NBN Co halts network construction tender

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The company building the National Broadband Network has been forced to halt a tendering process to find construction companies to lay the planned fibre around the nation, after negotiations broke down with 14 suppliers over price.

“We have said all along that we are building an NBN, but not at any price,” said NBN Co head of Corporate Services Kevin Brown in a statement distributed this morning by the company. “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.”

The NBN Co executive said the company had an obligation to its shareholders — “indeed, to all taxpayers” — to ensure it carefully managed their investment in the NBN, and was serious about the costs involved. He noted that NBN Co did not believe that the prices being proposed by the construction companies reflected capacity constraints in the industry.

Brown noted NBN Co was confident it could secure better value for money “by going a different route”. The potential new approach would take into account “recent supply chain arrangements, volume certainty, a gainshare for continuous improvement, and involve a national construction footprint,” said Brown.

A spokesperson for NBN Co was not immediately available to clarify what the executive’s statement meant.

Brown added that the company had left the option open to continue negotiations with the construction companies at a later stage.

In addition, in the statement, Brown defended NBN Co’s ability to sign contracts in general, stating that NBN Co had “a solid track record” of negotiating cost-effective deals for the goods and services it needed to build its planned network — have negotiated over 90 tender processes over the past 18 months, with contracts having been signed worth in excess of $5 billion.

The construction tender was kicked off 12 months ago with a request for capability statements from the construction industry, an initiative which attracted 45 potential suppliers; a number which was then whittled down to 14.

Image credit: Asif Akbar, royalty free

44 COMMENTS

  1. Good thing too, otherwise we’d get the old a “big government project with effectively unlimited finding, so let’s let’s overcharge them” mentality coming from suppliers and contractors.

    • Beat me to it.

      My previous employer was positioning to bid on the data centre component of the cancelled national smartcard project, and was clearly positioning to screw as much out of it as possible through unnecessary over-specification.

      I washed my hands of it, and kept as well clear of the process as possible. It is common practice – people think the government is a bottomless pit of cash.

      I guess this is also a tap on the shoulder for all those people who believe that NBN Co and government don’t care about being cost effective with this project.

  2. Great. I can already predict how many times Coalition supporters are going to link me to this article as evidence of the NBN’s failure. Which of course its is not, but they are masters of twisting any setbacks into disastrous evidence of the NBN’s impending doom.

    • Au contraire. I think this is a positive – as I suggested in my earlier concept, this is a great sign that NBN Co isn’t going to just bend over and take the inflated RFQs from potential contractors at face value.

        • Yes, but that’s because you have your feet firmly planted in reality Michael. Anti-NBN wankers contort stories and cherry pick information to suit their own needs.

          Moments after I typed this I noticed Alain has already done exactly what I predicted. Linked to this story as evidence of the fact it will never be built (or some bullshit to that effect).

          • @SimonReidy

            “Anti-NBN wankers contort stories and cherry pick information to suit their own needs.”

            We are getting desperate, it’s juvenile name calling time, of course you and the other pro NBN brigade never contort stories and cherry pick information – it’s just not possible.

            “Linked to this story as evidence of the fact it will never be built (or some bullshit to that effect).”

            I never said it will never be built because of this tender delay, or even ‘some BS to that effect’, only that it certainly does NOT help any predictions of a completion date if there are delays with the supplier tender.

            I

    • Not really, it just confirms what I have said all long

      Delays and/or blowouts are common in government projects

  3. The whole thing really isn’t surprising:

    New analysis by the Australian Mines and Metals Association finds the most recent wage agreement registered for offshore construction workers contains maximum annual pay packages for a four-week-on, two-week-off rostered employee of $423,000 for a laundry hand; $445,000 for a cook; $450,000 for a tradesperson; and $498,000 for a barge welder.

    If the employee works a three-week-on, three-week-off roster for a year, the AMMA said, the maximum remuneration was $317,734 for a laundry hand; $334,408 for a cook; $337,484 for a tradesperson; and $373,701 for a barge welder.

    Steve Knott, the association’s chief executive, said the pay rates were a “worrying precedent”, particularly for Queensland employers competing for a dearth of skilled workers.

    http://lmgtfy.com/?q=Australian+Mines+and+Metals+Association+pay+rates

  4. When all 14 of the contractors tendering for a project come in over your budget, it indicates your budgets are wrong.

    I’m a supporter of the NBN but I’ve always been suspicious of the vague costings behind it (not that the opposition’s alternatives are any better) and this only reinforces my feeling that that there’s a strong element of unreality about all the NBN’s financial projections.

