Section 2 provides a comprehensive account of the project's financial performance in terms of its budget and variances to that budget that have occurred over the life of the project. It also provides an account of project expenditure and variances to project in-year budget performance as well an account of major contracts, their original prices and any price and scope changes. The data under this Section is complementary to and expands on financial reporting in the Annual Report and Portfolio Budget Statements (PBS).
Section 2.1 - Project Budget Approval History: When a project is approved by Government its budget is allocated to DMO and to other Defence Groups responsible for delivery for various elements of scope in the budget to e.g. the DSG (for facilities) or Chief Information Officer Group (for specific IT systems) or the Services as appropriate. Therefore, the DMO's project budget can be less than the total Government approved budget for the project. This section only reports on the DMO element of the approved budget. The DMO's budget is transferred to DMO by Defence under an MAA that sets out the scope of the supplies and services that DMO will deliver, the standards or specifications to which they are to be delivered and the delivery schedule. As a prescribed agency DMO is totally accountable for managing and reporting on this element of the budget.
The project data in this section reports on the following variations to the originally transferred budget that has occurred up to the end of the financial year:
● Price Indexation Variations: supplementation to the total project budget in line with the deflator used by the Department of Finance and Deregulation to adjust Defence's budget (for 2008-09, the Non Farm Gross Domestic Product) and with not necessarily consistent variations in actual labour and materiel indices within contracts which are beyond the DMO's capacity to control.
● Foreign Exchange Variations: supplementation to the total project budget in line with foreign exchange rates used by the Department of Finance and Deregulation to adjust Defence's budget for changes in payments made in foreign currency, a factor over which the DMO has no control.
● Real Variations: All other variations to the total project budget including changes in quantities and scope which are explained in further detail in Section 2.2.
The sum of the above three variations results in a "Current Approved" project budget; that is the original budget adjusted for indexation and exchange variations parameters set by the Department of Finance and Deregulation together with the aggregation of all other variations.
Section 2.2 - Project Real Variation History: This section breaks down the Real Variations noted in Section 2.1 above into a standard set of variation types that are explained below:
● "Scope" variations are total project budget adjustments made to provide for changes to the MAA scope agreed by Defence (as the customer of the DMO). These generally take the form of changes in quantities of equipment, changes in requirements that result in specification changes in contracts, changes in logistics support requirements or changes to services to be provided which are accompanied by a corresponding budget adjustment.
● "Transfers" occur when a portion of the project scope and budget as set out in the MAA is agreed by Defence (as the customer of the DMO) for transfer to another MAA or to an Materiel Sustainment Agreement for delivery as part of sustainment or to another Group in order to more efficiently manage delivery of an element of project scope and to vest accountability for performance accordingly.
● "Budgetary Adjustment" describes all other variations to the total project budget except scope variations, transfers and DMO Performance. It includes Departmental administrative decisions that result in variations such as efficiency dividends to be harvested from project budgets or adjustments made to fund initiatives such as Skilling Australia's Defence Industry (SADI), as well as other adjustments and corrections.
● "DMO Performance" is a measure of how effectively the DMO managed its financial performance on a project. Budget adjustments under this category are not related to any of the above headings. They include cost overruns that can arise because of incorrect estimates that the DMO may have previously agreed to in MAAs, real cost variations that do not have a corresponding scope variation, such as non indexation or foreign exchange price variations in contracts, or changes in contract price that might result from global settlement of contractual issues.
Section 2.3 - Project Budget and Expenditure as at the End of the Financial Year: This section reports on the total expenditure that has occurred against the project budget noted in Section 2.1 up to the end of the current financial year and the balance remaining. The cost of DMO personnel is not included in the project budget - this is borne from a "service fee" which is funded separately from project costs. Whereas DMO's service fee has been previously funded by Defence from financial year 2009-10 this funding will come via Government direct appropriation to the DMO.
Section 2.4 - End of Financial Year Total Project Expenditure Performance: DMO forecasts its expenditure for the financial year first at the time of submitting Portfolio Budget Estimates (PBS) before the beginning of the new financial year and updates these estimates at Portfolio Additional Estimates (PAE). This section compares DMO's forecast at PAE and its end of financial year achievement.
Section 2.5 - End of Financial Year Total Project Expenditure Variance Attribution: The difference between the estimate (i.e. the forecast from Section 2.4) and actual expenditure for the financial year is attributed to standard variance factors described below. Positive figures indicate expenditure achieved ahead of plan. Variances are attributed to:
● Brought Forward from 2009-10: Variations due to expenditure planned for 2009-10 or later that actually occurred in 2008-09.
● Cost Saving: Variations due to planned work completed at a cost less than budgeted for.
● FMS: Variations due to a change in the estimate for FMS expenditure over the year.
● Commonwealth: Variations due to planned payments not occurring due to reasons attributable to DMO.
● Local Industry: Variations due to local industry not achieving progress as planned thereby inhibiting expenditure.
● Overseas Industry: Variations due to foreign industry not achieving progress as planned thereby inhibiting expenditure.
Section 2.6 - Prime Acquisition Contract(s) Real Price Increases and Capital Equipment Quantities Required: This section reports on prime contracts, their price and the quantities of equipment under contract at the time of contract signature and at the end of the financial year. Reasons for variances in quantities are explained. To enable comparison the price at signature and at the end of the financial year is expressed at the base date59 at which the contract was signed.
It should be noted that quantity of contracted equipment is only provided at a summary level, generally at the prime mission and support systems level, because the full list all items contracted would be far too extensive and detailed to list in a PDSS.
In some instances it is not possible to state base date contract prices. This is usually because not all contracts or contract amendments enacted are always under the same base pricing arrangements as the original contract. Where multiple contracts are involved, such as when the DMO is the prime systems integrator managing a number of separate prime equipment contracts, the contracts can have been entered into at various times and hence have different base dates. When this occurs, contract prices have not been provided.
Section 2.7 - Prime Acquisition Contract(s) Price and Progress Payments: This section reports on the prime contracts, their price and the progress payments against the prime contracts. To enable comparison of, the prices at signature and at the end of the financial year, and the progress payments to date expressed at the base date for pricing under the contract.
When Defence moved from its previous accounting system, DEFMIS to its current system ROMAN, the required granularity of information did not come across; hence it is difficult to identify all base bate payments made from the previous system. Furthermore, as in Section 2.6, projects where DMO is the prime systems integrator, or where multiple contracts are involved, each of the contracts have payments made against them in different base dates making it impossible to establish a common base date for progress payments. Similar problems are encountered with FMS procurements where Letters of Acceptance are based on out turned dollars and payments made in US dollars at the exchange rate of the day. In these instances, base date expenditure is not stated and a reason for this included. It should be noted that although DMO does not manage its project finances in base date dollars it has complete financial accounts for all payments made to contractors.
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59 "Base Date" refers to a reference date in the contract from which all variances on account of contract price indexation or foreign exchange adjustments to the contract price are made.