The NBN is looking to transfer all financial risk surrounding $36bn project into the hands of builders tendering for work, pushing costs over the edge, claim contractors.
The tenders process between the NBN Co and several big players including Telstra, Leighton, John Holland and Transfield was halted last Friday amid claims by the NBN that contractors prices were too high and ‘price gouging’ was taking place.
The contracts were worth about $12 billion, one third of the total costs of building the broadband network. The bidders prices, if accepted, would apparently have added an extra $3.7bn on to the price of the project..
However, the builders have now fought back, claiming the broadband company were seeking to transfer all the risk and potential liability associated with the $36bn project to constructers, which would have doubled the costs of the build.
This, in effect, means if the project flopped the companies would have to carry the can, not the NBN Co.
“We found the terms of the bids very onerous in that it was a total transfer of risk to the contractors,” said a source from one of the bidding companies.
And costs could double from the original estimate of $12bn for the cabling work, according to The Australian, pushing the NBN bill to an eye popping $56bn, provided all other costs were kept firmly in check.
The NBN needs to share some of the risk if they want the prices they are estaimting, the source indicates.
“They need more sensible risk-sharing to get prices down.”
The NBN Co, already under huge pressure over costs from the opposition and other detractors, refused the higher price scenario as fair value, and said they are seeking best value for money for taxpayers.
This risk transfer and cost debacle was also rumoured to be the source of major conflict within Mike Quigley’s NBN Co and one of the reasons its construction chief, Patrick Flannigan, resigned just this week after just 18 months into the job, say sources.
The contracts were a design and construct type, similar to those used in public private partnerships in the UK and Ireland, and contention over risk transfer is something that is a common sticking point.
However, in spite of the furore, the broadband company is still “reasonably confident” that the project can still be developed within budget, head of corporate services, Kevin Brown told ABC radio.
“If it was a political decision, we may have made a different decision. What we are making is the right business decision, which is: we are only going to build it without cost overruns.”
According to reports, the company began negotiations with six core bidders yesterday including Downer EDI, Telstra, Silcar, Service Stream and Visionstream.