Introduction

1. Broadband is considered worldwide to be an important technology that enables the achievement of productivity gains and economic and social development via vastly enhanced communications capacities compared to previous communications technologies.

2. In 2007, the Government announced its intention to facilitate the construction of a National Broadband Network (NBN)¹ which would be available to all Australians. A request for proposals process to construct the NBN was undertaken in 2008, but as the Government considered that the proposals did not provide value for money, on 7 April 2009, the Government announced its decision to terminate the process.

3. At the same time, the Minister for Broadband, Communications and the Digital Economy (the Minister) announced the establishment of a company to build and operate a new, superfast NBN; and also announced a measure to develop a backbone network for broadband where there was a lack of competitive wholesale backbone infrastructure and services. This measure was intended to improve broadband services and to fast-track the installation of some NBN infrastructure. Details of the measure, the $250 million Regional Backbone Blackspots Program (RBBP), were announced by the Minister on 23 April 2009.

Regional Backbone Blackspots Program

4. Under the RBBP, the Government has funded the construction of a network of fibre-optic transmission backhaul across Australia, with the Government retaining ownership of the backhaul infrastructure.² Backhaul transmission links (also known as ‘backbone’) carry the Internet traffic between urban locations, and competitive backhaul is a critical element in the provision of an affordable broadband service to users. Under the RBBP, the backhaul infrastructure passes through specific regional locations, selected by the Government, where there was a lack of competitive backhaul services, that is, a ‘competitive blackspot’ for backhaul. Competitive blackspots occur where there is a single provider of backhaul infrastructure and, as a result, there is little competitive pressure on the existing provider, and limited opportunity for others, to deliver cheaper or better services.

5. The RBBP network comprises some 6000 kilometres of fibre-optic backhaul across six states and territories, with service-ready points of interconnection for 100 regions. There is provision for further access points approximately every 10 kilometres along each backhaul route.

6. Enhancing the competitive supply of backhaul in specific locations via RBBP was intended to assist broadband and telephony providers to improve the range, quality and prices of the services they offered in rural and regional areas. The Government’s objectives for the RBBP were to:

• deliver an economic stimulus in the short to medium term;
• encourage better service outcomes for consumers in regional communities, including higher quality services and reduced costs, by improving the supply of backbone transmission services into regional communities in the short to medium term; and
• put in place key infrastructure in the medium to long term that would contribute to the NBN.

RBBP implementation

7. The RBBP is administered by the Department of Broadband, Communications and the Digital Economy (DBCDE). The program is multifaceted, with implementation involving: the selection of priority locations for the installation of fibre-optic transmission backhaul services; procurement of a firm to design and construct the backhaul infrastructure; and subsequently, the management of the funding agreement with that firm to operate and maintain the network for at least five years.

8. Following the Minister’s announcement of the RBBP on 7 April 2009, DBCDE invited submissions on a public consultation paper and held discussions with stakeholders to identify and determine the priority locations to be serviced by the RBBP. DBCDE assessed submissions against criteria, such as the extent to which the locations were served by competitive optical fibre links and the potential population or economic activity that could benefit from the infrastructure suggested. The department provided a list of priority locations to the Minister, indicating that there was a rational basis for providing funding to each of the locations identified, and requesting that the Minister identify up to six locations.

9. The Minister’s office, in consultation with the department, selected the following six priority locations from the department’s list for the rollout of the backhaul network: Geraldton; Victor Harbor; South West Gippsland; Broken Hill; Emerald and Longreach; and Darwin. The RBBP funds five fibre-optic transmission routes to service the six priority locations, with one of the routes passing through two priority locations—the Darwin, and the Emerald and Longreach locations. Figure S1 (next page) illustrates the routes funded under the RBBP.

10. DBCDE conducted an open tender to procure a firm to design and build the network of backhaul infrastructure to service the six priority locations and then to manage, operate and maintain it. Nextgen Networks Pty Ltd was selected as the successful tenderer and the $249.67 million funding agreement between the Commonwealth, represented by DBCDE, and Nextgen Networks Pty Ltd (‘the contractor’)³ was signed on 4 December 2009.

