The amended Article 73-1, Article 85-1 and Article 86 of Government Procurement Law (hereinafter, the “Law”) were promulgated on January 6, 2016, and the provisions concerning “the schedule and examination procedure for payment by the procuring agency,” the “inclusion of technical service mediation in the scope of compulsory arbitration,” “the requirement that the Appeals Review Committee shall provide mediation recommendations or proposals with respect to the mediation of construction and technical service cases,” and “the increase of the upper limit on the seats of the Appeals Review Committee to 35” were added. The most noteworthy aspect of the amendments pertains to the mediation of construction and technical cases, and the Appeals Review Committee is required to propose mediation solutions. The amendments will contribute to the performance of the Appeals Review Committee in resolving construction and technical mediations.
1. Dispute resolution mechanisms under the Government Procurement Law
Article 85-1, Paragraph 1 of the Government Procurement Law (hereinafter, the “Law”) provides that if no consensus can be reached in government procurement performance disputes, the disputes may be resolved by applying to the Appeals Review Committee for mediation or by referring to an arbitration organization for arbitration. The is the mediation system added to the Government Procurement Law of February 6, 2002, and it is also stipulated that a procurement agency shall not refuse mediation application in the hope that government procurement disputes can be resolved more quickly through the Appeals Review Committee.
In addition, because of the controversies over arbitration, the Law does not require government procurement disputes to be resolved by compulsory arbitration. Therefore, a procuring agency and its supplier shall still reach an agreement in order to resolve disputes by way of arbitration. However, since most procuring agencies are suspicious about arbitration proceedings, they are not willing to agree with suppliers on arbitration.
Although this Law allows a supplier to resolve disputes through arbitration, which is relatively professional and speedy, under such backgrounds, still when procuring agencies refuse mediation and consensual arbitration in practice, suppliers still have to seek remedies through civil action, which lasts at least three to five years. This is very disadvantageous to suppliers and runs counter to the gist of the Law to accelerate dispute resolution.
2. Mechanism of “mediation before arbitration” in the 2007 amendments
However, the demands for arbitration proceedings to resolve highly professional and time-critical cases such as project procurement are still undeniable. Therefore, most suppliers still hope that there is a mechanism for compulsory arbitration in this Law to reduce time-consuming civil proceedings. To enhance the efficacy of dispute resolution via arbitration and as a result of compromise, when this Law was amended in 2007 again, the requirement that “when the mediation recommendations or mediation solution proposed by the Appeals Review Committee concerning project procurement are not successful due to disapproval of the procuring agency, the procuring agency shall not refuse the arbitration referred to by the supplier.” This establishes the system of “mediation before arbitration.” It is hoped that procuring agencies can accept mediation proposals as much as possible by enhancing the performance of mediation. In addition, when procuring agencies reject such proposals, the suppliers may resolve disputes through professional and speedy arbitration proceedings.
After the Law was amended in 2007, the performance of the system has been enhanced by adding the mediation function of the Appeals Review Committee, and suppliers have been provided with an opportunity to resolve disputes by way of arbitration proceedings, even though the system is still not flawless. With respect to mediation proposals, Article 85-1, Paragraph 1 of the Law provides: “When the parties have not reached but are close to an agreement on the mediation of performance disputes, the Appeals Review Committee shall consider all circumstances and consult the members of the committee to balance the interest of both parties and to make a mediation proposal ex officio.” Since mediation proposals are made ex officio by the Appeals Review Committee, it is not rare that the Appeals Review Committee resolves that the mediation is not successful because of an excessive gap between the parties.
Therefore, whether a dispute can be smoothly resolved by mediation proceedings or by arbitration proceedings when the procuring agency disagrees to the mediation proposal lies entirely in the ex officio intervention of the Appeals Review Committee. If the Appeals Review Committee refuses to make a mediation proposal, the situations facing suppliers are actually no different from those before the Law was amended in 2007. Under such circumstances, not only project procurement disputes cannot be resolved in mediation proceedings, but also suppliers can only bring civil action separately in a court with no recourse to arbitration proceedings. On the other hand, since an excessive gap between the parties can prevent the Appeals Review Committee from making a mediation proposal and block the potential compulsory mediation later, there is certainly no incentive for procuring agency to seek a solution under the current mediation mechanism. If the parties still have to revert to time-consuming civil proceedings following the “business as usual” mediation proceedings, this still goes against the initial objective of creating a mediation system in this Law.
