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Migrant exploitation and the true cost of UFB

A Government operation has identified labour law violations and 'systemic failures' in a project worth $1.78 billion of taxpayers' money. Teuila Fuatai looks at the latest claims over the broadband network build.

For those in the know, identification of widespread employment breaches within New Zealand’s ultra-fast broadband network build will not be a huge surprise.

Confirmed in an announcement from the Ministry of Business, Innovation and Employment yesterday, Labour Inspectorate national manager Stu Lumsden laid out findings from the first stage of MBIE’s inquiry into companies subcontracted to Chorus to carry out the national UFB network build.

“To emphasise the size of the operation, approximately 900 subcontracting companies have had working agreements with Chorus and its three main sub-contractors. Each of these have different work practices ranging from the compliant down to the outright exploitative, so the investigations are very involved and will continue,” Lumsden said.

Victoria University of Wellington's Dr Bronwyn Howell, an expert in government-funded industries and public-private partnerships, has watched developments in New Zealand and Australia’s telecommunications sectors over the years.

Australia, which began its $43 billion National Broadband Network rollout in 2011, had problems from the start, Howell told Newsroom. New Zealand, which began its project three years later, adopted a similar approach to its build. Subsequently, problems which cropped up in Australia, also happened here, she said.

For Howell, one of the major mis-steps in both countries has been the tying of political agendas with universal access to UFB. It first received publicity in New Zealand in the lead-up to the 2008 election as a National Party election promise. When John Key’s party ousted the Helen Clark-led government that year, it was able to set in motion its UFB initiative.

Howell: “This is a trade-off. The Government wanted this done quickly - 75 percent of it cabled by now and 85 percent cabled by 2022 if it kills them”.

“They [the Government] have put the tight time-frame in place and they have also negotiated a very tight price with the providers - which have had no wriggle room. Plus, they also put Chorus under some additional pressure because of the way they handled a particular aspect of the regulatory environment.”

Howell pointed out the difficulties of pushing through a “construction job” like the UFB network on “fixed-sum” Government contracts when outcomes, and related costs, were largely unknown.

“The particular issue that’s happened with the UFB [rollout] is that no one particularly knew how to price these contracts in the first place, because no one had actually done one of these things before.”

Australia and New Zealand have been the first two countries outside Asia to attempt a nationwide UFB rollout. Because their existing telecommunications infrastructure is materially different to places like Japan or Singapore, which already have widespread UFB coverage, New Zealand and Australia are essentially in “new territory” with their network builds.

“What we’ve got here [in New Zealand] is we’re working in a context where we’re having to connect things up to old infrastructure,” Howell says.

“The builds are putting connections into homes that might have old wiring, or they may be connecting up to technology that is outdated or difficult. [Connecting] may involve going down things like driveways which are difficult to go down, and if you’re doing it for the first time, there are all sorts of things that can go on like this,” Howell said.

In contrast, “in Tokyo, you can ... see about 50 different fibres rolling out from a thing that pops up in the street under the windows of the houses to run their fibre networks”. “It’s not the stuff we have here where everything is underground. It’s not comparable to look to Singapore because Singapore is dealing with a whole lot of high-rise buildings rather than the suburban landscape we have in New Zealand.”

Unexpected costs like extra labour required for cutting concrete in individual driveways has caused problems for parties involved because of the “tight” funding and contracting model, Howell says.

“In a risk-management sense, it’s better if those unexpected risks are borne by the ... least risk-averse party. The biggest and most risk-neutral party of all is the Government, yet the Government doesn’t want to have any variation in these costs at all.

“It wants a fixed price, [and] that’s where the Government contracting problems starts to bite because they’ve kicked the ball down the park and left it there for someone else to pick up.”

In New Zealand, the government-entity Crown Infrastructure Partners is in charge of funding the UFB rollout. It has contracted Chorus to carry out the majority of the build. Chorus have four main Australian-based companies it works with: UCG, Visionstream, Downer and Broadspectrum. In turn, these companies pay smaller businesses and/or “subcontractors” to carry out the manual work required for the UFB roll-out.

While the MBIE inquiry has focused on companies at the subcontractor level, it yesterday pinned responsibility on Chorus and its main partners for failing to maintain employment standards.

Lumsden: “Breaches we observed to-date included contracting employers failing to maintain employment records, pay employees; minimum wage, holiday entitlements and provide employment agreements.

“Many of these employees represent a vulnerable section of the New Zealand workforce that often aren’t aware of their minimum employment rights, and are concerned with their visa status. Large companies such as Chorus need to be proactive and sure that their contractors and subcontractors are not exploiting workers.

“Despite earlier public assurances from Chorus that any breaches involving its contractors were isolated cases, the investigations and analysis to date demonstrates systemic failures in quality management,” he said.

When asked about Lumsden’s comments, Chorus said it had not had evidence of problems being widespread.

“Of the half a dozen issues that have been raised to us over the last year, on investigation fewer than half turned out to be breaches,” a spokesman said.  

“As such we believe it was reasonable to view such issues as isolated. We have also collaborated openly with MBIE and repeatedly said that if issues are uncovered we want to know so they can be put right. Hence, we are immediately seeking clarity on the cases identified.”

Both Chorus and Kris Faafoi, who as Minister for Broadcasting, Communications and Digital Media is responsible for the UFB project, did not believe there were problems with the quality of the UFB network.

“The Government has robust contractual arrangements and quality testing provisions in place to ensure that UFB roll out is to a high standard,” Faafoi said.

He did not answer questions around inadequate funding and problems with the contracting process.

For Howell, problems identified by the MBIE inquiry will likely only be addressed if policy-makers and those at the top of the UFB contracting model acknowledge the pressures being pushed down the chain.

“This is new territory and we’re at the bleeding edge of this and the bleeding edge is where all of these things are found,” she said.

“There are going to be surprises and these surprises generally don’t tend to be on the side that means the firms save money. They’re usually on the side for firms where it ends up costing more, whether that’s time or [expenses]. Of course they’re going to look for different strategies with the people they employ, whether it be that they look to employ cheaper or less qualified staff ... to preserve the profit margin they’re looking for.”

The Labour Inspectorate has said it is "continuing with its investigations with a view to taking a wide range of compliance actions". 

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