The Public Construction Commission issued the Gong-Cheng-Qi-10600380760 Circular of December 5, 2017 (hereinafter, the “Circular”), pointing out that government procurement policies should encourage a government agency to use arbitration clauses; if a procuring agency seeks to bring suit to set aside an arbitral award which has been issued, a cost benefit analysis should be conducted.
It was first pointed out in the Circular that according to Resolution 14 adopted by the fourth panel (dealing with the theme “4-2 People’s Judicial Participation”) of the Concluding Meeting of the National Judicial Reform Conference on August 12, 2017, “with respect to the arbitration mechanism, government procurement policies should generally encourage government agencies to use arbitration clauses, and a government agency is required to conduct cost benefit analysis before bringing suit to set aside an arbitral award.” According to the explanation about the resolution, “since the plaintiff’s success rate in a lawsuit filed to set aside an arbitral award is below 5%, while the cumulative statutory interest in the lawsuit is calculated at a statutory rate of 5%, which is much higher than the going interest rate in the market. To get rid of government liabilities, a government agency often rashly brings suit to set aside an arbitral award and runs the high risk of paying interest at a statutory interest rate of 5% with 95% probability, resulting in a waste of government budget in statutory interest payment. In addition, one instance arbitration procedure becomes one plus three instances of trial, which absolutely runs counter to the objective of resolving disputes via such an alternative dispute resolution mechanism.”
Therefore, it was first pointed out in this Circular that all kinds of sample procurement contracts which have been formulated contain a “dispute resolution” section which includes beneficial arbitration mechanisms and clauses, including the selection of the arbitration institutions, the appointment of arbitrators, the facts and reasons that shall be included in an arbitral award. They should be helpful to agencies which seek to leverage the arbitration mechanism to resolve performance disputes. Finally, the Circular also points out that if an agency seeks to bring suit to set aside an arbitral award which has been rendered, it is requested to carry out the above resolution by conducting cost benefit analysis first.