Part 7-2: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021) 

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/)
(mtkaoforum31@gmail.com)  

3). Chances for Taiwanese Construction Industry to go for Overseas Market

(1) There’re two possibilities that either Taiwanese contractors come to oversea countries working as pure constructors with supposed superior construction technology and engineering ability to the natives; or to take the total scope of project development providing loans, complete planning and design, carry out construction, undertake operation and until transfer back the works to the owner.

In the first option, Taiwanese contractors go for overseas only win and make money when they’re proven competitive and efficient, that they’ve to show overall edges over local contractors who grow stronger day by day. And as described above, the overhead or added value enjoyed by pure construction works are limited and market become tighter and the rising local constructors are able to take almost every contract.

It won’t help whether or not the owner of the projects are governmental or private for Taiwanese contractors. As civil work is concerned, no places in southeast Asia will think Taiwanese contractors’ service is indispensable.

But if Taiwan can provide loans in connection with the construction contracts, the contractors will be welcome in many places where provision of loans will ease the financing strain to confine the development. The competitors in the project involving investment or loans will be European, Japanese or those from NIC countries. Taiwanese companies will have greater chances to get the works and the contractors may work for project management or real construction. However, the loaning agreements usually are between governments, so called “G to G”, to guarantee the return of the loan. The chances aren’t there now.

Should loans not be available, Taiwanese contractors or engineering firms will have to work as the subcontractors of the international developers and main contractors. And they need to prove they will be able to save money, keep quality and speed up the progress for developers or main contractors. And it means they have to contend with other NIC contractors or even the ones of third world origin.

(2) A foreign company can never be as efficient as the natives to organize local labor force or purchase cheap material. Working capital is also something that the contractors from developing economics no more feel they are short of. So, only projects with elements Taiwanese contractors will have advantages over the native companies, they will have chances to get the works. Say, better construction technology and work experience.  
However, Taiwanese sub-contracting system is a problem that the resources, especially those to support market development, are thinly divided among many sub-contractors. The Market is highly fragmented so that the main-contractors, even those with high revenue on the report, staff very limited number of engineers. This is another difficulty for Taiwanese contractor to pursue the overseas contracts in tendering and execution stages because you can’t send people from small company abroad without affecting their homeland activities.

(3) So, it seems like that only consulting companies can go to take limited amount of overseas engineering contract as much of planning and design works can be done remotely in Taiwan.

Of course, the engineering works done must conform with standards and norms such as BS, DIN, or JIS wanted by main contractors and not CNS or American codes usually followed in Taiwan.

Supervision will be another challenge because the owner or international main contractor wouldn't pay as much of Taiwanese expatriate will cost. So, majority of them require a competent local partner to second.

The purpose to work in overseas countries shall be reviewed. Will the business expanded to cover foreign countries be allowed to fetch overheads, profits or service charges as required? Or will it increase the sales of home country made product, software, construction plants or permanent equipment?

 

4). Adjustment needed for Company getting Overseas Contracts 

(1) Consideration shall be given to the overseas allowance, vocation, compensation for tax incurred in foreign country, care of spouse and education of children for the expatriates sent to foreign land in addition to their regular salary and bonus in home country.

(2) People sent to foreign land will face challenges and can very likely be working in desolated situation; and only elite of each discipline shall be assigned to solve the quandaries.

Contrary to the above, two problems always appear in a company undertaking overseas works: 1. sectionalism exists in the concerned departments, chiefs tend to send less qualified people;  2. After distinguished performance in overseas projects, many expatriates coming back home only to find out "good" positions having been occupied by people of inferred capability.

There must be a fair policy and under it a mature personnel management system covering domestic and overseas projects. The chief of department must be a stakeholder for success or failure of the projects the company undertaken.

(3) The percentage of overseas sale amount may be just a few related to total company revenue, but efforts to spent for supporting operation in different countries, such as accounting, taxation, currency exchange, law and rules abiding, local standards and codes, contractual administration, procurement, and financing arrangement can be unproportionally heavy in headquarter. 

The unfamiliarity and the relative massive cost to prop remote operation always hesitate the responsible managers of the supporting departments to throw in reasonable cost to administer the issues, until it become big problem. Thus, furthering the companies’ reluctance to take more overseas works.

(4) The company pursuing overseas works shall offer money, know-how, credited work experience and ready to deploy talented people for whatever the projects undertaken at any time. However, it takes time to obtain a contract, the company shall be big enough to dedicate for what they will have in hands given the short mobilization time. 

