Opinion: Running the ruler over NBN Co's procurement

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Opinion: Running the ruler over NBN Co's procurement

David Havyatt asks whether the governance structure stands up to the task.

The NBN Co task of investing $45 billion in the National Broadband Network is a daunting task.

The scale of it as a whole starts coming into focus as individual contracts are concluded; with Ericsson for the fixed wireless component and Silcar for 40 percent of the construction work.  Each of these is potentially a $1.1 Billion contract.

Each also raises questions around governance.

C. Northcote Parkinson, originator of the eponymous Law (in simple version, “work expands to fill the time available for its completion”) conceived of another that is relevant to NBN Co.

He said that the time a committee spends on a matter is in inverse proportion to its importance. The bigger the matter, the less the direct experience of any individual was relevant to it. In his example, the (UK) Cabinet would debate what kind of cakes to have for afternoon tea, but happily accept a proposal for re-equipping the fleet without question.

There is a very real risk that NBN Co’s governance look just like this. 

The report of the wireless contract says that it is believed that Ericsson was the only party to bid.

NBN Co Head of Corporate Services Kevin Brown told ABC TV that the Silcar contract was the result of negotiation rather than tender because the only way to get a “fair price” was “to sit down opposite a credible company and work through the detail.” 

In doing so, NBN Co is taking on the requirement to manage the actual quality of the Telstra and other infrastructure assets being accessed by NBN Co. 

Oversight

The coalition has been trying desperately hard to seek relevance in the NBN discussion by challenging the decision to build the network.  It is notable that spokesperson Malcolm Turnbull has moved on from suggesting the NBN is redundant because wireless can handle the load, to claiming that FTTN is sufficient and half the cost.

Meanwhile, new politician Paul Fletcher has tried to claim in an opinion piece for the Australian Financial Review that not including the NBN outlays in the budget is somehow underhanded and seeking to avoid scrutiny. Drawing an analogy that if treated the same as outlays on the Pacific Highway, he claims the accounting treatment has the effect of bringing the budget into surplus earlier than it really is.

In doing so he ignores the fact that NBN Co, unlike the Pacific Highway, really is an investment, not expenditure, because there is a future stream of inflows.

Elsewhere the coalition has kept up an unrelenting inquisition into the bribery scandal at Alcatel-Lucent. Everyone is at pains to point out that no accusation is being made about Quigley having any direct involvement, yet they continue to delve into the story.

Most recently David Crowe in the Australian Financial Review uncovered a statement that suggests Quigley “met with those involved in the bribery”.  

But the coalition seems to leave the accusation hanging, and is never quite sure why it is pursuing the issue. Is it because they think Conroy was deficient in not properly vetting the person he hired?  Is it because they think there is more to come?

Governance

The significance of the Costa Rica story is what it tells us about corporate governance.

Mr Quigley has shown that with his broad responsibility at Alcatel-Lucent he could never be across the detail, getting confused at one point over whether Costa Rica was even part of his portfolio. As he says, “it is not easy to spot a rogue transaction in a company of 60,000 employees [in more than 130 countries]”

Yet in response to questions locally about governance he replied that he wasn’t going to ride the individuals.

NBN Co has been made subject to the freedom of information laws, but not in relation to its commercial conduct. There is a belief – counter to market theory – that commerce has to be covered by a cloud of secrecy.

Malcolm Turnbull has asserted that NBN Co would be required to have greater transparency if it were a public company. This assertion is incorrect. The actual details of contracts and their negotiations are closely guarded secrets, even from the owners of companies (shareholders).

But NBN Co is subject to the scrutiny of our Parliament, both through the ordinary processes, through estimates and through the Joint Committee on the National Broadband Network.  The latter in particular has very wide Terms of Reference to provide oversight, yet its first hearing was bogged down in what was just another case of political point scoring.

It is pleasing to see Mr Quigley as CEO putting himself forward for these interrogations, something latter day CEOs of Telstra refused to do while fully, and later majority, Government-owned. However, if it were a shareholder or analyst, briefing a range of senior executives would usually be involved.

NBN Co’s first Head of Construction departed about the same time as the first construction tender was abandoned, more recently the GM of Industry Engagement has moved on. From the outside it looks like the Head of Corporate Services is performing many of the functions of a Chief Operating Officer without the title.

I am one of the many who believe that the NBN is the right investment for Australia, and that there is an impressive and talented executive team assembled to deliver the project. 

But that does not mean that the project is without risk. Because the coalition remains so focused on continuing to litigate the merits of the project, they are not providing the scrutiny the project requires.

Worse, they force the Government into a defensive mode in which they might also fail to provide the level of scrutiny required. 

The citizens deserve better.

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