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Defence Agencies Welcome Auditor-General's Report

26 June 2008

Defence Agencies Welcome Auditor-General's Report

Statement From Secretary Of Defence John Mckinnon And Chief Of Defence Force Lieutenant General Jerry Mateparae

The Ministry of Defence and New Zealand Defence Force welcome the Auditor-General's report Reporting the Progress of Defence Acquisition Projects which identifies opportunities for improvement when reporting to Parliament on the progress of major defence acquisition projects.

Secretary of Defence John McKinnon said the Defence agencies were committed to providing Parliament with good information on the progress of defence acquisitions. The problem was complex, however, and the Defence agencies will work with the Auditor-General to develop the best way in which this might be accomplished.

Mr McKinnon said that the purpose of the audit was to account for how well the agencies report on the progress of significant defence acquisition projects. "This is not a report on the performance of the agencies in the management of defence acquisitions. The Auditor-General made that clear in his report," Mr McKinnon said.

To examine the reporting process the Auditor-General's office chose to examine the 10 largest Defence projects that are either underway, or have recently been completed.

Mr McKinnon said the recommendations in the audit were made to improve the quality of the reporting to Parliament by the Ministry and Defence Force. Chief of Defence Lieutenant General Jerry Mateparae said the audit identified opportunities for improvement in the accuracy of estimates made by the agencies at the earliest stages of considering the purchase of a new defence capability.

"The Defence Force and the Ministry will work together to improve this aspect of our performance, but it must be noted there are challenges when working on significant projects that can take several years to move from initial concept phase to making the final commitment to buy," Lieutenant General Mateparae said.

Changes between initial estimates and final costs are unavoidable, for a number of reasons:

* Acquisition is an often lengthy process in which capability specifications and costs are refined as more is learnt about what capabilities are available and whether they need to be modified or redesigned to meet New Zealand's particular needs.

* In the early stages of a project, proposed capabilities are not precisely defined.

* Due mainly to technology pressures, defence costs tend to inflate quickly - at approximately 10% per annum - and purchases are made in foreign currencies that are subject to exchange rate fluctuations.

For these reasons final costs cannot be established with certainty until potential suppliers have been approached and invited to tender.

It is important to note that no public money is committed to any purchase until the tender process is complete and the final cost is known with certainty. Cabinet always makes its decisions to commit to a purchase in the knowledge of what that final cost will be. Mr McKinnon said of the ten projects subject to the audit eight are either within, or on track to be within the budget Government agreed to when making the final decision to commit to buying a new capability. "In those few cases where there was any variance, the variance was less than 0.05 percent," he said.


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