Ironically, big company and their follow managers only to think of overseas business at times when they feel jobs in hands aren't enough. But the contracting business will not come only to fit your schedule, again, only those with plenty resources can afford to do overseas work.

5). Assignment of People for Overseas Works.

(1) The assignment of branch or project managers of overseas works are critical. They’ve to be adaptable and adeptly in strange country: keen and quick to accept different culture; eager to defend own company’s interest and shun from any private agenda. 

The appointment has to be prudent because they’re one of the very few can be sent from mother company to lead in the places where the projects located because of the high salary difference compared with the locals.

In general, personality of a representative is more important than his education; cultural adaptability than language, and impulsive energy than professional experience.  

(2) It takes time to get the good contracts in overseas work, however, the company management is not patient to wait for the business success and is likely to push for immediate money count. For overseas work, meaningful scrutiny can only be made by people closer to the place where clients and projects are located, i.e., the representatives or the agent in the area. Under enormous pressure they may be forced to undertake projects not worth for risk and resource spent.

For the same consideration that the people in headquarter shall not be hasten to recall representative(s) from foreign branches or to change the local agent unless they’ve made mistakes hurting interest of the company. 

6).  Necessary Mentality Changes for Overseas Business Decision Makers

(1) The company management shall be knowledgeable for overseas business; and is willing and passionate to develop prospect in foreign lands. If the decision makers himself have overseas experiences themselves, it’s a plus.

For Taiwanese companies enjoy vigorous domestic business at the moment, they must understand prosperity brought by market protection is temporary, that only the industry strong in essence and endurable for foreign competition the companies’ future can be guaranteed.

In view of the problems that always happen in a small construction market, the management and employees of Taiwanese companies all alike shall realize the need to go out for challenge, is a hard but useful way to embrace the bigger market, not least to get baptized for advanced technology through early contact with the international competitors. 

Consequently, all of them shall be willing to strengthen expertise, learn international practice and adjust attitude and approaches. 

Before going for specific project, the Company must make sure it will have people experienced enough to go for assignment; or it have fair chances to recruit qualified people. 

(2) For operation in strange country, the company management shall open their  mentality. The worst sentiment that an expatriate or those sitting in faraway mansions may develop is the feeling of superiority toward the locals; they judged the people wrongly for talent and loyalty and have to pay the price for wrong decisions all the way to losing money and reputation.

Actually, an idealistic team shall consist of local agent (sponsors, partners), staff and expatriates; working intimately to overcome the difficulties waiting for foreign companies.

A capable and trustworthy agent or sponsor will obtain in time information, establish links with authority, and acquire competitive local resource for the company. Above all, they wouldn't get wrong contracts for the company for meager commissions to continue the agent ship.

In almost all the countries, the implementation of the projects, engineering or construction, require minimum participation of the local partner(s); a good one will offer the assistance to reduce the cost, solve problems related to license and official permits. Some of the reliable local partner will be eager and able to share the financial overburden resulted from the unbalanced payment schedule.

The employment of locals, especially, in the branch office for business pursuance and project supporting is vital. Their salary and chances of promotion must be assured; and the opportunities to learn the advancing technologies must not be reserved. Overall, the employment shall be made in a way more prospective than their engineering contemporaries working for native companies to ensure loyalty and reliability.

As people from Taiwan in strict sense will only work as passerby ultimately. Trust and confidence must be established with the locals as they're there forever. Even slight discrimination will be incubated and turn out to become source of disloyalty and misconducted behavior in the future.

 Part 7-1: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021)

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/) 
(mtkaoforum31@gmail.com)  

1) Evolution of International Construction Projects:

(1) Stag 1: Free Movement of Construction Resources across the Borders

Lack or insufficiency of construction resources in terms of material, working capital, and technologies prompted the host countries to accept foreign construction companies to come to their turf when they build economies from scratch. It’s time when machine were expensive, native workers only available in number, local engineers yet to be trained, even the surrounding infrastructure to support the construction activities of the referred project were poor.

The recipient countries needed to implement the projects but they were also obliged to nurture their own construction forces for long term purpose. Therefore, they called for international tenders requiring more experienced and resourceful foreign contractors to be the main signing party, and demanded the local ones playing the supporting role.

Though the contractors from developed economies might complain the restraint sometimes made by the local partner as unnecessary; in general, as a stranger, they really need good guides helping them to recruit native workers, obtain regional material, and solving all kind of problems in a culture that they feel weird and helpless every so often.  

