Enabling Taiwan to achieve its public infrastructure program in a safe and efficient manner by encouraging participation from multilateral companies and welcoming innovative approaches, such as new technologies and alternative methodology.
The Committee would like to thank Minister Chen Mei-ling of the National Development Council (NDC) for her leadership and tireless efforts in being a champion for implementation of the three suggestions raised by the Committee in 2018. Minister Chen chaired numerous meetings – either with inter-agency government representatives or specifically with the Public Construction Commission (PCC) – which gave the Committee the opportunity to explain the merits of our suggestions and government stakeholders the chance to provide feedback. Without the support of the NDA and the PCC, the progress achieved to date in moving the three suggestions forward would not have been possible.
Rather than introducing more suggestions this year, our focus remains the full implementation of the suggestions already in place over the past two years. In finalizing these issues, we suggest that the government adopt a consultative approach, seeking input from third-party market professionals. Our member companies will be pleased to join in sharing their expertise if needed.
One of our suggestions – regarding use of the “Most Advantageous Bid” (also known as the Merit Bid) system in government tenders – appears close to resolution as a result of a recent legislative amendment. The Committee is gratified by that development and hopes that the enforcement rules for the amendment will be speedily put into effect and ensure its effective application.
We have been informed that the other two suggestions are still under review. The Committee hopes that all three suggestions can be fully implemented by the end of the second quarter of this year. We request that the government keep the Committee informed of the state of progress, allowing time for our members to provide feedback before the government finalizes its approach.
The purpose of all three suggestions is to bring innovative ideas to Taiwan’s construction market and supporting the government’s ambitious forward-looking infrastructure development plans by increasing the opportunity for international companies to participate in government procurement projects. For example, introducing alternative and/or innovative approaches often result in shorter, safer and more reliable and cost-efficient project completion schedules. Participation by more international companies will also help enhance the capabilities of the local supply chain.
President Tsai Ing-wen has stated that “Globalization forces faster innovation, which needs to be adopted as the core driving force for continuous growth.” Increased participation by international contracting companies can provide the impetus that drives positive change in Taiwan’s construction and engineering market. Implementation of our three suggestions will reduce commercial barriers and enhance the tendering and selection process to attract a wider participation of international tenderers.
Suggestion 1: Encourage the use of alternative methodology in public infrastructure projects through a systematic approach.
We understand that the government is developing a template to facilitate implementation of this suggestion, following feedback from the procurement entities that they are unsure how to implement such an approach – despite consensus that it is a good idea. That is a reasonable approach, but since the “alternative tendering” is a highly nuanced process, the template and guidelines need to be carefully drafted if they are to genuinely attract additional international contractors to the Taiwan market.
Judging from feedback from various government entities and stakeholders over the past year, the Committee believes that misunderstandings exist as to how the government procurement entities and the international contracting and engineering market view the “alternative tendering” process. A common example is the notion that applying one or both of the following is enough to constitute “alternative tendering”:
The draft tender package (RFP) is issued for peer review prior to the issuance of the formal package; and,
The successful tenderer can submit post-award changes and alternatives for consideration.
Although the two procedures are good working practice for large and complex projects, they are not part of what is generally considered “alternative tendering” in the international market. In general practice, “alternative tendering” gives the tenderer an opportunity to submit alternatives in addition to its base-conforming tender at the formal tender submission stage – not at the pre-tender submission stage or post-award stage. There are several deficiencies associated with each of the examples above.
Regarding Example 1, peer review comments on the draft tender package lack the necessary data for the procurement entity to determine the value of the proposed alternative against the original requirement. There is no baseline cost or schedule to gauge the alternative against, or any way to gauge the value of the alternative suggested by one company against another. Typically review comments are not shared among the firms submitting such review comments. Example 1 therefore does not encourage tenderers to devote significant time to developing alternatives or provide the government with data robust enough to properly evaluate the merit or value (e.g., quality, price, safety, schedule) of the alternatives suggested.
Example 2 limits the innovation to only one party, the successful tenderer. As a result, the government loses the opportunity to obtain alternatives and innovative ideas from all the tenderers. In addition, a winning tenderer typically is not motivated to offer alternatives once it has been awarded the work.
