On this year’s Earth Day, President Tsai Ing-wen pledged to accelerate progress toward net-zero emissions by 2050 by investing in the research and development of emerging technologies such as hydrogen, geothermal, and other alternative green energy sources. As the President stated, Taiwan must undertake structural adjustments in order to join the global green supply chain, a goal that demands collaboration between the public and private sectors.
The Committee applauds the government’s commitment to achieving net-zero emissions by 2050. We offer to work with the government to identify and implement crucial adjustments in its delivery approaches and create sustainable public- private partnership (PPP) projects that will bring Taiwan the technologies and skills required to achieve this ambitious goal.
Any changes that support the net-zero emissions target will also help Taiwan complete its ambitious set of wide-ranging infrastructure projects (such as rail, power, and airports) with overlapping and demanding completion timelines. Taiwan’s planned infrastructure program, particularly its power generation projects, must be completed successfully if Taiwan is to maintain its economic growth. Recent power outages highlight the importance of delivering private and public power projects according to schedule to maintain confidence in the development sector.
This year’s White Paper contains several recommendations aimed at attracting more international engineering & construction (E&C) firms to assist Taiwan in completing its planned public and private mega-projects and introduce greater innovation to the E&C industry. While some suggestions from previous AmCham White Papers have made headway, a number of issues that could benefit from the support of ministerial-level agencies remain unresolved. We request that the government work with the Committee to form a task force to implement past and current suggestions to gain the scheduling, cost, safety, and quality benefits that would accrue from their adoption.
This year we offer four recommendations aimed at promoting public-private partnerships and enabling more flexible and efficient project delivery. Suggestion 4 – to create more balanced terms and conditions in the government’s model contracts for public projects – has been raised in previous White Papers, and we believe its full adoption would encourage the participation of more multinational E&C firms in Taiwan’s public-project procurements.
The Committee prides itself on being one of Taiwan’s best partners in fostering economic development over the past decade. With such a long commitment, we strongly believe that strengthened cooperation between the Committee and relevant government agencies will help Taiwan not only build a green supply chain but also to deliver its ambitious set of infrastructure programs and ensure Taiwan’s continued social and economic prosperity.
Suggestion 1: Adopt a multi-pronged approach to achieving the 2050 net-zero goal.
The Committee agrees with the President that neither the government nor the private sector alone can enable Taiwan to achieve its 2050 net-zero goal and, more broadly, its wide- ranging planned infrastructure projects. The Committee would like to offer its cooperation and share its technical expertise to support Taiwan’s infrastructure development and greenhouse gas emission reduction goals. To strengthen the partnership between the Taiwan government and the private sector, the Committee makes the following recommendations:
1.1 Meet regularly with AmCham’s Infrastructure and Engineering Committee. Through more frequent engagement with the Committee, government agencies responsible for the 2050 net-zero roadmap and delivery of critical energy-related infrastructure projects would benefit from the members’ international technical expertise. Such engagement can provide the government with greater awareness of relevant carbon capture and reduction technologies and recent engineering and construction advancements, thus enabling the government to develop more realistic implementation timelines and improved policies in these areas. The Committee hopes to have such meetings with agencies that facilitate inter-ministerial efforts, such as the National Development Council, which oversees the 2050 net-zero roadmap policy.
1.2 Introduce incentives that reward R&D, innovation, and risk-taking. Incentives should be applicable to both private and public sectors – particularly state-owned enterprises, which are responsible for a large share of carbon emissions and mega-projects – to drive adoption of innovation and methods that enhance project delivery efficiency and quality. Such incentives could be linked to schedule or safety-related achievements. For instance, the governing agency could provide Key Performance Indicators (KPIs) for contractors that complete projects ahead of schedule or fulfill work safety without Lost Time Injuries (LTIs) or fatalities. KPIs are used to encourage innovation by providing incentives when defined hurdles are overcome. The current contract environment is one of a “stick-only” approach, in which the contractor or developer bears all the risk with no potential upsides. Using KPIs allows a “carrot and stick” approach, which is typical in the international market and encourages innovation.