    It’s a shame there’s not more openness about the project so we could have an informed discussion on the costs involved.

    • ‘When all 14 of the contractors tendering for a project come in over your budget, it indicates your budgets are wrong.’

      Not necessarily Paul. It is common for companies/people to quote exhorbitant prices for government funded projects because like Michael said they think the Government is an endless money pit. The idiots don’t realise that in the long term they are worse off because either taxes have to increase or we get less sevices.

      While I’m supportive of the NBN in general, I’ve always had issues with amount of money being spent. This helps put those conserns to rest. It’s a pity more government companies don’t do this sort of thing.

      Well done Kevin Brown and the rest of NBNco. The longer this goes on, the happier I am with it.

      • I’m sorry Michael and Martin but that’s absolute tosh. The tender was openly competitive and when FOURTEEN separate quotes come back over your estimates then the obvious answer is NBNCo’s numbers are wrong.

        You can put your tinfoil hats on and squeal “it’s a conspiracy, I tell yer” or you can accept the obvious facts.

        As far as this assertion that “It is common for companies/people to quote exhorbitant prices for government funded projects” that comment is totally ill informed and far from the truth. I can speak as someone who’s tendered for engineering projects and administered contracts both outside and inside the public service.

        Guys, please don’t accept the PR spin, this infrastructure project is too important and has been bogged down by spin and misinformation on both political sides. Don’t add the FUD being put out on both sides.

        • You’ll note that I very carefully used the word “might” in my statement. I’m not involved with NBN Co, and any company that responded to the tender.

          However, I do a lot of work within my current role responding to tenders – including from state and federal governements, and have seen this exact behaviour in competitive tenders.

          I’m also quite sure that I might be wrong – we’ll wait and see what the ACCC says.

  5. “Brown noted NBN Co was confident it could secure better value for money “by going a different route”. The potential new approach would take into account “recent supply chain arrangements, volume certainty, a gainshare for continuous improvement, and involve a national construction footprint,” said Brown.”

    Interesting, a potential new approach involves a ‘national construction footprint’? – there isn’t one already?

    • No – the plan has always been to build simultaneously in 19 different areas, with not necessarily the same contractor in each area. If they go with one contractor, they’ll build in 19 different areas with a single contractor/company handling each area.

  6. I assume there is not a surplus of qualfied firms and employees out there that take out on this project, I assume also they are not sitting around waiting on call from the NBN Co with plenty of work out there from the likes of Telstra, Optus etc.

    Going for the one tender firm who would have to mainly sub contract out to the same firms anyway that were invloved in the now cancelled tender process is a interesting ‘new way’.

  7. [1] Build it quickly

    [2] Build it properly

    [3] Build it cheaply

    Choose any two of the above, because you won’t get all three.

  8. Private companies in America and Honk Kong are able to build FTTH at <$2000/home, often times at just $1500/home. Given that NBNCo has to build nearly the entire network as well as construct a huge amount of backhaul, I can understand a higher per home buildout, but not the current $5000/home that the project estimates came out to be.

    Either way though, NBNCo is going to be insanely profitable once it finishes its buildout. It doesn't really matter in the longterm.

  9. In all reality, the issue most likely is the fact that NBNCo’s price for tenders is way too cheap to be considered realistic. When contractors are signed onto government projects, they often ask for a premium ontop because they have no guarantee of the duration of the project (since government projects are highly likely to be changed/cancelled in a change of government). They do the same thing when dealing with councils and state government projects. If a tender is cancelled early, the contractors actually lose money (this is another reason why government projects are more expensive then private ones). Furthermore, there isn’t a guarantee on the return of the money (to the companies) when the tender is cancelled (as it just was)

    In any case, with 14 tenders, the price that NBNCo was given was the market price. There wasn’t any collusion, there is a massive skill shortage in Australia (due mining companies) and as mentioned earlier, government projects always incur premiums for contractors. Furthermore I have no idea how NBNCo could have benchmarked their price with similar scale projects in Australia, when there hasn’t ever been a infrastructure project of this scale within Australia (especially not a FTTH).

