipment and Capability Catalogue database on industrial capability has been transferred to the responsibility of New Zealand Trade and Enterprise. The Ministry of Defence now provides assistance to this activity.
Quality Measures and Standards
Objective
To ensure that 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 and that 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.
Delivery of this output will be subject to the following quality standards in accordance with good practice:
- 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
- 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
- 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 arguments will be logical and supported by facts
- evidence will be provided about 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
- 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.
The quality of management of equipment procurement will be assessed in terms of whether it is credible, effective, respected and contributes to the achievement of the Government’s defence and security policy objectives by:
- seeking the Minister’s views
- seeking the views of key stakeholders in management of equipment procurement.
In addition, the Acquisition Division will implement recommendations agreed by the Ministry from audits or reviews.
Performance
The Ministry maintains quality control procedures throughout the acquisition process. Advice is clear, and supported by facts and consultation. Prices agreed for projects are based on a competitive tender process where possible and contract awards are subject to considerations of through-life cost, quality and delivery schedules. Contracts are negotiated in a timely manner once Government approval is received. Payments to suppliers are made following achievement of agreed contract milestones at the contracted price.
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 2007 the financial summary for each project indicates that each project will be acquired within its approved budget.
Delivery schedules are agreed at contract and may be varied from time to time in accordance with the contract.
Risk profiles of projects are continually updated so that potential risks and corrective actions can be identified and any problems with implementation, technical feasibility or and timeframes can be addressed.
The Defence Industry Council (DICNZ) confirms with the Industry Capability Network that it has promoted domestic suppliers to overseas-based prime contractors. Where the DICNZ undertakes defence industry research, outcomes are summarised and raised with the Minister.
Process management issues are discussed regularly with the Minister and the views of other stakeholders are obtained at Executive Capability Board and DICNZ meetings to ensure that the management of equipment procurement is credible, effective, respected and contributes to the achievement of the Government’s defence and security policy objectives.
Audit Implementation
Objective
To implement the recommendations agreed by the Ministry from audits or reviews.
Performance
Evaluation Report 6/2006 on Defence Crown Capital Forecasting recommended that the Ministry consult with the NZDF and Treasury before negotiating contract payment schedules to broadly ascertain the availability of capital funds in relevant years. No projects at this stage require such consultation.
Cost of Output Class - Management of equipment procurement (GST exclusive)
For the year ended 30 June 2007
| 30/6/2006 Actual $000 | 30/6/2007 Actual $000 |
30/6/2007 Main estimates $000 |
30/6/2007 Supp. estimates $000 |
|
|---|---|---|---|---|
| Revenue | ||||
| Crown | 3,412 | 3,716 | 3,725 | 3,725 |
| Other | 294 | 331 | 48 | 338 |
| Total revenue | 3,706 | 4,047 | 3,773 | 4,063 |
| Expenditure | ||||
| Personnel | 1,091 | 1,206 | 1,320 | 1,320 |
| Operating | 388 | 479 | 352 | 642 |
| Other | 1,933 | 2,021 | 2,101 | 2,101 |
| Total expenditure | 3,412 | 3,706 | 3,773 | 4,063 |
| Surplus | 294 | 341 | - | - |
Non-departmental project financial performance
For the year ended 30 June 2007
Project payments made in 2006/07, and recoveries from the NZDF, were:
Expenditure |
Recoveries from NZ Defence Force |
||||
|---|---|---|---|---|---|
| 2006/07 Main estimates $000 |
2006/07 Supp. estimates $000 |
30/6/2007 Actual $000 |
2006/07 Supp. estimates $000 |
30/6/2007 Actual $000 |
|
| ANZAC Ships | - | - | - | 174 | 174 |
| B-757 aircraft | 51,172 | 39,019 | 35,651 | 41,559 | 41,559 |
| Light armoured vehicles | - | 174 | 35 | 3,965 | 3,965 |
| Tactical communications | - | 919 | (1,787) | (325) | (325) |
| Light operational vehicles | 964 | 2,735 | 2,451 | 17,028 | 17,028 |
| Medium range anti-armour weapon | 670 | 3,586 | 1,024 | 1,390 | 1,390 |
| Air defence system | 6,510 | 6,871 | 6,838 | 7,198 | 7,198 |
| P-3K Orion systems upgrade | 46,472 | 62,957 | 37,716 | 59,048 | 59,048 |
| Medium Utility Helicopter | - | 256,509 | 228,762 | 180,004 | 180,004 |
| Project Protector vessels | 143,629 | 174,271 | 106,904 | 114,245 | 114,245 |
| C-130H Life extension | 35,154 | 67,482 | 52,193 | 84,981 | 84,981 |
| Total | 284,571 | 614,523 | 469,787 | 509,267 | 509,267 |
(Figures are GST exclusive)