The Committee also recommends that the government foster a culture that encourages public servants to embrace innovation. Most procurement entities are hesitant to try a new approach in the project procurement or delivery phase due to concerns that such an approach, if deemed unsuccessful, would result in a demotion for project managers.
1.3 Create a sustainable environment that fosters investment in decarbonization while ensuring sufficient and stable energy supply. Establishing market structures that value energy, flexibility, and dependable generating capacity will encourage an optimal mix of complementary technologies, provide energy security, and achieve the greatest carbon reductions in an economical and practical manner. While reducing carbon emissions is critical, the government must also ensure that energy-related projects are completed on time to provide Taiwan with reliable and cost-effective electricity during its green transition.
1.4 Encourage greater private sector participation through promotion of the Private Participation in Infrastructure Projects Act (PPIP Act). The Committee suggests that the Executive Yuan implement cross-ministerial efforts to adopt provisions of the PPIP Act for all renewable energy projects and expedite the installation of offshore
wind and solar energy facilities. We further recommend that the government work with the Committee to improve cooperation with the private sector through PPPs, including reviewing the PPIP Act to identify potential amendments that would allow more efficient implementation of such partnerships.
Suggestion 2: Actively encourage greater participation by international E&C contractors to promote economic competitiveness and technological advancement.
The government is still a long way from realizing its original 50/30/20 energy plan, which called for an energy generation output of 50% natural gas and 20% renewables by 2025. In March this year, natural gas and renewables accounted for approximately 30% and 6% of total energy generation, respectively, according to the Taiwan Power Co. As the local construction market is already overburdened, further participation of international E&C firms would the accelerate progress and improve the achievement of the 50/30/20 energy plan.
The global construction industry has advanced significantly in recent years and continues to do so as higher- value engineering design processes and advanced construction methodologies are introduced. Regrettably, Taiwan’s domestic E&C industry has failed to benefit from these advancements, suffering instead from stagnant technological advancement and a reliance on outdated project delivery methods. Low project budgets, the use of “Lowest Price” as a major bidding selection method, the issuance of tenders only in Chinese, and onerous contract terms (which are mainly punitive and contain no upside or revenue potential for the contractor) are all factors that discourage participation by international E&C contractors and minimize local competition. As a result, local companies have little incentive to innovate their design methods and modernize their construction procedures.
The Taiwan government has, through modest reforms to the Construction Act and the Government Procurement Act (and its Enforcement Rules), alleviated some of the hurdles that international E&C firms face when trying to enter the Taiwan market. However, these changes have primarily affected initiatives in the public sector. Little has been done to encourage participation in private-sector projects, which are critical to Taiwan’s energy transformation and other essential infrastructure projects.
Numerous non-tariff barriers in the Taiwan market deter E&C contractors from participating, many of which have been identified in previous White Papers. Amending model contract terms to align with international market practices, issuing requests for proposals in both English and Chinese, and allowing alternative methodology proposals during the tendering cycle are examples of ways to address barriers to entry.
The Committee offers its assistance to the Taiwan government in identifying and implementing measures to encourage more international engagement in the local market, allowing Taiwan to benefit from worldwide E&C methods and technologies.
Suggestion 3: Apply public-private partnerships to new wharf development and ensure flexibility of port operations.
The government has set a target of 5.7GW of offshore wind power (OWP) capacity by 2025 and 20.5GW capacity by 2035 as steps toward achieving its energy transition goals. In part due to COVID-19, the initiative is behind schedule. Furthermore, due to a lack of available ports and wharfs, the existing facilities are heavily congested, a problem that must be addressed in order to accelerate the pace of construction. With the benefit of incentives included in the PPIP Act when it was passed in 2000 to encourage private companies to invest in public infrastructure, private investment could finance the construction of the port and wharf facilities required to meet OWP development demands. Leveraging private investment can often mobilize additional sources of finance and deliver public infrastructure in a safe and efficient manner in terms of cost, schedule, and quality.
