The Commercial Section of the American Institute in Taiwan is pleased to present a brand-new feature on our website that will benefit American service and equipment suppliers seeking major public and private project opportunities in Taiwan. We invite you to review the following information and click on the link at the end of the report to contact us for a copy and/or for more information on opportunities in your industry sector.

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Summary

The Public Construction Commission (hereafter, the PCC) was established in 1995 to oversee procurement practices for major projects. Subsequently, the Taiwan authorities enacted the Government Procurement Act in 1999. In 2000, the PCC set up a website (web.pcc.gov.tw) to serve as a unified information source for tender solicitation and award announcements.

Although most of the major projects listed are infrastructure projects sponsored by the Taiwan authorities, some are the result of direct investments by the private sector, or are co-developed by the authorities and private investors on a “Build-Operate-Transfer (BOT)” basis. Fifteen major projects in the transportation, energy, petrochemical, environment, and general construction sectors are identified in this report. Each is included in a comprehensive matrix that lists each project’s industry category, client, planning consultant, detail design consultant, procuring consultant, tendering schedule and specific areas of potential opportunity for American companies.

This report is organized as follows:

1. A market overview of Taiwan’s engineering and construction industry;
2. An overview of the public structure for planning and controlling Taiwan’s major infrastructure projects;
3. A simplified description of the tendering procedure and award method as specified in Taiwan’s GPA;
4. Taiwan’s current major projects in the above-mentioned sectors;
5. A market entry approach that takes advantage of the resources on the PCC’s government procurement web site is suggested for U.S. companies that are interested in entering Taiwan’s engineering and construction market; and
6. Future trends
7. Links to additional resources

1. Major Projects in Taiwan – Market Overview

The process of design-procurement-construction was widely used in government-sponsored infrastructure projects before 2000. Nearly all of Taiwan’s infrastructure projects were executed by government-controlled entities such as the Retired Soldier Reengineering Association (RSEA), under the Veterans Affairs Commission, and the Bureau of Engineering Services (BES) under the Ministry of Economic Affairs (hereafter, MOEA). Others were created as foundations, such as: CTCI Corporation which is administered by MOEA, China Engineering Consultants, Inc., hereafter, CECI (under the Ministry of Transportation and Communications, or MOTC), and Sinotech. Three foundations have since been incorporated as state-owned companies (Sinotech, CTCI Corporation), or privatized (BES). The RSEA and the CECI will be incorporated in the near future.

Joint venture companies have been established to execute large projects, including the construction of power or petrochemical plants. For example, Gibsin Engineers, a joint venture created in 1979 between the Sinotech Foundation and American Washington Group International Ltd., has engineered 75% of the fossil fuel power plants built for the Taiwan Power Company since 1979. Pacific Engineers and Constructors, LTD. (PECL), another joint venture company formed by American Bechtel, Inc. and the Sinotech Foundation that same year, has been involved in the design and construction of three of Taiwan’s nuclear power plant projects.

Until 1987, the majority of Taiwan’s infrastructure projects were completed by the government-controlled engineering and construction entities mentioned above. Among the largest were three nuclear power plants, two major petrochemical complexes for oil refining and naphtha cracking (now operated by the Chinese Petroleum Corporation), a north-south superhighway, and the electrification of Taiwan’s western railway line.

After 1987, Taipei’s ambitious plans for a mass rail transit system (known as the MRT) brought Taiwan to the attention of the international engineering and construction industry. This network of subway lines was designed by an engineering task force formed by three leading U.S. transportation companies: Parsons Brinckerhoff International (planning), Bechtel International (construction/management), and Kaiser Engineer International (M & E). The Taipei City Government established the Department of Rapid Transit System (DORTS) to coordinate and supervise this massive transportation project. The Taipei City Government has built, or is still constructing, multiple lines and branches running East-West and from North to South. Destinations as far away as Danshui and Xindian, Muzha, Banqiao, Zhonghe, and Neihu are, or will be, accessible. The ever-expanding Taipei MRT project was opened to participation by local and international engineering consulting firms and contractors. However, in order to upgrade the technological capabilities of local contractors, DORTS required international contractors to form consortia with local contractors in order to bid for any of the Taipei MRT line projects. Through this collaborative approach, Japanese contractors have introduced Tunnel Boring Machines (TBM) for underground work. European companies have been the primary suppliers of rolling stock, tracking power supply systems, and signaling systems. American companies provide general engineering consulting work and direct rail fastening technology. Privately owned companies, Mao & Associates and T.Y. Lin International (a ninety percent American-owned firm) also participated and found opportunities to expand their business.

