project procurement

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Home / Business / Telecommunications
Apr 2 2013 at 12:05 AM | Updated Apr 2 2013 at 9:44 AM
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NBN at war with contractors
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AFR AFR
by
David Ramli
| James Hutchinson
NBN Co has awarded more than $1 billion in extra work to major contractors it
criticised internally for delaying the national broadband network rollout, alleging
“poor project management” and serious errors requiring the federal government
monopoly to fix botched work.
Confidential NBN working documents obtained by The Australian Financial Review
have laid bare the increasingly bitter relationship between NBN Co and its
contractors, amid rising concerns about labour and skills shortages.
The documents, prepared for senior NBN Co executives, claim attempts by major
contractor Silcar to blame ​Telstra for delays “need to be refuted at all levels”.
They also show that NBN Co is ​concerned about new construction work needing to be
fixed. In one instance, up to 15 per cent of fibre cables in the northern Canberra
suburb of Crace have to be redone. The claims give the clearest insight yet into
challenges facing the ​government-owned business building Australia’s biggest
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The documents reveal that NBN Co was aware by late February that it was highly
unlikely to reach its previously promised target of installing fibre optic cabling into
286,000 existing homes by June 30 this year, a key target the company was chasing in
the lead-up to the federal election.
NBN Co chief executive Mike ​Quigley had told a Senate estimates committee two
weeks earlier that the project was still on track. Mr Quigley announced a three-month
delay to the rollout on March 21, attributing much of the delay to an inability by
construction companies to hire skilled labour quickly enough.
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TRANSFIELD TO MEET ONLY 65PC OF TARGET BY
JUNE
According to the documents, NBN Co highlighted issues with all of its ​construction
partners – Silcar (a joint venture between Leighton Holdings subsidiary Theiss and
German industrial giant Siemens), Transfield, Visionstream (another Leighton
subsidiary) and Lend Lease-Service Stream joint venture Syntheo – for providing the
wrong rollout information and paying workers rates so low they are leaving the
project.
In Victoria, NBN Co blamed Transfield over the fact it would only meet 65 per cent of
its state target by June.
“Inconsistent utilisation of critical resources . . . is due to poor project management of
the [region] by ​Transfield,” it said. “There is a lack of ribbon splicing resources
available.”
NBN Co claims companies were not hiring enough fibre splicers – the skilled labour
required to join fibre cables together – to roll out the network and that they were not
meeting strict specifications for fibre installations.
In NSW and the ACT, where Silcar has been rolling out the network, NBN Co said the
company provided incorrect rollout figures and tried to blame work done by others
for delays.
“Silcar are struggling to both recruit and retain construction resources for the rates
that they are offering,” the ​documents said.
Silcar would meet only 45 per cent of its required targets by June, based on the
amount of work it was planning as of late February.
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SYNTHEO FIGURES INSPIRED ‘VERY LOW
CONFIDENCE’
In Western Australia, South Australia and the Northern Territory, where the rollout
has been slowest, NBN Co’s project management team noted “very low confidence” in
the figures reported by contractor Syntheo.
The documents called for “executive engagement to secure full commercial
transparency from Syntheo on their subcontractor procurement activities” after the
contractor failed to notify NBN Co about losing subcontractors.
NBN Co assumed direct control of the rollout in the Northern Territory last month,
forcing Syntheo to abandon part of its rollout contract.
Similarly, the project management team noted “poor resourcing” by Visionstream in
Tasmania, which would probably lead the company to meet just 57 per cent of its
June target.
Despite NBN Co’s concerns with the planning quality and skills provided by two of its
biggest contractors, Visionstream and Transfield, it has continued to give them extra
work. Up to $1.3 billion over four years in taxpayer funds have been awarded in the
past two weeks alone to add extra “boots on the ground” in NSW.
NBN Co spokesman Andrew Sholl defended the extra contracts as part of NBN Co’s
existing plan.
