NBN stopped in its tracks over construction costs

Stan Beer
Friday, 01 April 2011 08:14

IT Policy - Government Tech Policy

The National Broadband Network has hit its first major hurdle with NBN Co, the company charged with implementing the network, unable to squeeze what it considers to be an acceptable price from companies submitting construction tenders. The news has led to reports that the 14 construction companies involved with the tender are engaging in price gouging.

The major cost of the $36 billion NBN has previously been identified as the cost of digging ditches and laying cable, rather than the ICT related costs of equipment and fibre.

The fact that NBN Co has been unable to obtain the price for construction that it has budgeted for will give NBN opponents ammunition to attack the $36 billion costing as being unrealistic and charge that the NBN will cost much more.

With labour costs and  fuel costs on the rise - factors determining the cost of construction - the likelihood that NBN Co will be able to meet its construction budget will now be under question.

In a statement said NBN Co said it "has indefinitely suspended its network construction tender after construction companies were unable to provide acceptable terms and prices following four rounds of pricing negotiations."

NBN Co Head of Corporate Services, Kevin Brown said: 'We have said all along that we are building an NBN, but not at any price.

'We have 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.

'NBN Co is confident it can secure better value for money by going a different route. We have left the option open to continue negotiations at a later stage.

'NBN Co is disappointed that the request for proposals (RFP) has not achieved an acceptable outcome, and we thank the companies who have been involved in the process so far.

'NBN Co has an obligation to our government shareholders, indeed to all taxpayers, to ensure we carefully manage their investment in the network, and are serious about costs.

'NBN Co does not regard current pricing reflects capacity constraints in the industry, and we are progressing a different approach that we think will produce a better result.

'The new approach will take into account recent supply chain arrangements, volume certainty, a gainshare for continuous improvement, and involve a national construction footprint.

'The aim of these changes is to improve our capacity to accelerate the rollout in anticipation of a definitive agreement with Telstra,' said Mr Brown.