The Taiwan High Speed Railway (THSR) project, initiated in early 1990, eventually resulted in a signed BOT contract between the THSR Corporation and the Taiwan authorities in 1998. Engineering companies and construction companies from all over the world have participated in this US$ 15 billion project. With a total length of 345 kilometers, connected by long-span viaduct bridges and 48 tunnels (the longest of which is 7.5 kilometers long), the THSR project has contributed to a substantial upgrade of the technical skills of Taiwan’s engineering and construction industry firms. Among those involved, Continental Engineering Corporation (CEC) and Fu Tsu Construction Company became Taiwan’s two largest privately owned contractors after successfully completing their portions of the THSR project.

Currently, Taiwan’s local engineering consulting firms and contractors can now execute the civil work portion of other transportation projects independently. However, Taiwan still relies heavily on international suppliers for the core parts of M & E systems, such as rolling stock, power supply systems, and signaling systems.

In the energy and petrochemical sectors, plant projects can be awarded either to a single EPC (Engineering-Procurement-Construction) contractor which provides comprehensive turnkey service, or awarded separately to an engineering consulting firm, the primary equipment supplier and the construction firm, which must also install all piping, mechanical, and electrical works and necessary instrumentation. For example, on the Lungmen nuclear power plant project, Stone & Webster and Black & Veatch are performing the engineering work. Reactors are provided by G.E., whereas steam turbines and generators are provided by Mitsubishi Heavy Industry. Civil construction is being performed by Taiwan’s New Asia Company, and Carrier is responsible for the general mechanical and electrical work. For this project, the Taiwan Power Company has set up a job site office to coordinate all aspects of the project. In Taiwan, CTCI, with annual business turnover of around US$ 440 million, is the only qualified EPC contractor. Foreign suppliers provide nearly all of the major equipment, including the boiler, generator, reactor, and the control and instrumentation systems.

2. The Public Structure for Planning and Controlling Taiwan’s Major Infrastructure Projects

Taiwan’s central authority consists of the Office of the President and five branches (each of which is called a "Yuan"): the Executive; Legislative; Judicial; Examination, and the Control Yuan. The Council for Economic Planning and Development (CEPD), under the Executive Yuan, is the public entity responsible for the general coordination and planning work of Taiwan’s major infrastructure projects, most of which are in the transportation, energy, and environmental sectors. There are also major projects planned for the construction of special-purpose facilities (hospitals, museums, exhibition halls, and stadiums). The latter projects are managed and supervised by the Ministry Of Transportation and Communications (MOTC), the Ministry of Economic Affairs (MOEA), the Environment Protection Administration (EPA), and the Ministry of Interior, or MoI, respectively. For each major public project, the responsible ministries have to propose the project’s required budget and schedule and report to CEPD which, in turn, verifies the feasibility and necessity of the proposed projects, prioritizes them and passes the list to the Directorate General of Budget, Accounting and Statistics (DGBAS) of the Executive Yuan for budget allocation. Subsequently, the Executive Yuan passes the budget allocation plan to the Legislative Yuan to be approved. Ultimately, the responsible ministries tender the approved projects according to the procedures set forth in the Government Procurement Act (GPA, or Government Procurement Law - GPL).

