Equipping A Modern Defence Force
11 June 2002
The Defence Long Term Development Plan (LTDP) released today identifies proposals for defence capital expenditure over the next decade, Defence Minister Mark Burton said.
Mark Burton unveiled details of the LTDP at the RNZRSA Conference in Wellington this afternoon.
"The LTDP is a vital planning tool that has not been provided in the past, " Mark Burton said. "It offers an overview of defence acquisitions, in priority groupings, with approximate costings.
"The government has committed to capital injections of up to $1 billion over the next ten years, with most of that likely to be needed in the next 5 years. The balance of funding for acquisitions will come from depreciation.
"Including the defence projects already approved – new light armoured vehicles and communications equipment - total spending on defence capital projects is likely to exceed $3 billion over the next decade. This is a major investment. What the LTDP enables us to do is to manage operational and financial risks, to ensure that the long overdue investment in our defence force provides best value for money.
"The LTDP follows logically on from previous government decisions. We began with the blueprint for defence outlined in the Defence Policy Framework issued in June 2000. Capability goals and priorities were then set down in the Defence Capability Statement of May 2001.
"Taken together, these three key strategic and operational documents, and the recently announced decision to further improve pay and conditions for service personnel, show how this government is building a modern, focused, professional Defence Force, with the necessary military capabilities and trained personnel, across all three Services."
Mark Burton said that the LTDP provides an assurance that decisions on individual defence acquisition projects are made in the context of the government's defence policy, overall priorities across the entire NZDF, and affordability.
"The LTDP does not give Defence authority to proceed with any of the projects, nor does it set absolute financial or timing parameters. What it does is provide a transparent, robust framework, so that the government can make decisions on each of the projects as they are developed, in the context of their affordability and their value in delivering defence policy.
"It is important to realise that the costings included in the LTDP are, inevitably, approximate. The LTDP is a dynamic document and will be regularly reviewed and updated in response to new and more detailed information."
Mark Burton said the projects included in the LTDP are at various stages of development.
"Some are well advanced. For example, Defence will go to tender for the Light Operational Vehicle in the next couple of weeks. The broad functional requirements for the new naval vessels are also nearing completion. A study to determine the extent of work needed to upgrade our C-130 fleet is well advanced. And Cabinet will shortly be asked to approve the project to reconstruct the Ohakea Airbase runway.
"The Long Term Development Plan is a crucial operational planning document that places these projects and others in context. The LTDP includes projects that will provide a modernised Army, a practical Navy and a refocused and updated Air Force. It draws logical linkages between all of these projects and will equip the Defence Force as a whole, so that it can meet the government's policy requirements," Mark Burton said.
The Defence Long Term Development Plan is available at www.beehive.govt.nz and www.defence.govt.nz
Key Questions And Answers On The LTDP
How much will be spent on capital acquisitions over the next ten years?
It is expected that more than NZ$3 billion will be spent on capital acquisitions over the next ten years. This includes around $2 billion on major new projects, as well as expenditure on those projects already approved, such as the Seasprite helicopters, Light Armoured Vehicles and Tactical Mobile Radios.
Are the projects included in the LTDP affordable within the government’s funding parameters?
Yes, these projects are sustainable within the government’s funding parameters. The current project costs are based on the best information available, and the plan represents a reference point against which any subsequent changes can be measured, both in terms of affordability and capability.
Are the individual costings included in the Plan absolute minimums and maximums?
No. The LTDP is a planning tool and provides an indication of the likely costs of each project. The cost ranges included in the plan are based on the best information currently available. Each project will be considered within the overall context of total planned acquisitions. For each project, the amount of funding provided will be subject to government approval.
What are the timing determinants for the projects?
Timing determinants vary according to the nature of the individual project. Factors to be taken into account include the state of existing equipment, the availability of new technology, industry's ability to deliver, personnel issues, cash flow considerations and government priorities. The timing indications included in the plan are indicative only and are subject to change.
Are all capital projects included in the LTDP?
No, only defence capital projects valued at more than $7 million require government approval.
What exchange rates have been used in calculating costings?
Conservative exchange rate assumptions, provided by The Treasury, have been used. For the US dollar, the following exchange rates have been used in calculating cost estimates: FY 02/03, 0.44 cents, FY 03/04, 0.49 cents, FY 04/05 and thereafter, 0.51 cents.
Is there any allowance for inflation?
The NZDF is required to manage any inflationary pressure until 05/06. Most of the capital requirement programme is expected to happen within this period. Inflationary and other pressures post 05/06 will need to be identified and options will then be explored to ensure the plan remains affordable as a whole.
What is being done to improve the robustness of cost forecasting?
The NZDF and MOD jointly are currently updating existing costing methodologies to better manage the impact of risks, such as inflation, in order to improve the robustness of costings for acquisition projects. The NZDF’s “whole of life” costing methodology for individual projects is also being updated.
What opportunities will there be for local industry?
MOD is working with MED and Treasury on acquisition procedures that will promote competitive input from NZ companies.
Will alternatives to traditional procurement methods be explored?
Yes. The Government has agreed that leasing options may be considered where there is a neutral trade-off between capital and operating expenditure.
Is the planned Orion upgrade Project Sirius in another form?
No. For a start, the anticipated cost is substantially lower. The Orion upgrade proposal started with a clean sheet of paper and a whole-of-government approach based on the findings of the Maritime Patrol Review and subsequent Cabinet decisions. Options for upgrading the Orion are being developed by the MOD and NZDF, in consultation with relevant civilian agencies.
Why has the Orion cockpit update been separated out?
The cockpit update, to meet international aviation requirements, is no longer required until later in the decade. There are potential cost savings to be achieved by conducting the cockpit update in conjunction with a similar update for the Hercules, and coinciding with probable large-scale fleet upgrades by other defence forces.
What is the next step in implementing the Long Term Development Plan?
Work is already underway on a number of the projects to determine operational requirements and develop options. Once these requirements and options have been developed and sound cost estimates obtained, each project will be brought forward to Cabinet for approval to proceed with the acquisition process. Work on some of the priority projects is well advanced. For example, the light operational vehicle will go to tender within the next two weeks, work is nearing completion identifying the operational requirements for the new naval vessels, a study is in progress to determine the extent of work needed to upgrade our C-130 fleet, and Cabinet will shortly be asked to approve the project to upgrade the Ohakea airbase runway.