February 2022
The Taiwan Public Construction Commission Announced that the “Sample Statement of the Adjustment by Price Index Clauses in the Tender Document Do Not Apply to the Bid Price” Is No Longer Applicable, and Concurrently Revised the Sample Construction Procurement Contract
February 2022
Elizabeth Pai and Sally Yang
The Public Construction Commission (hereinafter, the "PCC") issued the Gong-Cheng-Qi-1100102070 Circular of December 30, 2021 to announce that the “Sample Statement that the Adjustment by Price Index Clauses in the Tender Document Do Not Apply to the Bid Price” (hereinafter, the "Sample Statement") prescribed by the PCC by the Gong-Cheng-Qi-09800141010 Circular of April 3, 2009 is no longer applicable effective on the day of the announcement. The PCC also concurrently revised the Sample Construction Procurement Contract.
I. Backgrounds for the formulation of the Sample Statement
In 2008, the prices of some construction materials in Taiwan fell sharply, and construction operators complained that when some of the contracts were executed, the procurement price negotiations and the price payment for the construction materials had been completed. However, when they applied for price estimation with the entity during the construction work, the price index was falling sharply. As a result, the entity deducted the payment based on the falling price index (or the general index). The Association of Small and Medium Construction Operators also petitioned by stating that since its members are mostly contracted for small and medium-sized, shorter projects, the impact of price fluctuations is limited. Therefore, the association proposed that the suppliers could choose not to increase or decrease the price based on the contractual price index adjustment clause and make the statement on their own at the time of bidding.
As a result, the PCC released the Sample Statement[1] in 2009.
II. The Nature of the Sample Statement
The Sample Statement is voluntary in nature. Even if it is included as part of a tender document, a supplier may choose to submit or not to submit it, and this does not affect the bidding qualifications.[2] In practice, however, some procuring entities occasionally mistake this Sample Statement for a document that should be submitted at the time of bidding. In addition, some procurement projects include the "submission of such a statement by a bidder" as an evaluation item for selecting the most favorable bid.
III. Controversies in practical implementation
(1) Whether a supplier may still assert the principle of changed circumstances under Article 227-2 of the Civil Code after submitting the Sample Statement
In practice, there have been cases where a supplier executed this Sample Statement at the time of bidding but subsequently requested the entity in a lawsuit to pay a price adjusted by the price index. In this regard, a court decision pointed out: "Since the statement is also a contract document, the contractor should not assert that it is not bound by the statement and request the payment of a price adjusted by the price index. The contract has stipulated a fair allocation of the future risks, not to mention that there were no large-scale price fluctuations during the performance of the project. Therefore, the risk and scale of price fluctuations had been anticipated by the parties when the contract was executed. Since the extent of obvious unfairness is not constituted, the parties can only exercise their rights under the original contract and shall not claim payment adjustment[3] based on the principle of changed circumstances.
However, pursuant to the PCC's Gong-Cheng-Qi-1100016287 Circular of July 14, 2021, if a supplier executes the statement at the time of bidding and is awarded the bid, the parties to the contract may still consider the principle of changed circumstances under the Civil Code and negotiate the resumption of the price index adjustment clause in the original tender document to adjust the project payment for the "portions not yet constructed."
(2) Whether a supplier may still assert that this constitutes a "standard form contract" that is obviously unfair within the meaning of Article 247-1 of the Civil Code after submitting this statement.
The PCC has stated that the sample procurement contract is only for the reference of the procuring agencies and is not a standard form contract in nature.[4] A court decision affirmed: "A supplier can obtain the tender document before bidding, may send a written request to the procuring entity to seek clarifications or raise an objection based on the tender instructions, and then consider if it is going to participate in the tender after various factors are assessed. Since the supplier has opportunities to negotiate the contract, this is different from the situation where a party can only decide whether to execute a contract with provisions already formulated by the other party in advance."[5]
IV. PCC's considerations for terminating the application of this statement
In view of the controversies over the application of this Sample Statement, which may practically affect the promotion of infrastructure projects as mentioned above, and the fact that the Sample Project Procurement Contract (Article 5: Payment Terms of Contract Price) released by the PCC has already stipulated the mechanism: "for (the price index adjustment method), the procuring entity shall specify the adjustment threshold and ratio based on the nature of the specific project at the time of the tender; and if the procuring entity fails to specify this for a specific project, the default ratio under the sample contract shall apply," the PCC announced that the Sample Statement is no longer applicable and simultaneously revised the Sample Construction Procurement Contract on January 4, 2022 (by deleting the original provision on the "effect of applying the Sample Statement"). In the future, suppliers will offer their price quotations on the same basis at the time of bidding, which should be more fair and reasonable and can avoid disputes.