3. Tender Procedures and Methods of Awarding Contracts for Government Projects

According to Taiwan’s GPA, the documentation for an RFQ, or Invitation To Bid (ITB), shall be posted for public review in an office designated by the client. The ITB, which includes the notice of tender, specifications, design drawings, bill of quantity and draft contract, can also be downloaded from the PCC’s government procurement web site in Chinese. This mechanism for public review allows for feedback from any concerned entities regarding modifications or clarifications regarding specific terms and conditions included or omitted and/or other aspects of the contents of the ITB. The objective is to allow for comment and modifications deemed appropriate by the client in order to avoid any unnecessary disputes at a later date. The tender is then announced formally. The tender period is at least 14 days, according to the GPA. The procurement entity can determine which bidding conditions meet their needs for local or foreign supply of products and/or services. For more complicated or difficult procurements, the client can opt to use the selective bid method to pre-qualify at least three prospective bidders in the first round. Only those firms that pass the first stage are qualified to proceed. If less than three bidders participate in the first round of an international open bid, the procurement entity must cancel the bid and re-tender. When re-tendering, the period for bid acceptance is at least 10 days. The number of bidders is not regulated and can be less than three. If there is no bidder, the client can use the limited bid method. In this case, the client does not have to announce the tender in public and can negotiate directly with one or two suppliers to fulfill the procurement.

Awarding tenders to the lowest bidder is the most commonly used practice. However, to procure engineering services and turnkey contractors, tenders are increasingly being awarded to the firm presenting the “most advantageous” bid. In this scenario, an evaluation committee is organized. The committee will then set the evaluation criteria. Qualified bidders must provide a proposal detailing how they plan to execute the project and will usually be invited to make a presentation. The committee scores and ranks every bidder in order to determine which will be awarded the contract.

4. Taiwan’s Current Major Projects

The Taiwan Power Company’s Tatan 438MW LNG power plant is on schedule and construction of the fourth nuclear power plant at Lungmen is progressing after a two-year delay. The Taipei 101 Financial Center project was completed at the end of 2004. Construction on the 345 KM Taiwan High-Speed Railway (THSR) project was completed in early 2005 and testing of its Japanese-made T700 rail cars is underway. The above-mentioned projects, formerly known as the “Big Four”, account for a total investment of nearly US$ 25 billion. Both the Taipei 101 project and THSR projects were undertaken on a Build-Operate-Transfer (BOT) basis. Even though BOT has been touted as an innovative means for executing large-scale projects, neither the Taipei 101 project nor the THSR project are regarded as great successes in the eyes of private investors. There are sharply divided opinions in both academia and public circles about the practicality of using the BOT method to complete public infrastructure projects. The authorities are also considering taking over some failed BOT projects and have already regained control of major transportation projects such as the CKS airport-link MRT project. A tender was announced in June 2005 for its core M & E system, after the government’s 2003 takeover. In December 2004, the CEPD also approved construction of the Taipei MRT Sung Shan Line with government funding instead of adopting the BOT method. In addition to the two projects mentioned above, work on the Hsin-Yi Line was divided into two construction bids CR580A and CR580B. Continental Engineering Company and Fu-Tsu Construction Company were awarded the first and second, respectively. These companies are the main contractors and U.S. companies can seek opportunities to supply either or both with the following types of equipment: HVAC (Heating, Ventilation, Air Conditioning); construction SCADA (Supervisory Control And Data Acquisition); escalators & elevators, fire-fighting apparatus and material, and similar items.

In the energy sector, the Taiwan Power Company (TPC), the sole grid operator and the island’s largest utility, has encountered a significant dilemma in its efforts to strike a balance between generating power on a more cost-efficient basis and minimizing environmental impact. Most of the hydroelectric resources in Taiwan have already been exhausted; nuclear power generation is reliable, but faces social and political opposition. The only option left for Taiwan is the use of traditional fossil fuels, such as coal and natural gas. Coal-fired power plants are promoted by TPC since coal is relatively easy to transport and store in large quantities. The fact that Taiwan has a 45-day storage capacity for coal and only two days for LNG also makes coal a more desirable choice when considering the energy security of the island. TPC has proposed that the 2x800MW Changbin coal-fired power plant be built in mid-western Taiwan. Also, a harbor project for transporting coal to be used by the 4,326 MW Hsinta power plant in southern Taiwan will be tendered in the fourth quarter of 2004. American companies can pursue opportunities to supply an advanced combustion system, steam turbine-generator sets, marine piling works, and a coal conveying system.

