Soaring costs halt tenders for NBN
Sydney Morning Herald
Friday April 1, 2011
THE company in charge of the $36 billion national broadband network has frozen negotiations over vital contracts, citing exorbitant demands from construction companies.The taxpayer-owned NBN Co wrote to 14 construction firms yesterday, saying a tender process was "suspended" indefinitely because none of their proposals had acceptable prices.NBN made the drastic move because it believed the bidders were trying to gouge excessive profits from the taxpayer-backed project, using rising labour costs from the resources boom as an excuse.While NBN is instead working on a "Plan B" to finish the work more cheaply, the suspension has reignited the political furore over the project's price tag, which critics say is vulnerable to soaring wage demands.The office of the Minister for Communications, Stephen Conroy, said it expected NBN to negotiate the lowest cost for taxpayers by "striving to get the best deal from contractors".But the opposition's communications spokesman, Malcolm Turnbull, said the suspension underlined the risk of cost blow-outs, and cited industry claims the government was underestimating the network's cost.The suspended tender process was for the laying of fibre cables to homes around the country - one of the most expensive parts of the project. It is estimated to be worth $12 billion.Bidders included Telstra, John Holland, Transfield and the embattled company Downer EDI. The list had been narrowed after painstaking discussions with NBN since early last year.It is understood their bids were above the scenarios in NBN's business case, which said a "high" construction cost would add $3.7 billion to the cost of the network.NBN's head of corporate services, Kevin Brown, said after five months of negotiations with shortlisted companies, they failed to strike an agreement that achieved "fair value".Mr Brown was unconvinced by the wage pressure claims from the industry - which has warned the resources boom would drive up pay demands."Current pricing, in our view, does not reflect capacity constraints in the industry," he said.But Mr Turnbull said the likely skills shortages caused by the resources boom underlined the need for a cost-benefit analysis."This confirms the early worrying signs from Tasmania where, at face value, there have been significant problems with the roll-outs and particularly worry over the cost," he said."This is all a consequence of the government failing to do the basic, obvious responsible thing, which is to ask the question, 'What is the most cost-effective way to deliver fast broadband?"'A spokeswoman for Senator Conroy said NBN was using the time while it negotiated an $11billion agreement with Telstra to get "best possible value" for taxpayers. "We would expect NBN Co to negotiate the best rates on a building project, and that's exactly what NBN Co are doing."NBN denied the suspension threatened construction in politically sensitive rural areas, which have been made a top priority in the government's agreement with rural independents.Instead, the company is pursuing an option to use fewer providers after NBN's $11 billion deal with Telstra is sealed.Construction was postponed for the next batch of NBN test sites - which include Riverstone and Coffs Harbour - because of a delay in NBN's $11 billion deal with Telstra last month.In February NBN's chief executive, Mike Quigley, told a Senate committee he would go back to the government if costs exceeded those in the corporate plan.But Mr Brown said NBN would not seek more money from the government for the construction contracts.Pipe dreams March 2007ALP promises to build $4.7 billion broadband network. April 2009 Kevin Rudd abandons this for faster $43 billion fibreto-the-home network. December 2010 NBNCo says it can deliver network for $36 billion after reaching deal with Telstra. Telstra deal needs approval of its shareholders. Vote planned for July was delayed last month.