Budget Review 2013–14 Index

Dr Noemi Murphy

Funding for major and medium Defence capital works projects may be sourced from two different programs: the Major Capital Facilities (MCF) program and the Defence Capability Plan (DCP).[1] The MCF develops facilities and infrastructure to support Defence’s Approved Capital Major Investment Program (ACMIP). It also funds acquisition and disposal activities where capital funding is required. Examples of projects funded by the MCF include the Moorebank Units Relocation (MUR) project and the Defence Logistics Transformation Program (DLTP) which supported elements of the Strategic Reform Program. DCP facilities funding is allocated to projects where there is an attached capability—for example, facilities (including training centres) for three new Hobart Class Air Warfare Destroyers (AWDs) to be home-ported at the Garden Island precinct in NSW.

Major Capital Facilities

The MCF receives less attention or reporting than the DCP, probably because it is used to maintain Defence’s immense estate—Defence is the largest landowner in Australia—while DCP funding supports the acquisition of new capabilities such as submarines and Joint Strike Fighters.

Arguably, this area has been underfunded for a number of years, compromising Defence’s ability to maintain its estate across Australia. Over the last four financial years, funding allocated to the MCF has been gradually decreasing. According to the revised figures provided by Defence in the Portfolio Additional Estimates, MCF funding has decreased from approximately $1.3 billion in 2009–10 to $880 million in 2012–13.[2]

Overall, this year’s budget does not address the issue.  The 2013–14 Defence PBS shows funding for the MCF increases to $1.1 billion, which is approximately $100 million more than in 2012–13, but in the view of critics, still insufficient to properly meet Defence’s needs.[3] Moreover, the MCF is more than halved by 2015–16 to $518.2 million. Although forward estimates are only indicative and are revised annually, this figure indicates that the underfunding of the MCF is likely to continue.

This continued underfunding runs the risk that Defence will shift lower priority regular maintenance and facilities upgrade projects to later years in favour of current higher profile capability projects.[4] While this is understandable given current fiscal constraints, it also means that in the longer term the condition of the Defence estate will be compromised and may become dilapidated, with the attendant risks that major and expensive remediation work will be required. In its 2011 audit of the Defence Estate, the Australian National Audit Office (ANAO) concluded that funding applied to existing ‘estate maintenance is insufficient to preserve existing assets which, in many cases, Defence will require for long‐term use’.[5]  Notably, this audit was compiled during 2010–11 when allocated funding in the PBS reached its peak at $1.5 million – $500 million more than 2012–13. It is important that debate on the acquisition of major capability items does not obscure the less glamorous but essential need to maintain the Defence estate so as to provide members of the ADF with appropriate, modern and efficient working and accommodation facilities.

Capital works approval process

Also noteworthy is the capital works approval process description in the 2013–14 PBS, which states:

Major capital facilities projects are defined as having expenditure over $15m and are subject to Government approval and review by the Parliamentary Standing Committee on Public Works (PWC). Medium facilities projects have an expenditure of between $250,000 and $15m. Projects between $8m and $15m are subject to Government approval, but are not formally reviewed by the PWC.[6]

The description appears somewhat vague and not reflective of current practices. While the statement about major capital facilities is accurate, there appears to be ambiguity in the definition of medium works. Medium works for the purposes of capital works projects have an expenditure of between $2 million–$15 million, including GST. Although Parliamentary approval is not required for medium works projects, the PWC needs to be notified of the expenditure. This process is outlined in the PWC Manual and by the Department of Finance and Deregulation (DoFD) in its publication Guidance for the Two Stage Capital Works Approval Process for Australian Government Construction Projects.[7]

Within the purview of its activities, the PWC has the power to review Medium Works Notifications and to make recommendations, to not allow the project to proceed and/or to ask the relevant agency to refer it as a major work. In its last annual report, the PWC reported that four medium works projects were rejected for various reasons.[8] This indicates that the notification process plays an important role in scrutinising public expenditure.

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