Therefore, although the provisions concerning mediation before arbitration are well-intentioned, it is still difficult to expect ex officio intervention by the Appeals Examination Committee in light of the manpower and time constraint of the committee. In addition, procuring agencies do not have incentives to resolve disputes in mediation proceedings, either. Under such circumstances, arbitration proceedings can hardly become a channel to resolve disputes over government infrastructure projects on one hand, and the effectiveness of the mediation system is conversely impaired on the other hand.
3. Improved effectiveness of the mediation and increased likelihood of arbitration proceedings as a result of these amendments
As previously stated, it was attempted in the 2007 amendments to improve the dispute resolution performance of the mediation system via “mediation before arbitration.” However, there is still room for adjustment to resolve disputes over time-critical and professional project procurement and technical service procurement in actual practice over nearly a decade.
To fulfill the mediation function of the Appeals Review Committee, the legislative reasons of these amendment indicate: “It is specifically stipulated that the Appeals Review Committee shall make recommendations or mediation proposals to fulfill its mediation function. In addition, with respect to the requirement for mediation before arbitration, since technical services are often related to project design, supervision and project management, it is additionally stipulated that this Paragraph also applies to technical service procurement in order to speedily resolve performance disputes over technical service cases. The old and new provisions of Article 85-1, Paragraph 2 of the Law are compared as follows:
A procuring agency shall not refuse the mediation in the preceding paragraph if it is applied by a supplier. If the mediation recommendations or mediation proposal made by the Appeals Review Committee are not successful due to disapproval of the procuring agency, the procuring agency shall not refuse the arbitration referred to by the supplier.
A procuring agency shall not refuse the mediation in the preceding paragraph if it is applied by a supplier. In a mediation for construction and technical procurement, the Appeals Review Committee shall make mediation recommendations or mediation proposals. If the supplier refers to arbitration after the mediation fails as a result of the procuring agency’s disapproval, the procuring agency shall not refuse.
Therefore, these amendments compel the Appeals Review Committee to fulfill its mediation function by requiring it to make mediation recommendations or proposals which the parties to the disputes can accept and consider in highly professional and time critical construction and technical service procurement and hope that procuring agencies and suppliers can resolve disputes under the mediation system as much as possible. On the other hand, the “mediation before arbitration” mechanism is prevented from been hollowed out on the ground of “excessive gap between the parties” unlike what happened in the past. When mediation proposals are required, procuring agencies and suppliers are better positioned to truthfully, sincerely and seriously make their substantive assertions in mediation proceedings and will take the mediation proposal made by the committee members seriously. In addition, in view of the caseload of the committee members, these amendments increase the upper limit on the number of committee members under Article 86 of the Law from 25 to 35. This shows these amendments plan to improve mediation performance.
Project procurement is highly professional and time critical and resolution via civil courts is often time consuming. If mediators with professional capabilities or arbitration organizations can be harnessed to conduct mediation or arbitration, this should be beneficial to speedy clarification and resolution of disputes. However, since the Government Procurement Law was amended in 2002, although a supplier may apply to the Appeals Review Committee for mediation or conduct consensual arbitration with the procuring agency, still a supplier is, in reality, often compelled to bring time-consuming civil action in a court in a conventional manner due to the procuring agency’s misgivings over arbitration proceedings and the inability of the Appeals Review Committee to make a mediation proposal. As a result, the objective of fostering agreement between the parties to resolve disputes under the Government Procurement Law has not been effectively achieved. The requirement that in a mediation for construction and technical procurement, the Appeals Review Committee shall make mediation recommendations or mediation proposals under these amendments helps improve the performance of the Appeals Review Committee in resolving construction and technical disputes and increase opportunities for suppliers to refer to arbitration. Therefore, the amendments should have substantive contribution to dispute resolution for government procurement.