January 2023
Elizabeth Pai and Luke Hung
The Public Construction Commission (hereinafter, the “PCC”) amended the Model Contract of Construction Procurement (hereinafter, the ” Model Contract”) via the Gong-Cheng-Qi-1110100555 Circular of December 22, 2022. These amendments primarily targeted construction delay, material cost adjustment, dispute resolution team mechanisms and contain substantial amendments as stated below:
1. The “cap of liquidated damages” for contractors’ performance delay and the threshold for the procuring entity’s initiation of the accommodating progress management measures are revised.
For performance delay issues such as construction delay, past Model Contracts basically cap the amount of liquidated damages for delay on the contractor at “20% of the total contract price” (Article 17, Subparagraph (4) of the Model Contract). As for the accommodating progress management measures including the initiation of the “suspension of progress payment” by the procuring entity and the “termination of the contract,” whose default threshold is “20% behind schedule due to causes attributable to the contractor” (Article 5, Subparagraph (1):5 and Article 21, Subparagraph (1):5 of the Model Contract).
The Amendments lower the cap on the default liquidated damage for delay on the contractor to 10% of the “total contract price,” thus limiting the maximum liability of the contractor. However, the threshold that allows “the procuring entity to suspend payment and terminate the contract” in a huge construction procurement (with a contract price of at least NT$200 million) is likewise lowered to “10% behind schedule due to causes attributable to the contractor ,” so that the procuring entity can initiate relevant measures to address the progress delay of a huge construction procurement earlier to reduce the risks of both the procuring entity and the contractor. The contractor is advised to pay attention to the situation of delayed progress in a huge construction procurement and handle the work extension of time pursuant to the contract as soon as possible to avoid the risk of breach.
2. The calculation standard for the material cost adjustment payment is revised.
These Amendments, which consider Point 13.7 of the Guide for Special Provisions of the 2017 FIDIC Red Book for reference, revise the calculation of the material cost adjustment payment under Article 5, Subparagraph (1):7-(7) of the Model Contract by changing the “constructed portion” from the original default of “calculation of the material cost adjustment payment based on the consumer price index of the current month” to the calculation of the material cost adjustment payment based on the consumer price index of the “previous month” by default, and additionally provide that both parties to the contract may separately agree, before ordering materials, to calculate the material cost adjustment payment based on the index in the “material ordering month” or “a certain month before the actual construction (note: not earlier than the material ordering month)” according to the characteristic of “a longer delivery schedule” or the “different time required from material ordering to the actual construction.
3. The composition of the dispute resolution team is simplified.
On July 24, 2018, the PCC stipulated the dispute resolution team mechanism in the hope that the dispute resolution team can help the procuring entity to resolve disputes through group meetings, avoid biases, and ease the concern that the personnel of the procuring entity will assume the pressure alone so as to quickly resolve performance disputes. However, in the past, the members of the dispute resolution team were selected through a complicated process of “nomination and selection by both parties,” and the procuring entity had concerns about the nomination of the members of the dispute resolution team. As a result, there have been no cases involving the “consensual establishment of a dispute resolution team for a government procurement project” in practice.
To enable the system design of the dispute resolution team to fulfill the above-mentioned functions, these Amendments of the PCC greatly simplify the composition of the dispute resolution team under Article 22, Subparagraph (3) of the Model Contract by adjusting it as “the personnel of the procuring entity shall serve as the convener, and the personnel of the procuring entity as designated by the procuring entity or two fair-minded individuals recruited from the outside will serve as the members, and the team shall consist of an odd number of three or more member.” In addition, the contractor is allowed to recommend fair-minded individuals.
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