The local partners would act as sleeping partners or agents at the start when their ability to handle construction works was limited. But as time went by, they would grow in size and strength to advance their scope of undertaking. Their ascending, in certain extent parallel with the speed up economy development of the host countries, was inevitable that the international construction firms should have accepted and adjusted for their approaches. 

In view of the changing market in favor of the nurtured local construction firms, the governments used to welcome the international contractors would begin to amend the relevant laws so originally permitted free flow of machine, man and resources would be regulated. Always the new discretion would ask the foreigners only to carry out minor part of the business which the locals still need assistance; or sell expertise through “Technical Collaboration” arrangement by provision of plan, drawing and instructors. No more hefty revenues for the ones from overseas. 

After all, the governments holding the budget and opportunity to build the project should have final say to decide who he wanted to deal with. And for civil engineering, it had never been too difficult for people started with amateurism; therefore, the authority’s choice for the locals would be apparent because they could build things cheaply after brief learning process, and know how to navigate through local bureaucracies that foreigners would’ve never known.  

(2) Stage 2: Work Hard vs Work Smart! 

Thanks to the rising human cost and vanished technology edges, construction and engineering firms from developed economies had to withdraw from conventional third world market, only to see the fledging contractors of newly industrialized country (NIC) eager to fill the vacancy. The new comers took lessons learnt at home for past decades: trained professionals, learnt advanced technologies, and pay much attention for tangible construction, such as harnessing machines and plants once considered only the monopoly of the westerners for exceptional efficiency and exactness. 

So, the construction companies of newly industrialized country (NIC) wanted to go to overseas countries for projects that only yesterday the Westerners would come to their turf yelling yes and no for their technical and management supremacies. And now they had no problems to excel themselves as quick developed home market had offered many venues for practice.

Yes, it’s almost a definite conclusion that the construction companies from NIC would always out beat the westerners in international competition as price and schedule were concerned. But the outcome was disappointed as their accrued competence for overseas ventures didn’t even guarantee return of the costs let alone the profit. 

The reason is that the international contracts now are no more centered on pure construction. And in the name to make the investment more secure, a construction contract now require participation of those non engineers: notaries, law firms, inspectors, laboratories, certifiers, appraisers, unions, arbitrators etc. The absolute figure of fees paid to them is not significant within total contract price but still enjoyable sum compared to the meager overhead allowed for the hard-working general contractor, most of them now from NIC. 

The rules of the game have changed. We also understand the contract and its practice mainly are stemmed from custom and history; conditions and specification are drawn by contract experts from developed economies, language and proceeding offspring of the same culture. When westerners quit the substantial construction, they create added values continually to complicate the works in the form of "norm", "standard", and "proof", which the Asians may have difficulty to comprehend.  

It’s not to say that the values generated by technology, craftsmanship and labors for construction projects become less important. But it’s conceivable that working hard as the only way to thwart competitors from the developed economies isn't practical. The industry evolved, not everything can be repeating. 

(3) Stage 3: Investment Security Trump Everything and in Favor of the Establishment

The trend for construction works in 21st century is many of the gigantic projects will be invested by private entities as schemes like BOT or BT continuously churned out from governments with drained out coffer. Money is everywhere but the mammon doesn’t like to face uncertainty; so the professionals now including commercial experts are flattered to present risk free schemes to woo investors. The security of capital and return of vowed profit will be priority to trump anything else. As a result, the concerned parties have to pay attention in project phases starting from planning, design, construction, O & M, and until even marketing of the product.

Construction cost is important judged from the big number it used to be, but its share in total price become lower as non-engineering cost rises in weight. Then, the guarantees for work completion is everything, the evolution continues, that the real constructor may not be the one awarded the contracts because the records to complete the similar projects, capability to accelerate the delaying works, or financial power to indemnify the relevant parties will be more critical.

Public or private clients, when they want to initiate or kick start a valuable project, justification as to determine who shall be main partner is important because when something happens there must be questions drawn by stakeholders, only then the decision maker will find awarding to a reputable company is a safety play.

Nowadays there won’t be many conventional “build according drawing” construction contracts among international tenders, the contractors from advanced economies adapt very quickly that they go beyond traditionally a pure construction company will have to do so as to respond to the client’s diversified demand. On the other hand, many contractors from NIC consider technology and work efficiency most essential part of competition have met difficulties for overseas projects. 

