The NBN construction blame game

The relationship between NBN Co and its construction partners has been strained from the start and sorting out this mess could prove to be just as hard as the Telstra re-negotiations for Malcolm Turnbull.

The frustrations with regards to the rollout of the NBN have spilled over again this week with the strained relationships between NBN Co and the major contractors painfully laid bare. While the Coalition’s NBN still endeavours to shed its aura of inadequacy, things on the construction side of things appear to be problematic as ever.

The slower-than-expected rollout of the NBN fibre and the need to pinpoint the reason for the delays lie at the heart of the malaise. For now, the finger-pointing seems to have focused on the major contractors hired by NBN Co to build the network. But does NBN Co wear some of the blame here as well?

report in The Australian this week has shed light on the machinations of the “tier-one” contractors, with the flow of money changing hands (from NBN Co to the primary contractors, and subsequently to the subcontractors) seemingly broken.  

According to The Australian, major contractors handling the rollout have been charging the federal government up to two and a half times the amount they are passing on to subcontractors who perform the work.

Consequently, many subcontractors have decided to give the NBN a miss and those that are involved aren’t exactly enthused. The end result is a rollout that remains behind schedule and there are plenty of excuses from all involved.

NBN Co has categorically stated that it has no control over what the subcontractors are paid. Meanwhile,  the subcontractors are miffed about the lousy rates. And as for the primary contractors (Silcar, Transfield, Visionstream, Syntheo), well they aren’t saying anything at all. 

NBN Co’s position on the issue is valid. It’s not involved in the deals negotiated between the primary contractors and the subcontractors. However, that doesn’t mean it escapes scrutiny entirely.

Melbourne firm All Trenching and Boring Services’ Tim Bardsley told Technology Spectator that given that NBN Co has to take some of the responsibility for how things have transpired.

“Who’s the principal contractor here? NBN are aren’t they. They are ultimately responsible for everybody underneath them.”

That’s correct to a point, but ultimately there’s very little NBN Co can do if its construction partners are keener to line their own pockets rather than manage their subcontractor arrangements in a fair manner.

Unfortunately, the seeds of this malaise where sown at the very inception of the project. Given the sheer scale and complexity of the project, the idea of rolling out far across the country as cheaply as possible has led to a situation where no one is happy in the value chain. NBN Co is miffed by the slow delivery of the rollout but the contractors reckon there was never enough money on the table to begin with.

As for the sub contactors, Bardsley he says they have no say in what they are paid for the work and getting caught in the tail-end of a botched process.

He adds that it’s easy to see why many subcontractors are not interested in getting involved in the NBN rollout. The rates on offer just aren’t sustainable for most subcontractors, other than the small owner-operated outfits.

“In some cases they are cutting costs, they are doing sub-standard work, not because they want to be dodgy it’s just that that’s all they are paid to do,” Bardsley says.

He is also quite clear that the only way to get subcontractors interested is to loosen the purse strings.

“The rates vary according to the jobs. In some cases the rates (on offer) need to double and in other cases rates need to go up roughly 15 to 20 per cent.”

That might be easier said than done because the “tier-one” contractors aren’t going to relinquish their gains in a hurry and unfortunately there’s not a lot NBN Co can do to make them think otherwise.

There are growing murmurs that NBN Co’s reticence to discuss the activation of penalty clauses is a result of ineffectual clauses that have allowed the construction partners to exploit the current situation. For some this is further evidence of a lack of appropriate project management acumen within NBN Co ranks and this is a problem that the new communications minister Malcolm Turnbull will have to remedy.

This remedy might need Turnbull to tear up the existing construction handbook and bringing people on the revised NBN Co board, who can bring the construction partners in line. It won’t be easy and it’s fair to assume that the likes of Lend Lease and Leighton will be armed to the teeth to ensure they aren’t disadvantaged.

Whatever happens after the federal election, there is little doubt that the construction conversation will need to be refreshed in a way that puts accountability and delivery at the top of the agenda.

Bardsley reckons that NBN Co needs to bring the tender process back on the table and not accept the cheapest price.

“Rather than telling a contractor this is what you are going to get paid just go and do it, they need to put it out there and see who can do what,” he says.

“And don’t accept the cheapest price because it’s cheap for a reason.”

Chasing cheap options will end up costing more in the long run anyway, as NBN Co has so painfully found out, and for Turnbull the task of bringing the construction side of things under control could prove to be just as hard, if not harder, than the looming negotiations with Telstra.

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