NBN Co's contract crisis

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NBN Co's contract crisis

Opinion: Is the NBN contractually naive?

When NBN Co pushed back on the prices it was offered by construction companies in 2011, NBN Co's Kevin Brown said the organisation was building an national broadband network, "but not at any price".

The Government-funded company had "thoroughly benchmarked our project against similar engineering and civil works projects in Australia and overseas and we will not proceed on the basis of prices we are currently being offered," Brown said at the time. NBN Co was confident, he said, that it could secure better value for money by going a different route to the initial construction tenders.

The handing back of the Northern Territory rollout contract by Syntheo, announced yesterday, suggests the prices offered up in those original fourteen construction tenders were closer to the real costs of construction than NBN Co’s estimates.

Syntheo’s problems are not a surprise. At Senate estimates hearings in February, NBN Co chief Mike Quigley discussed how the contractor was running behind schedule in the Northern Territory, which led to speculation the Service Stream–Lend Lease joint venture may lose its $141 million contract for the NT and South Australia.
 
NBN Co should be in a good position to deal with the financial assumptions that underpin the build, with four of the company’s nine board members boasting a merchant banking background.
 
But fewer executives in NBN Co's current senior management and board have project management backgrounds and only one person, non-executive director Rick Turchini, has contracting experience in the construction industry.
 
This lack of contracting experience appears to be costing NBN Co dearly in delivering the project and may prove to be even more problematic should the company try to manage the Northern Territory rollout on its own.
 
Contractual problems are not unique to the NBN project, as iTnews reported this week. Contractors are standing down workers on Telstra’s Clayton data centre while resources and construction projects around the country are suffering delays and cost overruns.
 
The National Broadband Network is a complex project involving thousands of widely dispersed contractors and requires a high level of expertise to manage the tasks.
 
The election of an Abbott government won’t resolve the NBN’s contractual problems. If anything the opposition’s intention to change the project’s scope makes things more complex as a Liberal minister will have to renegotiate agreements with Telstra and the existing contractors.
 
NBN Co chief Mike Quigley, board chair Harrison Young and Minister Stephen Conroy must now ensure that all the other key construction contracts are not at risk of similar failures.
 
It would be prudent for NBN Co to attract more board members and senior executives with  construction experience before any more nasty surprises pop up.
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