Two Key Contract Lessons From The Telstra/NBN Co Dispute

Telstra is taking NBN Co to court in a dispute over how payments for the use of Telstra's copper network are calculated. Whatever the outcome of the specific case, the issue provides a reminder of why contracts are really only the starting point for the relationship -- and also why the government's plans to speed up the rollout of the National Broadband Network (NBN) might hit a wall.

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The dispute isn't over technology, but over the relatively arcane issue of when payments made to Telstra for access to its copper network should be increased (the contract calls for them to lifted in line with the Consumer Price Index, and the argument is over when that process starts). This was not a casual contract, or a standard deal; it was negotiated intensely over a period of almost two years, and the need to come up with an agreement that worked for both NBN Co and Telstra was a key reason that NBN construction was held up. And yet despite that, the argument over indexing will now see the two sides in court in November.

Few IT pros are going to deal with a contract as complex as this, or enjoy the negotiating clout which both sides brought to the table. But the experience should remind us of this: even the most detailed contract is unlikely to touch on everything that will happen in the course of a business relationship. There will often be untested assumptions that only emerge after a deal has been signed and the work of implementation begins. That doesn't mean that you have to head straight to court; reportedly Telstra and NBN Co have been discussing the issue for more than a year. With as much as $100 million at stake, it's presumably worth the effort for both sides to maintain their position, but it's also certainly the case that this isn't an optimum outcome for either.

The other lesson here? That long-negotiated contract will need to be replaced with a new one once the Coalition vision for a fibre-to-the-node NBN kicks into gear at the end of this year's strategic review. We've repeatedly been told that this should be able to be negotiated quickly, but if the previous, long-negotiated contract is now proving to have issues, it seems rather unlikely that either side will be willing to race through the process second time around. The argument over what goes into the new contract is likely to be the dominant NBN issue in the first part of 2014.


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