Figure S1 RBBP priority locations and routes

Source: DBCDE information April 2010. DBCDE informed the ANAO in June 2012 that the new competitive backbone links under construction (separate from the RBBP) have now been completed.

Note: The map highlights the RBBP locations and infrastructure, additional new competitive backbone links (separate from the RBBP) and the major competitive backhaul links between the capital cities. The map does not illustrate the location of all backhaul in Australia.

The agreement with the contractor

11. The fixed price RBBP agreement provides for three distinct phases of activity: design and construction of the network (Phase 1); management, operation and maintenance of the network for at least five years at no cost to the Commonwealth (Phase 2); and continued management, operation and maintenance of the network for a period after that, contingent on the progress of the implementation of the NBN (Phase 3).

12. Consistent with the Government’s objectives for the RBBP and the intention that the RBBP would also fast-track the installation of some NBN infrastructure, the Government specified ambitious timeframes for the design and construction of the RBBP. Accordingly, the design work for the network commenced in late 2009, construction began in early 2010, and the first routes were completed in March 2011. As the construction of the individual routes was completed, the contractor commenced operation of the network. The contractor completed the final route, and Phase 1 of the RBBP, in January 2012, with activity now focusing on the management, operation and maintenance of the RBBP network (Phase 2) until 2017.

13. The current agreement refers to arrangements for Phase 3, but these are contingent upon the progress of implementation of the NBN. While the Commonwealth currently owns the RBBP infrastructure, the intention is that ownership will ultimately be transferred to NBN Co. The specific use of the RBBP infrastructure by NBN Co in Phase 3 is, however, subject to further government consideration, and arrangements are to be settled with NBN Co. In addition to its access to backhaul through the RBBP, NBN Co has also obtained increased access to backhaul infrastructure through agreements negotiated with Telstra in mid-2011.⁴

Audit objective and criteria

14. The objective of the audit was to assess the effectiveness of the Department of Broadband, Communications and the Digital Economy’s administration of the Regional Backbone Blackspots Program (RBBP), involving the establishment and ongoing management of the program.

15. The audit assessed whether DBCDE’s:

• arrangements for administering the program, including stakeholder relationship management, were robust and effective;
• processes for tendering and contract development were sound; and
• management of the contract for the construction and operation of the network was effective.

16. The RBBP operations commenced progressively from March 2011 as the RBBP routes were completed, and will continue until 2017. Given the early stage of operations, the ANAO’s examination did not seek to determine whether the RBBP’s objectives had been achieved, but assessed whether DBCDE had processes in place to progressively monitor and report on achievements against the program’s objectives.

Overall conclusion

17. In April 2009, the Government announced the $250 million Regional Backbone Blackspots Program (RBBP) as part of its policy for the National Broadband Network (NBN). The RBBP was designed to enhance the competitive supply of wholesale backbone transmission infrastructure and services in selected, priority regional locations and to fast-track the installation of some NBN infrastructure. Enhancing the competitive supply of the backbone transmission links (also known as backhaul) in locations in which there was a competitive ‘blackspot’ was considered to be critical to the delivery of affordable broadband services to users.

18. The RBBP involves 6000 kilometres of fibre-optic backhaul cable over five routes servicing the six priority locations, with service-ready points of interconnection for 100 regions. As well as improving the supply of competitive backhaul services, the program was intended to provide a fiscal stimulus in the short to medium term, and this was reflected in the ambitious timeframes set for the procurement and construction phases of the RBBP. The Government intended that the procurement of a firm to design, construct and operate the RBBP network would be finalised by the last quarter of 2009 and that the construction of the backhaul transmission infrastructure would be completed progressively from March 2011, with all routes completed by mid-2011.

