Annual Report 2003-04

Overview

Overview of the Capital Investment Program

The Capital Investment Program is comprised of:

• the Unapproved Major Capital Equipment Program (Defence Capability Plan) - managed by the Chief of the Capability Development Group;
• the Approved Major Capital Equipment Program - managed by the Chief Executive Officer of Defence Materiel Organisation;
• the Capital Facilities Program, - managed by Deputy Secretary Corporate Services;
• other Capital Purchases - several Groups are accountable for its management; and
• Capital Receipts - several Groups are accountable for its management.

Reprogramming of the Capital Investment Program

In the context of the 2004-05 Budget, the Government agreed to reprogram an amount of $2,226m ($2,547m in outturn prices) to the period 2008-09 to 2013-14. Details were shown on p.77 of the Portfolio Budget Statements 2004-05. The reprogramming included funds not able to be spent in 2002-03 ($200m) and 2003-04 ($500m), changes to the Defence Capability Plan and the revised rate of expenditure considered appropriate to deliver these projects. The amount of $500m in respect of 2003-04 was later reduced to $330m to manage the cash flow requirements in 2003-04 of acquiring an additional two airborne early warning and control aircraft.

Capital/Operating Adjustment

In accordance with Australian Accounting Standards, Defence is required to classify certain investment costs such as research and development, project studies, design work, specialist and professional advice and project office overheads as operating expenses rather than through the capital appropriation.

In the post-Defence Procurement Review environment, more work is being undertaken prior to first pass approval and between first and second pass to define the options, costs, schedule and risks of project proposals. A higher proportion of costs for this work is now classified as operating expenses such as project definition costs and project development funds. The same trend applies to the Capital Facilities Program, and offsetting adjustments between the capital and operating appropriations have been agreed by the Government to reflect this requirement. The mix of funding will continue to change, reflecting project throughput and the individual circumstances for each project.

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Overview of Financial Performance in 2003-04

Capital investment expenses in 2003-04 totalled $3,751.2m or $343.8m greater than the projected result as summarised in Table 4.1 below. Explanations for the variations in each category follow.

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