The government plans to build additional wharfs in accordance with its project OWP construction plan. However, bureaucratic budgeting and outsourcing procedures and stringent construction requirements have restrained the progress of ongoing construction and delayed the private OWP development. The Committee recommends that the Executive Yuan formulate standardized processes and measures for the Port Authority to use in the planned construction of Wharfs 37 and 38 in the Port of Taichung. Furthermore, port operation flexibility and a complete quayside facility will provide Taiwan’s marine operations with a competitive edge. Currently, the time limit for port entry and wind turbine generator (WTG) component onshore transportation extends the operation lead time and cost.
With the aim of amplifying the potential benefits of PPPs, as well as increasing flexibility, the Committee suggests the following:
Expedite the formulation of standardized processes and measures for the Port Authority to follow in the planned construction of Wharfs 37 and 38 in the Port of Taichung.
Allow 24/7 port operations in line with international practices rather than the current time limits. WTG component transportation, for example, is currently limited to between six and eight hours per night at Taichung Port, escalating traffic congestion.
Establish a complete bunker facility at the quayside and provide enough fuel barges or supply ships to allow vessels to refuel at the wind farm to improve project operation efficiency.
Allow offshore custom clearance to avoid unnecessary and redundant loading and unloading operations to create a safer port environment.
Suggestion 4: Provide fairer and more balanced model contract terms and greater flexibility in the tendering process.
In previous White Papers, the Committee requested the Taiwan government align its model contract terms with international standards to create fair and balanced terms and conditions for the industry. Creating a healthy contractual environment benefits international and Taiwanese contractors equally and fosters a more sustainable commercial arrangement between the owner and contractor, as well as the various suppliers and subcontractors.
Given the government’s aspirations to promote a broad transition to higher levels of technology, the Committee hopes to work with the Public Construction Commission (PCC) and other relevant government agencies to attract more international E&C contractors to participate in public tenders. Aligning the model contracts with international practice is critical to achieving this objective.
In addition, the Committee has previously suggested amendments to the tendering process, such as allowing alternative tenders to encourage greater innovation by using “Most Advantageous Tender” rather than “Lowest Price” as a preferred selection process for critical projects. International firms currently feel discouraged from participating in Taiwan’s public tenders and sharing innovations gained abroad due to misalignment with international procurement practices and the inclusion of unfair terms, such as unfavorable indemnification terms, international arbitration, and lack of a fair changes clause. This is unfortunate considering Taiwan’s need for more participation by international E&C contractors to help complete its ambitious, forward-looking infrastructure and energy programs.
The Committee offers to collaborate with the PCC and other government agencies to identify and implement past and current ideas related to this recommendation. Some preliminary ideas are listed below:
1. Create a healthy commercial environment for firms participating in public tenders. Current model contracts contain some provisions that do not reflect a fair and balanced contractual approach. One example is the inclusion of Article 227, paragraph 2 of the Civil Code in the model contracts, as explained in the 2021 White Paper. It is the Committee’s view that this reference made under the “Rights and Liability” clause should be removed. The Committee welcomes the PCC’s amendment to the Model Contract for Technical Service Agreements, which incorporates this suggestion. We hope the same will be done for all model contracts, particularly the Model Contract for Construction Agreements, to align with typical practices in the international market.
2.Allow contractors to submit change notifications. As stated in previous White Papers, the government’s set of model contracts (except the one for technical service agreements) fails to include a provision enabling the contractor to request a contract adjustment due to changed conditions caused by external factors, although allowing the government procurement entity to call for such an adjustment from the contractor. This unilateral approach is unbalanced and contradicts international practices.
3. Implement the use of alternative methodology in the procurement process. In international procurements, it is common practice to allow international contractors to offer alternative methods while still meeting the project performance requirements. The current government tendering process, however, makes no provision for this procedure. Including alternative tenders allows Taiwan to benefit from new methods and knowledge amassed from projects delivered outside Taiwan, which have the potential to improve project cost, scheduling, safety, and quality.