In the petrochemical industry, the state-owned Chinese Petroleum Corporation (CPC) is facing strong competition from the privately owned Formosa Petrochemical Corporation (FPCC) in the gasoline and diesel markets, as well as in the market for upstream petrochemical materials such as ethylene. Pending the Environmental Protection Administration’s issuance of a set of guidelines for CO2 emission control and subsequent approval of the CPC’s Environmental Impact Assessment (EIA), construction of the state-owned company’s planned US$ 11.5 billion petrochemical complex in Yunlin County in western Taiwan will be delayed until late 2006. Another significant petrochemical plant project is FPCC’s lubricant oil project that was recently process-licensed by the Exxon-Mobil Company. Construction work will be tendered in late 2006 and the plant is not expected to be completed before mid-2008.

Other major projects offering export sales potential to U.S. suppliers include sewage collection and processing projects in Taiwan’s urban areas, the Tseng-Wen water diversion tunnel in the southern Taiwan mountains, and the National Biomedical Center construction project. The tender for the Hsinchu-based Center is currently under public review. Once tendered, it will be completed sometime after 2007. Even though the capabilities of Taiwan’s construction industry have progressed substantially in the last decade, foreign companies will continue to play important roles as system integrators and suppliers of specialized technology, machinery, and materials. A matrix of Taiwan’s on-going major projects mentioned in this report has been prepared as an appendix. One can easily discern whether a specific project is public, planned as a BOT or privately invested. If one of the latter, a procurement entity first issues a tender for the design and then for construction. Alternately, they can opt for a turnkey-based (design-build) approach. English-language web sites are provided for clients, planning consultants, procuring consultants, detailed design consultants and prime contractors. By referencing this matrix, U.S. companies can determine what opportunities exist to provide products and/or services as suppliers or sub-contractors. To bid as a prime contractor, a U.S. company must first register with the Ministry of Interior and join the Taiwan Contractors Association. Although the registration process is not complicated, no U.S. firms have registered to date with the MoI or the Association because they seem to have issues with what are regarded as onerous terms and conditions of many public project tenders and they are not price-competitive with local or Japanese firms.

5. A Market Entry Approach for U.S. Companies

To succeed in introducing one’s products or services to decision makers at Taiwan engineering firms, it is beneficial to first understand the competition’s successful approach to this market. As a result of the successful completion of civil work for the THSR project in 2004, Japanese contractors have the largest foreign construction task force in Taiwan. With about 15 class A contractors registered in Taiwan, Japanese contractors have demonstrated their technological expertise and price competitiveness when bidding to construct transportation and other civil projects or buildings. Although few American firms have chosen to compete against local or Japanese companies as prime contractors, engineering consulting firms including T.Y. Lin International and Parsons Brinckerhoff have succeeded in winning contracts to provide engineering services on Taiwan’s transportation projects. In order to introduce U.S. companies into Taiwan’s engineering and construction market, the Commercial Section of the American Institute in Taiwan (AIT) conducted a series of interviews with the business development officers of local leading consulting firms such as CECI and Sinotech. According to those interviewed, U.S. companies have to develop an effective approach to introduce their products and/or services so that they may be better understood by local design and specification engineers. Japanese companies have reportedly utilized general contractors as the driving force for marketing and selling Japanese products used in major projects. All of Taiwan’s current construction and design codes are derived from sources in the U.S.: the American Concrete Institute (ACI) for concrete structures; the American Institute of Steel Construction (AISC) for steel structures; and the American Association of State Highway and Transportation Officials (AASHTO) for highway and bridge design and construction. U.S. companies are encouraged to communicate directly with local engineering consulting firms to identify specific business development opportunities.

In addition to contacting local engineering consulting firms, U.S. companies may refer to the PCC’s public procurement web site for useful, downloadable information concerning tenders, awards and public review of RFQs. Although this website is a very effective tool for business development, most of the information is in Chinese. Furthermore, in order to access certain portions of the website, one has to register as a Taiwanese citizen or company by inputting the citizen’s or company’s identification number. Therefore, having a local agent, a branch office or company (with a company ID assigned by MOEA), or an individual who can access the information locally is essential if an American firm wants to frequently access the information in the protected sections of the website.