Elizabeth Pai and Sally Yang
The Public Construction Commission (hereinafter, the "PCC") issued the Gong-Cheng-Qi-1100102070 Circular of December 30, 2021 to announce that the “Sample Statement that the Adjustment by Price Index Clauses in the Tender Document Do Not Apply to the Bid Price” (hereinafter, the "Sample Statement") prescribed by the PCC by the Gong-Cheng-Qi-09800141010 Circular of April 3, 2009 is no longer applicable effective on the day of the announcement. The PCC also concurrently revised the Sample Construction Procurement Contract.
I. Backgrounds for the formulation of the Sample Statement
In 2008, the prices of some construction materials in Taiwan fell sharply, and construction operators complained that when some of the contracts were executed, the procurement price negotiations and the price payment for the construction materials had been completed. However, when they applied for price estimation with the entity during the construction work, the price index was falling sharply. As a result, the entity deducted the payment based on the falling price index (or the general index). The Association of Small and Medium Construction Operators also petitioned by stating that since its members are mostly contracted for small and medium-sized, shorter projects, the impact of price fluctuations is limited. Therefore, the association proposed that the suppliers could choose not to increase or decrease the price based on the contractual price index adjustment clause and make the statement on their own at the time of bidding.
As a result, the PCC released the Sample Statement[1] in 2009.
II. The Nature of the Sample Statement
The Sample Statement is voluntary in nature. Even if it is included as part of a tender document, a supplier may choose to submit or not to submit it, and this does not affect the bidding qualifications.[2] In practice, however, some procuring entities occasionally mistake this Sample Statement for a document that should be submitted at the time of bidding. In addition, some procurement projects include the "submission of such a statement by a bidder" as an evaluation item for selecting the most favorable bid.
III. Controversies in practical implementation
(1) Whether a supplier may still assert the principle of changed circumstances under Article 227-2 of the Civil Code after submitting the Sample Statement
In practice, there have been cases where a supplier executed this Sample Statement at the time of bidding but subsequently requested the entity in a lawsuit to pay a price adjusted by the price index. In this regard, a court decision pointed out: "Since the statement is also a contract document, the contractor should not assert that it is not bound by the statement and request the payment of a price adjusted by the price index. The contract has stipulated a fair allocation of the future risks, not to mention that there were no large-scale price fluctuations during the performance of the project. Therefore, the risk and scale of price fluctuations had been anticipated by the parties when the contract was executed. Since the extent of obvious unfairness is not constituted, the parties can only exercise their rights under the original contract and shall not claim payment adjustment[3] based on the principle of changed circumstances.
However, pursuant to the PCC's Gong-Cheng-Qi-1100016287 Circular of July 14, 2021, if a supplier executes the statement at the time of bidding and is awarded the bid, the parties to the contract may still consider the principle of changed circumstances under the Civil Code and negotiate the resumption of the price index adjustment clause in the original tender document to adjust the project payment for the "portions not yet constructed."
(2) Whether a supplier may still assert that this constitutes a "standard form contract" that is obviously unfair within the meaning of Article 247-1 of the Civil Code after submitting this statement.
The PCC has stated that the sample procurement contract is only for the reference of the procuring agencies and is not a standard form contract in nature.[4] A court decision affirmed: "A supplier can obtain the tender document before bidding, may send a written request to the procuring entity to seek clarifications or raise an objection based on the tender instructions, and then consider if it is going to participate in the tender after various factors are assessed. Since the supplier has opportunities to negotiate the contract, this is different from the situation where a party can only decide whether to execute a contract with provisions already formulated by the other party in advance."[5]
IV. PCC's considerations for terminating the application of this statement
In view of the controversies over the application of this Sample Statement, which may practically affect the promotion of infrastructure projects as mentioned above, and the fact that the Sample Project Procurement Contract (Article 5: Payment Terms of Contract Price) released by the PCC has already stipulated the mechanism: "for (the price index adjustment method), the procuring entity shall specify the adjustment threshold and ratio based on the nature of the specific project at the time of the tender; and if the procuring entity fails to specify this for a specific project, the default ratio under the sample contract shall apply," the PCC announced that the Sample Statement is no longer applicable and simultaneously revised the Sample Construction Procurement Contract on January 4, 2022 (by deleting the original provision on the "effect of applying the Sample Statement"). In the future, suppliers will offer their price quotations on the same basis at the time of bidding, which should be more fair and reasonable and can avoid disputes.
