1.40 Variations to DMO's approved project budget are made to the amount of funds remaining, with adjustments at defined times in the budget cycle to account for foreign exchange and movements due to price indexation being set by the Department of Finance and Deregulation. These variations and their history are centrally managed and recorded by DMO's Finance Division and presented in Table 2.1 of the PDSS in Part 3 of this report. Tables 2.1 to 2.5 collectively provide substantial data on variations and expenditure at the whole of project level that has occurred against the MAA.
1.41 Table 2.6 of the PDSS requires the current value of contracts (including FMS Cases) to be stated in equivalent 'base date dollars'; that is the initial contract price expressed in economic values (price and exchange) applicable to a specified 'base date' in the contract, and also to state the current contract price as at 30 June 2009 on the same basis. Further to the advice provided at paragraphs 1.15 and 1.16, table 2.7 requires all contract expenditure incurred since the contract was executed in equivalent base date amounts as at 30 June 2009.
1.42 Most commercial contracts in respect of the projects in this DMO MPR, are variable price contracts. Such contracts establish a price, expressed in terms of a specified base date, and rules on how the base date price is to be adjusted in response to actual movements in the contracted labour and materiel price indices over time. While there is usually no provision for variation for exchange rate movements because DMO standard contracts (including FMS Cases) require payments to be made in source currencies (i.e. the currency of the country to which payments are due), there could be instances where this is not the case.
1.43 Over the course of a contract, many payments are made, e.g. down payments at contract commencement, and progress payments based on earned value and contract milestone payments when defined events have been achieved. The DMO has complete financial records to validate that all payments are properly made. Stating contract value (Table 2.6) and expenditure (Table 2.7) as at 30 June 2009 in equivalent contract base date dollars entails extracting all price indexation amounts over the life of a contract. In instances where contracts amounts are stated in Australian dollars, but paid in source currency for work undertaken overseas, then there is a requirement to calculate them back to the original foreign exchange rates in the contract.
1.44 DMO's project offices have complete financial records of all payments made in accordance with contracts conditions but are not required to manage their contracts or payments in base date amounts. Therefore, it is not cost effective for the DMO to state and validate base date figures in PDSS Tables 2.6 and 2.7 for the following reasons:
● Projects that involve multiple contracts, including where the DMO is the prime system integrator. Contracts are entered into at different times, with different base dates and, in certain contracts, under different payment regimes. Therefore, the total value of all contracts or contract expenditure could be misunderstood as the dollar values are at different base dates.
● To calculate 'base date' payments made before 2000 (when Defence changed financial management systems) would require a very substantial resource investment to review the original invoices and then make the appropriate base date calculation.
● The value of FMS Letters of Offer and Acceptance are estimates of the expected cost of goods and services being provided by the US Government and are stated in 'then-year' dollars i.e. with price escalation built in. Periodic payments are also made in the escalated dollar amounts at the exchange rate of the day and it would be difficult to de-escalate individual payments to a base date dollar amount in a completely meaningful way.
● When contracts have been completed many years ago, the relevance of base date expenditure at 30 June 2009 is questionable.
1.45 Notwithstanding the above, wherever feasible, base date dollar amounts have been quoted, primarily in projects started after the financial management system changeover; where there is a single prime contract; and where the particular project established systems to track all of the individual payment types. Where the resource effort and cost to calculate the base date amounts as at 30 June 2009 has been seen to be excessive, the DMO has elected not to state these amounts in the PDSS. In each case where these figures are not included, an explanation has been provided.
1.46 Acknowledging the resource issues with the current form of information, and as stated at paragraph 1.6, the JCPAA has agreed to a change in the 2009-10 DMO MPR; the DMO will replace base date data with capitalised expenses and the value of assets that has been realised as they enter service. Further, the JCPAA will evaluate this revised approach and its utility. For this DMO MPR, although not provided in the PDSS, this data is provided in summary form in Chapter 2 for each of the projects. The DMO acknowledges that this data has not been reviewed by the ANAO this year.