Reports and Publications

• Annual Report 2004
  • Contents
  • Part 1 Overview
  • Part 2: Statement of responsibility and audit report
  • Part 3: Departmental financial statements
  • Part 4: Non-departmental schedules
  • Part 5: Other information

Within this section

Output Class - Management of equipment procurement

• Description
• Outcome
• Service performance
  • Quantity and timeline

1. Acquisition of light operational vehicles (LOV) for the Army

2. Acquisition of new maritime forces vessels for the Navy

3. Acquisition of medium range anti armour weapon for the Army

Annual Report for the year ended 30 June 2004

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Part 3: Departmental financial statements (continued)

Statement of objectives and service performance
For the year ended 30 June 2004

Output Class D3 - Management of equipment procurement

Description

Under this output class the Minister of Defence will purchase the following:

• management of procurement, or refurbishment, on behalf of the Crown, of significant equipment contributing to a capability of the New Zealand Defence Force. This will involve management of procurement functions from the initial identification of a requirement through ministerial approval-in-principle and commitments; the subsequent acquisition process, including project investigation, risk assessment, quality assurance, equipment selection, negotiation and execution of contract arrangements up to the point when the equipment is delivered to the New Zealand Defence Force; advice on introduction into service and the management of any warranty provisions. It also covers investigation of associated financing arrangements and on-sale to the New Zealand Defence Force
• maintenance of an information base on industrial capability, and the provision of advice to industry on defence requirements.

Outcome

New Zealand armed forces equipped to the level appropriate for the protection of New Zealand and its external interests according to the Government's defence policy.

Service performance

Quantity, quality and timeliness

1. Acquisition of light operational vehicles (LOV) for the Army This project provides the Army with a modern, light operational, military vehicle. They are the primary means of transport in peacekeeping operations, peace enforcement operations (including in support of the light armoured vehicle) and may provide support for evacuation operations in the South Pacific.
Target	Delivered
Subject to Government approval, the intention is to: negotiate a contract for purchase by 30 September 2003 further project milestones - including the time of delivery of the vehicles - will be known once the contract has been awarded.	The total fleet of 321 vehicles was split into a first tranche of 188 non-armoured vehicles because of the urgency of providing new vehicles for the Army, and a second tranche of 133 armoured vehicles and their non-armoured equivalents. Contract negotiations followed due process and direction. A contract for the first tranche was agreed in March 2004. Delivery and acceptance is expected to be completed by June 2005. A contract for the second tranche was agreed in June 2004. Delivery and acceptance is expected to be completed by March 2006.

(a) Financial summary of pre-acquisition costs charged to departmental output class - Management of equipment procurement as at 30 June 2004 (GST inclusive)
	$
Budget for pre-acquisition costs	157,500
Expenditure to 30 June 2004	234,105
Additional costs were incurred in legal fees because of the split to two tranches and in consultancy fees for risk analysis on armour protection levels.
(b) Financial summary of project costs charged to non-departmental appropriations as at 30 June 2004 (GST inclusive)
Tranche One for 188 vehicles	$
Project approval	46,289,000
Foreign exchange variances to date and forecast to complete	1,360,820
GST	5,786,000
Total approved cost	53,435,820
GST exclusive
Expenditure to 30 June 2003	-
Expenditure 2003/04	3,571,905
Future commitments and forecasts	42,591,871
	46,163,776
GST
GST to 30 June 2003	-
Expenditure 2003/04	11,473
Future commitments and forecasts	5,772,514
	5,783,987
Total forecast cost to complete	51,947,763
Tranche Two for 133 vehicles	$
Project approval	47,044,000
Foreign exchange variances	(1,218,906)
GST	5,880,000
Total approved cost	51,705,094
GST exclusive
Total expenditure to 30 June 2003	-
Expenditure 2003/04	56,020
Future commitments and forecasts	45,824,569
	45,880,589
GST
GST to 30 June 2003	-
Expenditure 2003/04	-
Future commitments and forecasts	5,880,000
	5,880,000
Total forecast cost to complete	51,760,589
(c) Total project
	$
Approved cost	105,140,914
Expenditure to 30 June 2004	3,639,398
Future commitments and forecasts	100,068,954
Total forecast cost to complete	103,708,352

• Foreign exchange variances on actual expenditure to 30 June 2004 for Tranche One is unfavourable by $79,962 due to the purchase rates for the GBP currency being less than the GBP exchange rate used in the Cabinet paper to obtain financial approval.
  • GBP approval rate = 0.36621
  • GBP average rate achieved = 0.3576

• Foreign exchange variances on actual expenditure to 30 June 2004 is nil for Tranche Two as there has been no foreign currency payments.

