The "legally and commercially abhorrent" structure of Taswater's capital works contracts is simultaneously ripping off local contractors and losing potentially millions of dollars to mainland companies.
That is according to Burnie mayor Steve Kons, who says the company's council owners have let Taswater "do as they please" without being challenged, and was now calling for the state's auditor general to examine the business's tender process.
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Taswater is majority owned by Tasmania's 29 councils with an owner representatives group made up of a representative of each council, aiming to hold the Board of Taswater to account.
In a letter to his fellow councillors outlining his concerns with how the business was being run, Cr Kons has accused the board of "stupid" business decisions.
"We're losing a lot of money as a state," Cr Kons said.
"We're talking about billion dollar contracts here."
He said the losses were two-pronged, with the main issue being "unfair" contracts with local contractors.
"They're too risky," he said.
"[Taswater] is trying to transfer the risk on to the contractors. If there's unknown risk in a job, naturally the contractor is going to bid a higher price during the tender process, so they're not getting competitive bids.
"At the same time there were unfair terms and conditions ... the ability for them to argue against a dispute changed ... I really feel for these local builders."
A Taswater spokesperson said the business was making structural changes to "improve how we manage our low complexity and low risk capital projects".
Cr Kons said the other issue was a profit-sharing system he had been advised Taswater had set up with its head contractor.
"I am advised ... that Taswater have entered into a profit-sharing agreement with the head contractor also known as the alliance partner so as the head contractor screws the subcontractors, and they get a portion of the perceived savings," he wrote in the letter.
"Cowboys from the mainland come in and do the job for less and keep a portion of profits.
He called on the Taswater Board to scrap the profit sharing arrangement, and conduct "professional", risk shared tender processes.
A Taswater spokesperson said the alliance partnership was a "vital part of the continued successful delivery of our ambitious ten-year, $1.8 billion capital works program".
"Taswater continually monitors the delivery of the program and refines the model to ensure that value for money is achieved for our customers," the spokesperson said.
"TasWater will be resuming the direct responsibility of lower-risk, low complexity capital works, including those that require a level of urgency.
"This will allow the TasWater Capital Delivery Office to focus on managing the medium and large, multi-disciplinary projects that they are best positioned to manage and have the systems and processes established to deliver.
"We are committed to continuing to work together with contractors and consultants to build and maintain a sustainable water and sewerage network across the state."
The chief and deputy chief of the Owners' Representatives Group were unable to comment.
State Growth Minister Michael Ferguson said he understood that "TasWater is meaningfully engaging with industry on this issue".