19. In December 2009, the Commonwealth entered into a fixed price funding agreement with the successful tenderer to design and build the backhaul infrastructure, and to manage, operate and maintain the RBBP assets (including providing wholesale transmission services to customers) for at least five years, at no cost to the Commonwealth. The RBBP routes were completed progressively from March 2011, with all routes completed by January 2012, in accordance with the established budget and agreed timelines (the original timelines for two routes were extended due to extreme weather events, including flooding in 2011–12). The completion of the construction of the routes marked the end of Phase 1 of the RBBP. The contractor is responsible for managing, operating and maintaining the RBBP network (Phase 2) until 2017.

20. DBCDE has established effective arrangements to administer the RBBP. Program implementation involved the selection of priority locations, the procurement of a firm to design, construct and operate the backhaul infrastructure and, subsequently, the management of the agreement with the selected firm. DBCDE developed and implemented appropriate and effective procurement arrangements and established a well-designed agreement, with features promoting quality construction and competitively priced and reliable backhaul services. The department also put in place sound systems and processes to manage the agreement for the initial construction phase and the ongoing operations phase, which, as previously noted, will continue until 2017. Without detracting from the effectiveness of the department’s program administration to date, there is scope for the department to enhance its administration of such programs in the future through the early development of implementation plans that cover the projected life of the program, and establish the basis on which to monitor and report performance against program objectives. Accordingly, the ANAO has made one recommendation directed to this end.

Key Findings

Program implementation (Chapter 2)

21. DBCDE’s approach to program implementation planning incorporated sound elements. The department’s initial planning for the RBBP focused on procurement tasks until the completion of procurement processes in 2009. DBCDE’s subsequent program planning for the RBBP involved, among other things, preparing and periodically updating project management plans relating to the implementation of discrete aspects of the RBBP as the program progressed through the construction phase into the operations phase. The department’s approach to program implementation planning would have been improved by: developing an overarching implementation plan at the program level that incorporated the various task and project management plans mentioned above; and by establishing earlier the processes, including performance data requirements, to monitor progress and performance against the RBBP objectives.

22. The department’s implementation of the RBBP was underpinned by sound and well-structured approaches to stakeholder engagement. These approaches involve developing and updating an RBBP communication strategy and applying tailored stakeholder engagement processes addressing the different phases of activity and the various parties involved in the RBBP over time. There were also effective governance arrangements to support the program, including monitoring and reporting to the Minister for Broadband, Communications and the Digital Economy (the Minister) and oversight by the department’s Performance Reporting Committee. The department adopts a structured approach to business planning and risk management at the corporate, division and branch levels.

23. DBCDE has reported on the performance of the RBBP through successive annual reports, with coverage of the program expanding as the routes were progressively completed. The department assessed the RBBP’s performance against its program objectives at the end of the construction phase of the program in April 2012. The departmental review did not make an overall conclusion as to the extent to which the program had achieved its objectives.

24. The April 2012 review provided a detailed and positive analysis of the RBBP performance against program objectives. As mentioned previously, determining data requirements for monitoring the achievement of objectives earlier in the implementation of the RBBP, and establishing a more robust approach to measuring the stimulus effect of the RBBP, would have better placed the department to monitor this aspect of the program’s performance.⁵

Program procurement processes (Chapter 3)

25. DBCDE established appropriate arrangements when preparing to approach the market for the RBBP procurement including: undertaking community consultations; assessing community submissions; providing options and advice to the Minister on the potential priority locations for the rollout of the fibre-optic backhaul network locations; and seeking legal, commercial and technical specialist advice. The request for tender (RFT) clearly outlined the agency’s procurement requirements and the basis on which tenders would be assessed, with the RFT published on AusTender on 1 July 2009.⁶ The department’s approach to the market complied with the requirements of the Commonwealth Procurement Guidelines (CPGs) to conduct the process openly and transparently.⁷

26. DBCDE and its advisers undertook a thorough and consistent tender assessment process, in accordance with the Tender Evaluation Plan and the CPGs, to identify a preferred tenderer and provide advice to the Minister. The Minister approved the agreement on 30 November 2009 and the Minister and the contractor signed the agreement on 4 December 2009. The agreement incorporated commercial incentives for the contractor to promptly commence the project and to undertake a quality construction. It also facilitated the Commonwealth’s oversight of the contractor, while providing the contractor with flexibility to manage the day-to-day construction and subsequent operation activities.

