More intensive competition between construction contractors is expected after the body responsible for managing the rollout of the National Broadband Network has announced a fundamental shift of its contracting model.
In a recent announcement, NBN Co said it had signed agreements with a number of its construction partners which had done away with the former contracting model under which suppliers were guaranteed large volumes of work in specified states and regions regardless of performance without competition for that work.
Instead, the new contracting model would aim to create an incentive-based environment under which NBN Co would make only flexible volume commitments and contracting partners compete with each other for work based on competition between delivery partners.
“What this means is that the performance of our construction partners, the quality of their work and their adherence to safe work practices will determine how much additional work they will receive,” NBN co-chief executive officer Bill Morrow said.
“We have worked closely with the industry to reduce the complexity of our contracts to make them easier to administer and to reward good work as we gear up to accelerate the roll-out.”
The new model is an attempt to revamp the way NBN Co and its construction partners do business after the old model had led to dysfunction, cost overruns and construction delays, and in some cases saw NBN Co have to take back work from construction partners.
Contracts covering around four million homes and businesses which are scheduled to be connected with fibre to the node, fiber to the building or fibre to the premises have been signed with Downer, Transfield, Visionstream, Fulton Hogan and WBHO. The company says contracts with additional suppliers are nearing conclusion.
While the full value of the contracts awarded has not been disclosed, Transfield Services says its five-year contract could be valued at up to $140 million in the first year. Downer EDI says its contract – also five years – is worth $100 million in year one.
Because ongoing work is tied to performance benchmarks set the NBN Co, the value of all contracts is subject to change after the initial one-year period.
While Telstra’s experience would have made it a viable candidate, the company said it had not participated in the tender process after it considered the work on offer to be commercially unviable.
Telstra said its relationship with NBN Co was strong and that it was in discussions with the company on a range of other work.