    The reality is, NBNCo will have to wait some time for the price to fall down to their levels, and just going with one company as they are planning is a massive failure waiting to happen (corruption for example)

    • In any case, with 14 tenders, the price that NBNCo was given was the market price. There wasn’t any collusion

      Another opinion stated as fact? Or do you actually have some sources to back that up?

      I’ll be waiting for the results of the ACCC investigation before jumping to any conclusions myself.

      • I have yet to hear a collusion between 14 companies in a single company on a national level, and I’m pretty sure if they did collude to such a level, it would have been raised before

        If there was something like 5 companies, then yes, that could have been likely. But having 14 companies (all in the same sector), and the 14 most respected companies in the sector, colluding together , is honestly laughable

        I don’t think NBNCo realizes, but this project has massive risk (probably the riskiest project currently happening, both in terms of scale and politics), and that risk equals to extra cost.

        • Who said anything about collusion?

          All you need is 14 companies in this same sector to perceive similar risks (whether real or imagined), a conservative sentiment, same information coming in and going out, same awareness of its competitors and the same government offer – then you’ve got a situation where all your tenders are, give or take, sufficiently similar. Doesn’t mean its reflecting a ‘market price’ being the lowest possible cost to complete a project. Its just a price the current suppliers are willing to work on. WIthout proper analysis of the tenders, its very difficult to say just why all tenders were refused. And to say they were all at market price is just delirious. A project of this size with the risk allegedly involved, as you say, can but anything be priced to fit some perfect market model.

          • All you need is 14 companies in this same sector to perceive similar risks (whether real or imagined), a conservative sentiment, same information coming in and going out, same awareness of its competitors and the same government offer – then you’ve got a situation where all your tenders are, give or take, sufficiently similar.

            That statement then means that the 14 tenders submitted reflect market price. It means that the companies determined NBN was a risky project, and added on funds to account for that risk

            I’m not sure how you understand how market mechanisms work, but its definitely not “we didn’t get the price we wanted, therefore the prices do not reflect market price”.

            That definitely doesn’t make sense if NBN basically asked every construction company in the sector, (there were originally 55 submissions for tenders)

      • Also taking into account that colluding is illegal and incurs hefty penalties, I seriously doubt that any of the companies would have colluded at all

    • @deteego

      “When contractors are signed onto government projects, they often ask for a premium ontop because they have no guarantee of the duration of the project ”

      That’s true, this project may only run to 2013 ( the next election), seeing we are nearly half way into 2011 we are still only running restricted mode pilot sites.

      The tender process has to start all over again, a complete waste of the last 12 month evaluation process that cannot be made up, to make it worse Telstra and Optus are playing hard to get on co-operation with the NBN Co, Telstra especially making no predictions whatever when they will put the NBN proposal to their shareholders, it certainly won’t make the July meeting deadline.

      What is actually active and finished by election time 2013 maybe sweet FA in the national scale of it all, it will also be interesting to see what percentage of the residences that can access the NBN are actually using it, and what percentage of the Telstra and Optus copper and HFC networks has been switched off!

      • It doesn’t mean the whole last 12 months was a waste, in fact, as outlined in this piece in The Australian, if you want to change the terms of the tender, then legally you have to cancel the tender and start again:

        http://www.theaustralian.com.au/business/opinion/nbn-co-explores-leighton-option/story-e6frg9io-1226031974838

        While federal opposition spokesman Malcolm Turnbull jumped at the chance to use the move for his own political purposes the NBN decision was simply a negotiating a tactic.

        If you issue a tender and don’t like the results then legally you have to cancel it before starting new talks.

        • He was talking about the time taken to set up another tender

          NBNCo doesn’t actually have anyone to help them build the network right now (the tenders were cancelled) so the project will be delayed up until the point they can get another tender (and then other things administrative things need to happen for things to get started)

        • @Dean
          “It doesn’t mean the whole last 12 months was a waste,”

          Really how did you come to that amazing conclusion?

          First of all your predicted finish time (2020 extended by 2 years last month) is based on your predicated start time, any delay to the start means a extension to the finish date.

          The worry with all of this is the NBN Co will be now under the pump to make a quick decision on the outcome of the new tender, they won’t get the luxury of another 12 months I bet.

          The important decision to be made like this made in haste is a concern.

          • @alain

            It wouldn’t be a waste because NBN Co. will have a better understanding of the terms current suppliers are trying to obtain (take it as extended market research), it also sends a message to competitors for the tender what NBN Co. is not prepared to accept and it helps both sides reevaluate their own positions in regards to fresh terms to bring to the table when a new tender begins.

