The Committee would like to thank the Taiwan government for giving its members the chance to share their ideas on ways to enhance Taiwan’s government procurement practices to provide benefits to the country as it embarks on its ambitious development plans. We firmly believe that shaping the local market to attract more participation by international companies will greatly add to the certainty of delivery and the introduction of innovative engineering and construction approaches to Taiwan.
The government will require the on-schedule delivery of critical energy-related projects to meet its 50/30/20 Energy Plan by 2025. Other demanding rail and aviation infrastructure projects also have schedule completion dates that overlap the energy projects.
Last year we provided some specific recommendations that we believed would support the attraction of more international companies. This year we have been building on those suggestions and updating them to facilitate their implementation. The response we have received to date has been positive, but more work is required to fully implement these recommendations. We will continue to work closely with the Taiwan government to achieve our common goals.
The Committee recommends that the government take a more assertive role in attracting international companies to execute a portion of the planned infrastructural and energy projects. Besides reducing the delivery risk caused by the tight schedule requirements, there are other benefits to having international companies participate in public projects. By introducing new and innovative ideas to the market, they help advance the capability of the local contracting community. Foreign companies also bring alternative delivery methods which often translate into shorter, safer, and more reliable and cost-efficient completion schedules. Certainty of delivery lessens the disruption period large infrastructure projects often impose on the public, and helps improve the quality of life by delivering the specific project by the planned date and for the budgeted cost.
This year we are reiterating three of the four suggestions provided last year which are aimed at reducing commercial barriers and enhancing the tendering and selection process to obtain proposals that best meet the government’s objectives. The Committee believes implementation of these suggestion will not only attract more international companies to the market, but will also introduce more innovation in the delivery of the ambitious set of projects planned by the government.
Suggestion 1: Amend the Model Contract Terms & Conditions to allow contractors to submit change notifications.
As the Committee stated in the 2017 White Paper, fair and internationalized terms and conditions throughout the contract would create a healthy commercial structure for both foreign and local companies to participate in the tendering of public projects in Taiwan. One of the key such terms is the “Changes” clause in the Model Contract. More details on this issue can be found by referring to Suggestion 2 from last year’s White Paper (available online on the AmCham Taipei website), but in brief the lack of explicit provisions giving the contractor the express right to submit a change notice is a serious cause for concern. In its absence, when changes occur that the contractor believes result from actions outside its contractual control, the contractor is unable to obtain an equitable adjustment in the time and/or cost specified in the contract scope and schedule.
The current provisions in both the Model Contract of Technical Service Agreement and the Model Contract of Construction Agreement are unilateral, allowing only the government contracting agency to notify contractors of a scope change. No formal provisions exist within the current Changes clause enabling the contractor to notify the government contracting agency of a change that has occurred. This unilateral approach to changes within the Model Contract is contrary to international norms in the contracting community, where the contractor has the right to submit a change notice obligating the government contracting agency to fairly and in good faith consider the need, if any, for equitable adjustment to the contract schedule and/or price in line with the change notice.
In the 2017 White Paper, the Committee requested that Article 15 of the Model Contract of Technical Service Agreement be amended to add a formal provision for the contractor to notify the government contracting agency of a change that has occurred. In reply, the Public Construction Commission (PCC) said “there has been a Change clause in Article 15 of the Model Contract for Technical Service Agreement and it has been a basis for contractors to submit a change notice.”
The PCC’s comment does not match our Committee members’ actual experience and the behavior of government contracting agencies. In practice, the lack of a clear, bilateral provisions giving the contractor the right to submit a change notice in the Changes clause has denied the contractor cost and/or schedule consideration for a change it believes has occurred, unless the change was issued by the government contracting agency. This one-sided nature of the Model Contract change provisions is viewed as unfair and risky by international contractors. The current language leaves it up to the government contracting agency to interpret the intent of the change provisions, giving way to subjective and inconsistent approaches to bona fide changes that occur during project execution.
The result of the unfair nature of the Model Contract is that international companies either will not participate in Taiwan projects or else will add a risk premium regarding the cost and schedule to account for the lack of transparency in the change process, which results in the government receiving a less favorable proposal submission. It is highly likely that local contractors are also adding a risk premium, as they are also subjected to the arbitrary administration of the Changes clause as it is currently worded.
The issue would be easy to resolve. The Committee suggests the following wording be added to Item 1, Paragraph 1 of Article 15 of the Model Contract of Technical Service Agreement: “In the event of a change, Party B is also entitled to send Party A a change notification.” We look forward to discussing the matter with the PCC.
Suggestion 2: Adopt the “Most Advantageous Tender” approach rather than “Lowest Price” as the preferred selection process for public projects.