So, no wonder that the main contractors undertaking great overseas project today don’t need to own any construction resource themselves, they can have many choices to sub-let part or whole construction works to single or dual constructors who maybe local, or a self-regarded higher tier contractor from overseas countries. He may exercise control and deliver the work effectively similar to what Nike or Adidas have done over jerseys and shoes. 

Under the so-called globalization market system, free flow of man, money, machine, and material is encouraged; and it seems fair. But the problem is now the companies in less developed economies will provide labor and skill for substantial part of the works but share limited added values compared with those set up the standard, specification, giving checks and certificates, maintain the margin and profit, but seldom bear the risk.

The 20th century capitalists in construction industry established powerful machine fleet, fostered engineering capability, put up contractual and legal frame, and monopolized banking system with all their cultural and political advantages indeed commanded the business for long time. But when those escaped from exploitation considered themselves a good learner to be one member of the new class; the 21st century capitalists evolve and thrive, that they now will secure capital and retain return through "possession" and "exchange", exhibited in forms like “added value”, “creation”, and “reputation”, to the frustration of late comers. 

Part 6-3. Features of Construction Industry explained in 5M, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021)

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/) 

(mtkaoforum31@gmail.com)

 4) Money

(1) Payment: cash, in kinds or goods (barter), deferred (BT), franchise revenue (BOT, PMI).

Men work for money, only after the contractor can get full payment the completion of the project is meaningful to him.

And because the construction contracts normally are with big amount of money, public or private owners will have various form of payment according to their financial conditions. Normally they will be paid in cash, kinds or goods (barter), deferred payment after completion and transfer to the owner (BT), or paid through franchise revenue (BOT, PMI).

It also possible that the form of payment can be mixed between the above mentioned methods. The contractor must evaluate its own ability to accept the form of payment, for example, when he would have accept the payment in crude oil over long period, he has to evaluate the possible oil price fluctuation and the extent and cost that he would have been protected by the futures.

The reliability of the owners, government or private companies must be taken into account.

(2) Standard international contract Forms

How the contractors get paid depends on the contract conditions entered with the Owners. Normally we‘d have type of contracts such as:

FIDIC  (The International Federation of Consulting Engineers) (Red Book 【building and engineering designed by the Employer】, Yellow Book 【M&E, building and engineering works designed by the Contractor】, Orange Book 【 design, build and turnkey works】, Green Book【 the short form of contract】 ,Silver Book【 turnkey contracts. 】, Gold Book for Design, Build and Operate Contracts】, Turquoise Book【 Dredging and Reclamation Works】),  NEC3(New Engineering Contract3, used for civil works in UK., Australia, New Zealand and Hong Kong, the language of it is simpler and the signing parties are said to be more equal), AIA(American Institute of Architects, form of contract popular in USA.), JCT forms of Contract(Joint Contract Tribunal, for architectural works in UK.)…etc..

As projects are different for each other, the contracts need to be modified to fit the situation; they will be reflected in so called Special Application (or Conditions) and leave the General Application (or Conditions) unscratched. Whatever slight difference in Special Application will result in big departure in reality so that the contractor need to read carefully even the author of standard contract or the Owner would have claimed they're the most friendly contract terms.

(3) Money beget Money.

Compared to the old days now that big component of  contractual money pays for intangible part of the project in the name to protect every party involved. The added value including the cost to acquire money, assure the delivery of the works, O&M of the project and even to the extent to guarantee the products or the purposed functioning of the project will be welcome by the customers. Thus, the added values are created.

But it is true that engineers are not playing the dominating roles in construction business because the invention as said is from improvement of technology, business skill, capital fluidity, which, financial, legal and MBA people intrude and colonize relentlessly.

Though money is everywhere (due to QE?), but they get more respected; people like to invent idea to attract the capital, for that they provide guarantees, mitigations and even placebo like assurance to fascinate mammon. Under the new trend, a big part of the construction projects will be controlled by hordes of non-technical people.

For example, the government has plain financial resource for construction project and it will be spent almost exclusively for construction related items last century. And right now, big chunk of them will be paid as financial cost for BOT and/or PMI as people argue private capital shall be required or investment on public works will lag behind. A small but still significant part of money will go to the so called independent third parties for their certificates, report and affidavits at non bargain-able cost (as to be disposed by those non-technical people), while the construction hands need to compete each other.

