NBN construction companies defend subcontract rates

Service Stream and Silcar, prime contractors for the construction of the National Broadband Network (NBN), have defended the rates that they pay to subcontractors to build the network, stating that the subcontractors are unaware of the full cost of designing and constructing the NBN.

Service Stream's joint venture with Lend Lease, Syntheo, and Silcar has thus far picked up the bulk of the NBN contracts to construct the AU$37.4 billion fibre-to-the-premises, fixed-wireless, and satellite network. In order to meet demand for labour, both companies have used subcontracted workforces across the country.

Earlier this month, unnamed subcontractors told telecommunications industry publication Communications Day that the prime contractors have cut the rates offered on jobs from what was offered at the beginning of the year, in some cases up to 75 percent of the original cost.

"The rates were difficult to work with back in January, and we lost quite a bit of money back then ... but now, in some cases, the rates are only 25 percent of what they were. It's mind blowing what they've done," one reportedly said.

At the NBN Realised conference in Sydney yesterday, Stephen Ellich, Service Stream director, said that the costs set out in the company's direct agreement with NBN Co are set, and that the subcontractors would not be fully aware of the overall cost for the construction.

"We've been doing this work for 10 years, separately, between each of our companies. So our knowledge of what the cost of delivering the services are as good as anyone's in the industry, and I would argue vastly better than many of our subcontractors who have a challenge in understanding the cost of doing business at scale with all the other bits that we do in the value chain," he said. "The subcontractors wouldn't be privy to the cost of design."

Ellich said that the key is for the subcontractors to raise their productivity in the field.

"The rates are always about a value for a certain level of output. People need to be able to earn a certain amount of money in order to make a living [and are] capable of just those things. We are absolutely conscious of that," he said.

"We're about making sure our subcontractors and indeed our employees are there with us for the long haul. Without them, we're not going to build anything."

Dan Birmingham, Silcar's project director, said that as the project gathers momentum, more productivity gains will be realised, and that it is fair for NBN Co to expect those cost savings to be passed on.

"Despite the raw contract rates that you have, there is a design-optimisation process that we work together with NBN Co and review the design, and look for opportunities to get some cost optimisation worked into that," he said. "There is an open, longer-term strategy with NBN as we move into different phases in different contracts to share productivity gains.

"We're starting the machine; once you go through a couple of years of operation, you're going to get those productivity gains, and I don't think it is unreasonable that NBN has the expectation that we will share them with them."

Ellich said that finding enough labour is still an issue for the company, and that the construction will hit its peak labour requirements beginning in 2013. The NBN is set to pass 6,000 premises per day in its peak rollout period, and Ellich said that he believes the company could still meet that target.

"We believe that the targets that have been set out in the corporate plan are achievable, and we are out there executing our plans to support them," he said.

Birmingham agreed.

"It is not unreasonable compared to some historical data points. In the HFC [hybrid fibre coaxial] rollouts, where Telstra and Optus both rolled out networks in the '90s, they hit 5,000 a day. They still had to do as much truck work and underground work as we're going to have to do today," he said.

On the ground, Ellich said that communities are more aware of the NBN than they were when the project first started, and are welcoming of it, especially given that the companies are seeking to hire workers based in those communities.

"It is not really cost effective to float in the civil people and float them out again. And, to be honest, it is not in the best interest of an organisation like ours, because we're going to be there for several years," he said.

"Once we're finished, we'll establish people who can maintain the network in the area, which will provide ongoing jobs of a technical nature when the network, as all networks do, break down."

In response to questions on notice from a recent hearing of the parliamentary committee overseeing the NBN rollout, the Department of Broadband, Communications and the Digital Economy remained confident that the company will be able to find the labour to fill the estimated 16,000 to 18,000 jobs created in the course of the 10-year rollout of the NBN.