NBN Co's delicate construction balance

NBN Co appeared this morning to be reaping the rewards of the uncertainty around the National Broadband Network's (NBN) roll-out timetable.

Earlier today, the Australian Financial Review reported that some of the companies that had bid on and then won contracts for the first round of construction of the NBN were loathe to tender again next month, for a second round.

The report said that previous tender winners, Silcar and Transfield, had decided to hold back from the fray. Their reluctance was reportedly due to delays in the NBN roll-out, which meant that workers were tied up in the process without the project actually moving ahead. Having workers kicking their heels costs money, which cuts into the construction companies' profits. Finding that the company also received incorrect address data on houses that were to be connected, has also delayed work.

It seemed that for some companies, even getting chosen to work this project was just not worth the money.

This would have been a massive problem for NBN Co.

Transfield and Silcar have since said, however, that they are committed to the NBN.

Last year, NBN Co actually halted the construction tender process because it found the bids it had received to be too highly priced. It went down a different path: asking a particular construction group to provide it with better prices.

If companies do start holding themselves back from the bidding, the coming round could be a disaster. The government will have trouble exerting downward pressure on prices — fewer parties will mean less competition, which will mean higher prices for a project, where the threat of cost blowouts was never far away.

We've seen similar issues with the NSW Government, whose on-again, off-again rail and light rail expansion plans would make anyone tear their hair out. At some point, even the promise of a big wad of money can begin to lose its attraction.

So would this mean for NBN Co? It has put many of the delays in construction down to the delayed signing of the deal between NBN Co and Telstra. But this is a done deal now. NBN Co would need to convince construction bidders that it is really ready to ramp up the rate of construction, as promised. It would need to make itself an efficient partner that provides the right data. If this means putting big pressure on the external provider (PSMA) that is supplying that data,then so be it.

If it gets to the point where NBN Co only has one or two options for construction, the result could be one or two consortiums laughing all the way to the bank ... while NBN Co cries over empty coffers.

Updated at 4.30pm: added comment from Silcar and Transfield.