NBN Co has refused to confirm or deny talks with Leighton Holdings over construction of the National Broadband Network (NBN) on the mainland, but the wholesaler expects any “plan B” partner will not receive the entirety of the fibre build-out budget.
The company this week scrapped tenders offered by 14 shortlisted companies for business-as-usual construction of the $36 billion network after four rounds of negotiations, instead choosing to begin talks with an “alternative different party” in order to gain acceptable prices for the network.
The fibre portion of the network is expected to cost $10 billion, with an additional $2 billion to be spent on installing fibre at greenfield sites as part of an obligation handed to NBN Co at the beginning of the year.
None of the shortlisted companies contacted would comment on the issue.
NBN Co will begin talks this afternoon with its plan B partner, chosen this morning after internal negotiations over how to proceed. Though speculation is rife those negotiations will occur with Leighton Holdings, the wholesaler’s head of corporate services, Kevin Brown, told Computerworld Australia he was “bemused” about the talk.
“It would be fair to say the last 18 months have taught us a lot about what to look for and we’ve been through a fairly rigorous process ourselves to work who to talk to, and that’s why we’re only starting today,” he said.
However, any partner chosen by NBN Co as a result of the decision would be unlikely to receive the entire budget of 100 per cent of the fibre build-out.
“We’re at this project for eight years; we’re talking about getting started,” Brown said.
“What we’re now saying is ‘would it be cheaper if we carried it on our balance sheet rather than theirs’.”
The new approach would rely more heavily on more than $2 billion worth of equipment and supply contracts signed in the past few months with varied manufacturers and vendors, including Corning for fibre cabling, and TE Connectivity for network components.
It would also rely heavily on the $9 billion heads of agreement between NBN Co and Telstra, a deal that would provide access to the incumbent telco’s existing infrastructure such as ducts, pipes and exchanges. It would allow for faster construction of the network with a lessened impact on surrounding areas during construction.
However, the deal is yet to be sealed and must face approval by both Telstra shareholders and the competition watchdog.
“Once that’s done, our intention is to have a construction company appointed or ready to appoint so we can get going,” Brown said.
With negotiations only beginning today, a draft agreement isn’t expected for a month.
The executive director of the Australian Constructors Association, Jim Barrett, labelled the decision a step backwards in progress on the network.
"The tender process has been protracted and rigorous and the industry has invested tens of millions of dollars in responding to the request for proposals,” he said in a statement.
"It would have been much better had it sorted out its procurement strategy before engaging the industry.”
NBN Co ready to swim
Though construction of the five first mainland release sites remain on track for completion and go live between April and June this year, Brown confirmed industry rumours that the wholesaler had experienced teething problems during the build-out.
As a result, some of the first sites had gone over budget on a contractual basis, though final costings would not be confirmed until customers are connected later this year.
Two sources familiar with one build told Computerworld Australia that the tendered company involved had lost up to $8 million during the build. Communication and quality assurance issues between construction companies, sub-contractors and particularly NBN Co were raised as some of the problems experienced during construction of the first release sites.
“This is our first time out at the first release sites,” Brown said.
“We’re doing it deliberately to learn the lessons of how to construct it - what’s the cost base, what are the things that we need to avoid, what works what doesn’t work.”
Communications minister, Senator Stephen Conroy, has continued to assert that the initial build in three regional Tasmanian towns came under the reported $36 million budget.
“I’d describe it as toeing the water in Tasmania, foot in the water at first release sites and now we’re getting a good deal to swim hard,” Brown said.
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