“The companies we’re working with are the leading construction companies in
Australia,” he said. “Some have hit short-term mobilisation issues right at the start of
the volume rollout. We remain confident they will overcome these issues, which
constitute a three-month delay in a decade-long project to upgrade the entire nation’s
fixed-line broadband infrastructure.”
GOOD RELATIONS ESSENTIAL
Telecommunications analyst Chris Coughlan said NBN Co must retain good
relationships with its contractors in order to keep the rollout on track.
“They’re trying to be aggressive and sometimes aggressive commercial stances only
lead to strained relationships and defensiveness rather than a process and
relationship that is about problem-solving and getting on with the job,” he said.“The
danger here is you get into an area of almost litigation between NBN Co and the
contractors, which fundamentally could stall the process even further.”
NBN Co’s project management team has recommended that executives place
increased pressure on the contractors to improve productivity and draw up “plans to
address any deficiencies” under their contracts.
This included the issuing of “contract notices”, which could ultimately lead to legal
threats in a bid to claw back the millions in advanced payments given to the
contractors.
Mr Quigley revised the June 30 rollout figures a fortnight ago from 286,000 existing
homes and businesses, to between 155,000 and 175,000 homes. He took responsibility
for the delays and said big construction companies were hiring extra labour to catch
up.
“NBN Co is taking responsibility and, as the CEO, I am committed to recovering the
delay,” he said at the time.
But the documents show NBN Co knew well ahead of the public announcement of the
downgrade on March 21 that it would not meet those targets. In one section dubbed
the “overall scorecard”, NBN Co said 240,377 additional existing homes would have to
be installed with fibre between February and May in order to meet the June 30 target.
The company’s project management team, however, expected to pass just 120,584
homes to by deadline, according to information from the four main contractors.
NBN CO STAFF ‘KNEW OF LOOMING SHORTFALL’
According to an industry source with intimate knowledge of the rollout, NBN Co’s staff
have known of the looming shortfall for several months.
“They’ve forced the contractors into a position where they say ‘if you don’t sign up for
these numbers we’ll give the contract to someone else’,” they said.
“There’s total bureaucracy and dysfunctionality in the organisation [and] the senior
management go into denial about costs, programs and try to convince themselves
they can catch up. Clearly they are what they are and that is ‘well behind’.”
Mr Sholl said the delays were caused by mobilisation and claimed the company first
became concerned about Syntheo’s progress in late 2012.
“We worked with Syntheo to examine its problems and find a way through them,” he
said. “At the same time we looked into what was happening with our other
construction partners.
“This led us to the reforecasting of the numbers, which were ratified by the Board of
NBN Co on 21 March.”
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NBN cost blowout a failure of due
process
By Unconventional Economist in Australian budget, Featured Articleat
9:48 am on February 25, 2015 | 58 comments
By Leith van Onselen
Fairfax is reporting today that the cost of building the National
Broadband Network (NBN) has doubled to a whopping $4,316 per
premises:
A six-month review by NBN chief financial officer Stephen Rue
found it has cost $4316 per premise to install FTTP broadband in
existing premises and $2780 in greenfields areas.
The cost per premises has increased over the past 20 months
despite a quicker roll-out…
In April 2013, under the Labor government, NBN Co estimated the
cost per premises at between $2200 and $2500…
NBN Co’s new figures include additional inputs – such as internal
labour costs and the cost of leasing Telstra’s network of ducts and
manholes – which were not included in previous estimates.
A recent Productivity Commission report on public infrastructure
criticised the NBN for its investment in infrastructure without the
use of a cost-benefit analysis.
So, once again, taxpayers will be called upon to fund a project that
sounded like a good idea, but due to the lack of due process in
selection, design and implementation, will now cost them dearly.
As long as governments continue to choose infrastructure projects
based on political objectives or their own romantic notions, rather
than utilising objective selection processes and robust cost-benefit
analysis, then taxpayers will continue to get reamed.
unconventionaleconomist@hotmail.com

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