As an example of the type of information available, there are eight major thermal power plants operated by the Taiwan Power Company’s Department of Generation. In accordance with the Kyoto Protocol, some of the thermal plants plan to upgrade their flue gas analysis and monitoring systems. Interested suppliers can log on to PCC’s procurement web site, search hierarchically, beginning with MOEA and then TPC to reach the page for the Department of Generation in order to select a description of any one of the thermal power plants: Shenao (400MW), Hsiehho (2,000MW), Linkou (900MW), Tunghsiao (1,707MW), Taichung (4,680MW), Hsinta (4,326 MW), Nanpu (1,118MW), or Talin (2,400MW). After inputting the date range of January 1 to June 1, 2005, 233 tenders announced by the above-mentioned thermal plants within the specified period are cited. The same search method has been applied on the PCC website to reveal that in the first five months of 2005, Chinese Petroleum Corporation (CPC) had published approximately 199 tenders and awarded contracts totaling around US$35 million for machinery and US$60 million dollars for materials to foreign suppliers.

In addition, the AIT Commercial Section now includes a “Major Projects and Procurement Practices” section on its website at www.buyusa.gov/taiwan/en, which filters Chinese and English language tender information to help American firms overcome language and localized access restrictions for the PCC website. Projects selected are those for which U.S. companies may have competitive advantages. Hiring a local representative can increase a U.S. firm’s knowledge of project tenders and the Taiwan company serves to create greater awareness of a supplier’s products among end user clients and engineering consulting firms.

6. Future Trends

During the period 2004-2008, the BOT approach will be re-examined for its feasibility for large-scale infrastructure projects in Taiwan. The authorities, already financially constrained by a public debt ratio set by law (48% of the average GNP for the preceding three years), has allocated a NT$ 500 billion (US$ 15.6 billion) budget to support Taiwan’s infrastructure projects through 2008. Viable projects proposed by state-owned companies like TPC and CPC will be supported by Taiwan’s banking system. The central authorities are also considering tax increases in order to provide continuous support for Taiwan’s infrastructure development.

For the time being, the Public Construction Commission (PCC) continues to have overall responsibility for administering the GPA, supervision of all public procurement activities and handling any GPA-related disputes which may arise over terms and conditions, qualifications of bidders or awards. Although articles of the Government Procurement Act (GPA) are periodically modified, there is feeling within the foreign business community that the Act still falls short of internationally accepted standards. The deficiencies continue to cause concerns for American companies seeking to enter, or expand their activities in, the market through bids on major projects in many sectors. The main conflict pertains to the lack of binding arbitration in disputes heard by the PCC’s Dispute Resolution Panel (DRP), which, in turn, can lead to years of wasteful legal expenses in the court system and dissatisfaction even if a firm receives a favorable ruling from the DRP. Additionally, the PCC does not require procurement entities (end user clients or procurement management consultants) to strictly adhere to its guidance on tender preparation and the inclusion of key articles, such as the one pertaining to Limits on Liability. Without such protection, American firms, concerned about the risk of being assessed incalculable financial damages at a later date on a given project, must consider whether or not they should bid on a specific tender.

Projects proposed, delivered, and financed by government entities or state-owned enterprises must be published on PCC’s government procurement web site. The PCC also monitors and controls all BOT projects. As noted above with regard to selective use of articles such as Limits on Liability, government entities are entitled to procure according to the procedures set in the GPA. However, those public entities without procurement authority can authorize the government-owned Central Trust of China (CTOC) under the Ministry of Finance (MOF) to manage their procurements. However, the CTOC can only help public entities procure general goods-type products. For complicated engineering projects, these government entities have to establish in-house engineering units or authorize the Ministry of Interior’s Construction and Planning Agency to conduct procurements for engineering services.

According to the organizational reform plan drafted by the Research Development and Evaluation Commission (RDEC) of the Executive Yuan for passage by the end of September 2005, the Ministry of Transportation and Communications would be transformed into the Ministry Of Traffic and Construction by combining PCC's engineering procurement business and the Ministry of Interior’s construction-related business. By the end of 2005, the revamped MOTC would be the only government unit responsible for overseeing Taiwan’s government-sponsored infrastructure projects and will provide the expertise necessary to evaluate the qualifications and performance of bidders for BOT tenders. Additionally, the Ministry of Finance will assume responsibility for administering the Government Procurement Act and manage BOT contracts. In the event the reform is not passed as envisioned, there will be no change to the current structure.

7. Links to Additional Resources

Resources in Taiwan

AmCham Taiwan

U.S. Government Resources
Asia Now News
Major Projects in Japan

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