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Chapter 3

CAPITAL INVESTMENT PROGRAM

This chapter discusses investment in Defence capability through the development and acquisition of major equipment, the provision of buildings and infrastructure, and the purchase of other capital items. This chapter should be read in conjunction with Volume Two—Defence Materiel Organisation.

Overview

Overview of the Capital Investment Program

The Capital Investment Program comprises:

  • the major capital equipment program which includes two components:
    • the Unapproved Major Capital Equipment Program (Defence Capability Plan)—managed by the then Chief Capability Development Group1; and
    • the Approved Major Capital Equipment Program—managed by the Chief Executive Officer, Defence Materiel Organisation2;
  • the Capital Facilities Program—managed by the then Deputy Secretary Corporate Services3;
  • 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 comprises both capital and operating funds. The mix of funding will continue to change, reflecting project throughput and the individual circumstances for each project. Table 3.1 shows the investment program by both its capital and operating elements.

  1. From 1 July 2006, the Chief, Capability Development is an executive within Australian Defence Headquarters. [ back ]
  2. For information on the Approved Major Capital Equipment Program, see Defence Annual Report Volume 2—Defence Materiel Organisation. [ back ]
  3. As a result of a Defence restructure, from 1 July 2006 the new position of Deputy Secretary Defence Support was created. [ back ]

Overview of Financial Performance in 2005–06

The actual result in 2005–06 was $287.7m higher than the revised estimate as detailed in Table 3.1.

Table 3.1 Defence Financial Performance for the Capital Investment Program 2005–06
  Budget Estimate Revised Estimate Actual Result Variance
Component $m $m $m $m
—Capital Component(1) 3,148.9 3,152.3 3,346.9 194.5
—Operating Component 598.9 586.7 541.5 –45.2
1. Major Capital Equipment Program(2) 3,747.8 3,739.0 3,888.4 149.3
—Capital Component 423.9 305.2 379.8 74.6
—Operating Component 23.2 41.2 50.5 9.3
2. Capital Facilities Program(3) 447.1 346.4 430.3 83.9
3. Other Capital Purchases(4) 582.7 631.3 722.4 91.0
Total Capital Component 4,155.5 4,088.8 4,449.1 360.1
Total Operating Component 622.1 627.9 592.0 –35.9
4. Gross Capital Investment Program (1+2+3) 4,777.6 4,716.7 5,041.1 324.2
5. Less Net Capital Receipts 24.9 24.9 61.4 36.5
6. Net Capital Investment Program (4–5) 4,752.7 4,691.8 4,979.7 287.7

Notes:

  1. Includes the capitalisation of the DMO Acquisition Service Fee.
  2. See further details on p. 176.
  3. See further details on p. 180.
  4. See further details on p. 196.

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