Foreign contracting companies often will not participate in an international tender if the selection process is merely “lowest price wins.” The value proposition offered by first-tier foreign contractors competing in the international market consists of both qualitative elements along with a competitive price, but not necessarily the lowest tendered price. When a project is challenging due to schedule requirements, complexity, or where the contractor’s performance is key to realizing the desired outcome, then a weighted technical/price approach or “Most Advantageous Tender” is the appropriate tender-evaluation process to determine the best value for money.
Under a lowest-price selection process, certainty of delivery, project management skills, quality, safety and other crucial non-cost elements that differentiate tenders are not assessed and weighted, which discourages international participation. The “Most Advantageous Tender” selection approach is recognized internationally as the more effective way to select quality contractors that are the most suitable for the specific project requirements. Often the lowest tendered price may cost more in the end than a tender selected on a Most Advantageous Tender basis.
We understand that the PCC has encouraged use of the Most Advantageous Tender approach and achieved some success, but most government agencies still use the lowest-price selection approach.
We again recommend employing a two-envelope tendering process, whereby the price submission is separated from the technical portion to ensure that price considerations do not affect the technical scoring and commercial evaluation. The technical and price proposals are submitted in separate sealed envelopes. A weighted technical score is developed for each bidder based on pre-established criteria, with key minimum hurdles that must be met. Concurrently, the commercial proposal is evaluated to verify compliance with the tender requirements.
The price and technical scores are then combined to arrive at a weighted price/technical evaluation (e.g., 70% technical and 30% price) which is used to determine the recommended tender. To ensure a fair and transparent process, it is critical that the evaluation process be well thought out and formalized in advance, and that the criteria and weighting are communicated as part of the tender documents.
The Committee strongly recommends that the Taiwan government continue to push for wider use of the Most Advantageous Tender process which uses a weighted technical/price selection process, especially for public projects that are challenging, complex, or involve specialty skills or high-end technology. This selection approach allows the government agency to tailor the evaluation process to match the requirements of the project and emphasize the key contractor capabilities or tender elements that are most important to the success of the project rather than simply choosing the lowest price. We understand that this approach is already employed on selected projects and is allowed under Articles 52 and 56 of the Government Procurement Act (GPA); our recommendation is that it be adopted more widely, with guidelines developed to ensure a more consistent approach to its use.
The Committee is ready to work with the PCC to develop a robust set of instructions and guidelines on how best to implement and employ this evaluation approach.
Suggestion 3: Encourage the use of alternative methodology in public infrastructure projects through a more systematic approach.
As stated in the 2017 White Paper, the tendering process in most other countries involves requesting alternative proposals, in addition to a base tender, so as to provide the project owner with such potential benefits as time and/or cost savings, while still complying with the project requirements. Internationally, submission of an alternative in addition to a base tender is common practice, and the range of alternatives allowed is not limited. The practice fosters enhanced innovation and allows international contractors to apply “lessons learned” from their global experience. Alternatives can be either technical or commercial in nature, and the merits, including cost and/or time savings in relation to the base tender, are submitted for the Owner’s review and consideration. However, Taiwan’s government tendering process does not appear to provide for this option, although Article 35 of the GPA appears to support the submission of alternatives provided the recourse is explicitly set out in the tender documentation.
In this year’s meeting with the PCC, the Committee brought up the concept of allowing alternative methodology to be used in public infrastructure tenders to achieve savings in project budgets and schedules. The response was positive.
The Committee therefore proposes the following minor adjustments in the tendering practices to both benefit the Taiwan government and foster participation from international companies:
Hold a seminar in which the PCC is designated as the responsible body for selecting projects to follow this concept, and for evaluating the benefits in tenders conducted by procuring agencies.
Ensure that the tender evaluation process for alternative solutions is robust, well thought-out, formulated in advance, and communicated as part of the tender documents.
If the basic concept is acceptable, review GPA regulations, such as Article 35, to see where minor modifications may be necessary to create a friendlier environment for comparing alternatives and to increase the chances that the firm with more innovative approaches to delivering the work can win the tender.
Since the alternative method has not been practiced by many Taiwan government agencies, which may result in resistance and lack of confidence to implement such an approach, arrange for a higher authority such as the National Development Council (NDC) to select “trial projects” to adopt this concept and monitor the process throughout the tendering cycle, from development of the contract terms and conditions, and tender evaluation procedure and criteria, to the receipt and actual review and evaluation of tenders, tender clarification, and eventual award recommendation.
The Committee believes that allowing for alternative tenders and methodologies would benefit government agencies in the delivery of planned energy infrastructure projects. It would also enhance the capabilities of local engineers, upgrading their capability to compete in the international arena. If needed, Committee members would be pleased to further explain the concept and its benefits to the relevant authorities.
It is important that the Government move rapidly to implement these suggestions. The first two energy projects, the CPC Corporation’s #3 LNG Receiving Terminal and Taipower’s Datan Combined Cycle Power plant projects, are already being tendered by the respective agencies. However, neither of these projects has embraced the suggestions made in our 2017 White Paper and restated above.