            And gee, if you’re against the NBN in the first place why do you bother commenting… you complaing that the delay will extend the time taken to complete the project and then jump straight to complaining about how because of the delay NBN Co. will make a haste decision to rectify it. You don’t want haste decisions yet you can’t take a delay- kind of contradictory stance right? Do you just expect such a large project with so many interests involved to just occur without obstacles? Fact that NBN Co. is reconsidering tenders means to some extent its approaching cautiously without haste. So if you want it done right, then shut up about delays! Like I said, if you’re against it in the first place, why do you bother?

          • It wouldn’t be a waste because NBN Co. will have a better understanding of the terms current suppliers are trying to obtain (take it as extended market research), it also sends a message to competitors for the tender what NBN Co. is not prepared to accept and it helps both sides reevaluate their own positions in regards to fresh terms to bring to the table when a new tender begins.

            Or you could say that NBNCo doesn’t understand the market, which is why they refused 14 tenders and hence why this is a waste of time

            In fact, there are even legality questions if NBNCo can just pick a single tender (http://www.zdnet.com.au/one-nbn-contractor-against-the-rules-libs-339312486.htm)

            It seems that NBNCo is simply unable to build the NBN for the price that they wan’t, without seriously compromising on the quality of the network

            And gee, if you’re against the NBN in the first place why do you bother commenting… you complaing that the delay will extend the time taken to complete the project and then jump straight to complaining about how because of the delay NBN Co. will make a haste decision to rectify it. You don’t want haste decisions yet you can’t take a delay- kind of contradictory stance right? Do you just expect such a large project with so many interests involved to just occur without obstacles?
            Well maybe we shouldn’t do these ridiculously bloated, and unrealistic nation building exercises then, hmm?

            This all comes down to the NBN’s premise being completely unrealistic. Its a stupid idea in the first place, which is why these problems are happening

          • Which is about as likely as the Greens forming government

            I mean seriously, all 14 tenders colluding together and breaking a contract in an open tender process? They would have to be either ridiculously stupid or brave to do such a thing. The companies already lost 10 million dollars in the tender process, which they are not going to get back

            NBN are just pulling this out of their arse to make a smokescreen.

          • It doesn’t have to be all of them, even just two would be enough reason to cancel the tender and launch an investigation. But I’m not saying that’s what happened, I’ll wait for the results of the ACCC investigation before jumping to conclusions.

          • Exactly. I’ve been involved with dozens of tenders in my working life, and that’s exactly correct. Most government-based tenders I’ve worked on – (local, state, and federal) – have a clause that states something similar to: “The company may choose to cancel the tender at any time for any reason”.

            An ACCC investigation is standard practice, certainly for a federal government tender, and I think state ones as well – (been a little while since I’ve done a state-based one).

            I’m with Dean on this – waiting for the investigation.

          • You do realize that what you said makes no sense. In order for colluding to work, it has to be everyone in that market (or in this case everyone that participated in the tender). If only a couple of the companies colluded, then that would have been pointless, since the other companies would have had cheaper prices. Collusion only works if everyone colludes. The whole point behind colluding is that everyone in the tender process negotiates a price higher then normal (with eachother).

            In fact thats the whole reason why the odds of collusion greatly diminish with the more companies you have in the market place, because getting every single company in the market place to collude gets that much harder when you have more companies

            Also, another one bites the dust
            http://www.smh.com.au/business/key-nbn-executive-quits-20110405-1d0on.html

            This is looking pretty smelly, and its looking far more likely it was an issue on NBNCo’s side

          • @SDS

            “t wouldn’t be a waste because NBN Co. will have a better understanding of the terms current suppliers are trying to obtain”

            You did read the post I made about a 12 months delay on the tender means a delay in the build start date, or are you saying the NBN Co factored in that the tender would have to start again in April 2011 when they made their original timeline build predictions for Parliament?

            “And gee, if you’re against the NBN in the first place why do you bother commenting…”

            So you are only allowed to comment if you support the NBN – nice one SDS, you like a rigged jury do you?

            “Fact that NBN Co. is reconsidering tenders means to some extent its approaching cautiously without haste.”

            Oh I see it’s all part of the grand master plan is it? – silly me I missed the intent of it all.

            “So if you want it done right,”

            Who says the result of the second tender result unknown at this stage is it being ‘done right’?

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