27. DBCDE’s procedures for concluding the procurement process, including providing timely and consistent information on the RFT outcome and feedback to unsuccessful tenderers, also complied with the CPGs regarding efficiency, transparency and ethical practice.

Management of the funding agreement with the contractor (Chapter 4)

28. DBCDE implemented appropriate arrangements for managing the construction phase and the early elements of the operations phase of the agreement. These included: effective management of the relationship between the parties; appropriate engagement and use of a technical construction adviser to provide assurance that the contractor had complied with the technical requirements of the agreement during the construction phase, complementing DBCDE’s other compliance arrangements; and suitable financial and project milestone monitoring arrangements. The department also implemented a comprehensive reporting regime to monitor the contractor’s progress in the construction and operations phases of the program.

29. The department’s review of the initial two quarterly service reports received from the contractor in 2011 concerning activities during the operations phase provided only limited assurance regarding the contractor’s compliance with the agreement. The department used its technical adviser extensively during the construction phase. However, pending the development of its compliance strategy covering the operations phase, DBCDE did not adopt independent testing of the activities undertaken during the operations phase in 2011. The completion in February 2012 of a compliance strategy covering the operations phase, and the implementation of proposed field-based compliance activities in mid-2012, will better position the department to monitor compliance with the requirements of the agreement for the operations phase.

30. DBCDE implemented appropriate processes to manage complaints, queries and concerns. Considering the nature, scale and complexity of the RBBP, there were very few matters raised during the construction phase and no reported complaints or concerns regarding the RBBP or the department’s administration during the operations phase. DBCDE effectively managed the low number of complaints raised.

Summary of agency response to the proposed report

31. The proposed report was provided to DBCDE for formal comment. The department provided the following summary response, with the full response included at Appendix 1 to the audit report.

The department notes that the ANAO has found that the department established effective arrangements to administer the Regional Backbone Blackspots Program (RBBP) through the construction phase and the ongoing operations phase.

The department agrees with the Australian National Audit Office's (ANAO) recommendation that to ensure transparency and accountability, new programs may benefit from the preparation of a single overarching implementation plan, and having access to sufficient data for measuring progress and performance. In the case of the RBBP, there were a set of linked project plans and an extensive schedule of reports.

Footnotes

1.    The company, NBN Co Limited (or ‘NBN Co’) was established on 9 April 2009 as a government business enterprise, wholly owned by the Commonwealth Government. Its responsibilities are to plan, roll out and operate the NBN, and as a wholesaler, provide access to high speed broadband. The Government’s initial investment of $4.7 billion in the NBN included $4.45 billion for an equity injection into NBN Co, as well as an investment in the early rollout of a broadband network in Tasmania and the Regional Backbone Blackspots Program.

2.    Optical fibre delivers broadband Internet services by transmitting information as light pulses and can carry information at greater data rates than copper wire, the main alternative form of fixed-line broadband.

3.     Construction was undertaken by the contractor’s construction partner.

4.    The terms of these agreements, including the extent to which NBN Co will access backhaul infrastructure, are commercially sensitive and have not been publicly disclosed.

5.    Detailed attention to the effects of a fiscal stimulus measure is consistent with the approach applied by the Parliament when examining in 2010, and later, other fiscal stimulus measures. It is also consistent with the prominence given to the employment effects of the RBBP, particularly regional employment and regional spending effects, in the Minister’s public statements and DBCDE’s annual report case studies in 2010 and 2011.

6.    AusTender is the Government’s tender website.

7.    The CPGs were replaced by the Commonwealth Procurement Rules on 1 July 2012.