• Due to a change in forward rates for future commitments and forecasts from the exchange rates used in the Cabinet approval for both Tranches, Tranche One is expected to achieve an unfavourable foreign exchange variance of approximately $1,360,820 and Tranche Two is expected to achieve a favourable foreign exchange variance of approximately $1,218,906.

• Commitments are valued at an average of the exchange rates of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank.

• Forecasts are valued at a current market exchange rate.

  • GBP approval rate = 0.36621 (Tranche One)
  • GBP approval rate = 0.34517 (Tranche Two)
  • GBP forecast average rate = 0.3548

2. Acquisition of new maritime forces vessels for the Navy This project proposes the acquisition of two Offshore Patrol Vessels (OPV) and four Inshore Patrol Vessels (IPV) to meet inshore and offshore requirements for maritime surface surveillance in New Zealand's Exclusive Economic Zone in the South Pacific. The Ministry is purchasing a multi-role vessel (MRV) to replace HMNZS Canterbury to provide tactical sealift for the New Zealand Defence Force, support disaster relief and peace support operations, conduct resource protection patrols, provide diplomatic and military presence, and for training.
Target	Delivered
Subject to Government approval, the intention is to: subject to the range and scope of responses to the Request For Proposal, further definition of milestones will be decided at a later date.	An evaluation of the proposals received from six short listed companies was completed in March 2004. A preferred tenderer was announced in April 2004, and current activity is focused on progressing the project in conjunction with the preferred tenderer.

(a) Financial summary of pre-acquisition costs charged to departmental output class - Management of equipment procurement as at 30 June 2004 (GST inclusive)
	$
Budget for pre-acquisition costs	1,885,500
Expenditure to 30 June 2004	1,497,798

3. Acquisition of medium range anti armour weapon for the Army This weapon will provide land forces with a medium range capability against armoured vehicles and other targets. The weapon selected is the Javelin missile.
Target	Delivered
Subject to Government approval, the intention is to: enter into a contract through the US foreign military sales programme by 30 September 2003 further project milestones, including delivery, will be known once the letter of offer and acceptance from the US Government has been finalised.	Procurement is from the United States Government and the missiles are supplied under the Foreign Military Sales (FMS) programme. Discussions with the United States Government took longer than expected because of US operational commitments. A Letter of Offer was accepted in December 2003. A second Letter of Offer for training equipment was accepted in June 2004.

(a) Financial summary of pre-acquisition costs charged to departmental output class - Management of equipment procurement as at 30 June 2004 (GST inclusive)
	$
Budget for pre-acquisition costs	281,250
Expenditure to 30 June 2004	37,617
(b) Financial summary of project costs charged to non-departmental appropriations as at 30 June 2004 (GST inclusive)
	$
Project approval	23,856,000
Foreign exchange variances to date and forecast to complete	(818,429)
GST	2,982,000
Total approved cost	26,019,571
GST exclusive
Expenditure to 30 June 2003	-
Expenditure 2003/04	2,136,233
Future commitments and forecasts	20,901,338
	23,037,571
GST
GST to 30 June 2003	-
Expenditure 2003/04	-
Future commitments and forecasts	2,965,970
	2,965,970
Total forecast cost to complete	26,003,541

• Foreign exchange variances on actual expenditure to 30 June 2004 is unfavourable by $31,478 due to the purchase rates for the USD currency being less than the USD exchange rate used in the Cabinet paper to obtain financial approval.
  • USD approval rate = 0.58408
  • USD average rate achieved = 0.5755
• Due to better forward rates for future commitments and forecasts than the exchange rates used in the Cabinet approval, the project is expected to achieve a favourable foreign exchange variance of approximately $818,429.
• Commitments are valued at an average of the exchange rates of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank.
• Forecasts are valued at a current market exchange rate.
  • USD approval rate = 0.58408
  • USD forecast average rate = 0.6148

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