Finally, alternatives are not limited to technical issues, but rather can cover a wide-ranging set of recommended improvements regarding cost, schedule, safety, operations and maintenance. One non-technical example might be a change in the delivery approach, such as requesting additional lay-down space within the customer’s project site, which could significantly improve schedule and lower project cost. Another example would be savings achieved by structuring the project payment terms to lessen the amount of borrowed funds needed to deliver the project.
Improving payment terms can have a big impact on both cost and execution, as the main tenderer will generally give its subcontractors and suppliers, who are less able to finance their own activities, the same terms that it receives from the government procurement entity. The new power projects planned by the government have construction budgets greater than US$1 billion. The typical payment terms on these projects result in the contractor having to finance a significant part of the work. Part of the cost of borrowed funds are added to the tendered price, which increases the delivery cost to the government, and part of the cost is absorbed by the main contractor and its Taiwanese subcontractors to keep the tendered price competitive.
Having a neutral or slightly positive cash flow (matching cash in-flows with out-flows) can make a big difference to the financial status of the local subcontractors and suppliers, as well as to their ability to perform successfully. Also, the main contractor and its Taiwanese subcontractors are better able to staff its projects with suitable amounts and type of resources when the project provides a neutral cash flow. Therefore, improved payment terms often result in quality, safety and schedule improvements – in addition to a lower tendered price, which provides economic benefits to the government.
To gain the full benefit of alternative tendering, it should be conducted as part of the actual tendering process – not as a pre-tender peer review activity to solicit comments, or as a post-award activity with the sole successful tenderer. This is the norm in the international market, and it fosters enhanced innovation and allows international contractors to apply lessons learned from their global experience in the local market.
The steps below summarize the alternative-tendering process from the perspective of the procurement entity:
Decide to include alternative tendering as part of the Information to Bid (ITB) package.
Develop an internal evaluation process and criteria to be used to select the recommended tenderer.
Include instructions and guidelines in the ITB as to how the alternative tendering will be conducted.
In the most common approach when using alternative tendering, require all tenderers to submit a fully conforming tender that is priced to meet all requirements as set out in the ITB.
Following submission of a fully conforming tender, allow each tenderer to submit proposed alternatives specifying the cost and schedule impact associated with each alternative.
To facilitate evaluation of the alternative proposals, include a standard template within the ITB for tenderers to complete when submitting alternatives.
Based on evaluation of the cost and schedule impact, as well as the differences from the original requirements, decide which alternatives to accept.
Issue the accepted alternatives to all tenderers in the form of an ITB Addendum.
Require all tenderers to resubmit their proposal with revised pricing based upon the alternatives.
Apply the pre-established internal evaluation process and criteria and select the recommended tenderer.
Given Taiwan’s limited experience in this area, the Committee would be pleased to assist the government in developing alternative tendering implementation guidelines. We also stress the need for the government to share its current implementation plan (template and guidelines) so that the Committee can provide feedback before final procedures are put in place.
Suggestion 2: Amend the Model Contract Terms & Conditions to allow contractors to submit change notifications.
As explained at length in previous White Papers, the government’s current model contracts for both technical service agreements and construction fail to include a provision enabling the contractor to request an adjustment in the contract due to changed conditions. The government procurement entity, however, can call for such an adjustment from the contractor. This unilateral approach is both unfair and contrary to international practice, and risks deterring international companies from participating in public projects in Taiwan.
Detailed discussions have been held with the PCC on this issue, and the Committee is hopeful that our recommendation is close to being accepted.
Suggestion 3: Adopt the “Most Advantageous Tender” approach rather than “Lowest Price” as the preferred selection process for public projects.
The Committee is gratified to note that on April 30, 2019, the Legislative Yuan passed an amendment to the GPA lifting the restriction in Article 52 on use of the “Most Advantageous Bid” (Merit Bid) system in government tenders. Government procurement entities are now free to choose any of the four approaches set out in Article 52 for the solicitation and evaluation of tenders. This amendment creates a much more conducive environment for participation by multinational firms in government tenders and is much appreciated. The Committee now looks ahead to the implementation of this change, and requests the opportunity to work with the government in shaping the enforcement rules to complement the new amendment, helping to ensure its effectiveness in promoting the “Most Advantageous Tender” approach for all critical public infrastructure such as the upcoming combined-cycle gas turbine power projects.
The same principle should apply to all government-procurement tenders, including those for medical technology.