Annual Report 2004-05

Overview

Overview of the Capital Investment Program

The Capital Investment Program is comprised of:

• the major capital equipment program which includes two components:
  • the Unapproved Major Capital Equipment Program (Defence Capability Plan) managed by the Chief of the Capability Development Group; and
  • the Approved Major Capital Equipment Program - managed by the Chief Executive Officer of the Defence Materiel Organisation;
• the Capital Facilities Program - managed by Deputy Secretary Corporate Services;
• other Capital Purchases - managed by the Service Chiefs and Group Heads; and
• Capital Receipts – managed by the Service Chiefs and Group Heads.

Defence's capital investment program includes expenditure that is sourced from both the capital and operating budgets. For example, research and development work, project studies, design work, specialist and professional advice and project office overheads are treated as operating expenses rather than being capitalised. In addition, certain project costs such as initial spares and the first three years of maintenance support costs are charged to the project, but brought to account as inventory purchases or suppliers expense in the operating budget. Accordingly, the Defence Capital Investment Program is comprised of both capital and operating funds.

In the post-Defence Procurement Review environment, more work is being undertaken prior to first pass approval and between first and second pass approval 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 studies and project development funds. The same trends are evident in the Capital Facilities Program which also now uses the 'two pass' approval process. Operating costs includes preliminary design work, environmental clearances and initial operating and maintenance costs. The mix of funding will continue to change, reflecting project throughput and the individual circumstances for each project. Table 2.1 which follows therefore shows the investment program by both its capital and operating elements.