Engineers must realize, somehow, they would become a secondary role for the construction projects, but on the other hand, they could become a better manager than people of other discipline to control the whole project because they know better than any others. Of course,  if they reject to become more "general" they will lose the chance to be the dominating figure of their project.

5) Market

(1) Contractors with Lemming Mentality

As it's said above, there're 2,800 strong Class "A" contractors in Taiwan to apportion a small market; the threshold to go into the construction market isn't high as capital (relatively low to the contract amount) is concerned. When they get contracts, the contractors will find many sub-tier contractors more than eager to share risks and sometimes loss despite ability is in question.

The running cost for a Class "A" contractor is low in Taiwan, the minimum expense will be fee paid to registered PE, a tiny office, plus a secretary to answer the bell. When the bosses cannot get business, they just need to go for "hibernation", and pay such low cost for some time. They will wake up when they get contracts and then recruit people including manager and engineers, so as to activate the company. As a matter of fact, employees won't be against shoot and off employment styles because most of them like to attach themselves to the area they like, particular big city or home town, making themselves ready when someone get the contract.

So, the contractors of "entrepreneur" type are of the majority. They're competitive and spiral the awarding price, especially of public works down. The market practice is not possible to nurture big contractors with know-hows and experience.

But one day it will come, provoked by market mechanism destined to happen, such as sudden sabotage of dump trucks of 1990 (resulted in soil haulage hike and aggregate short supply), or sharp escalation of steel price in 2006. Many contractors didn't have sufficient provision for contingency gone broke and their number culled significantly before market re-juvenescence made competition rise  again.

The process repeats again and again; the contractors go up and down like riding on the changing tides. One moment, the contractors' number will be swelling like lemmings grow to incredible number in short spring time; the other moment the nature will work, drive some of them jumping from the cliff and the rest follow. The market are still there for another cycle; but the saddest thing is the professionals wouldn't have chance to lead while public has to bear most of the cost that speculators have to pay.

(2) Style of Competition: Lowest Bid, Evaluated Lowest bid, Value for Money.

The problem of construction industry in Taiwan is over competition. Lowest bid is blamed because under the bureaucratic system the budgets were considered to be right and a standard for the contractors. The winning price was considered as true market cost or the one edit them shall be subject to official chastisement. Automatically, people, the budget builders or the tenders will consider it as a bench mark for similar tenders. Vicious cycle will begin and the prices become less flexible waiting for another episode to correct; of course, it's always too late.

Evaluated lowest bid is taken with the hope that the best contractor and their offer can be selected as the best for the project; however, the winners may not be the most outstanding one, and the judges' supposed imparity can be second-guessed. Authority try to improve the criteria for evaluation of the bid only invite more criticism and so the evaluated lowest bid system stopped at 2007. For similar stories, BOT and PMI also suspended except for particular projects; and the tendering system returned to lowest bid for next decade.

It could be true that in recent years the contractors didn't make money and running business only to keep office open. They lose expertise because the poor overhead don't allow them to afford the employment of senior engineers. 

When they've made mistake individually, they suffer; when market changes drastically, everybody suffers too. Therefore several tenders in recent years, they are "aborted" because contractors consider the budget is too low and  schedule tight. So, the evaluated lowest bid is coming back, the authority may get lessons and be more careful to choose the "judges" this time. Hopefully.it will last long. 

The final goal for government spending shall be "Value for Money", in which, the project completed will worth money spent, it's subjective as modern construction will involve different requirement by different sectors, thus giving different evaluation. But it's starting, we wish the bad element in the market will be eliminated and professionalism will have chances to prevail.

(3) Elements of Competition.

A market considered normal will be the one that the consumer is most important. For public works the government is single biggest buyer, he can draw the lines to select the contractors based on their performance, past experience and readiness for the current tender.

It means the government can define a clear and objective criterion for elements such as price, technical approaches, time of completion, safety record, experience in similar works, existing work loading, managerial and technical resource in hands, records of contract disputes (with owners) …etc...

For international construction tenders, the owners usually will analyze and evaluate the tenders according to the criteria established objectively. The scores and the tabulation can then be submitted to higher ranking people, maybe figures with reputation, for review. The process will eliminate the subjective judgement to minimum to prevent the outside criticism and interference. 

It's true that during the selection of the contractors, the authority and invited judges will "play god" to bring up the winners, and the result maybe that the selected aren’t the perfect ones because many factors are involved during the selection and later execution. In Taiwan, people may not be patient and policy makers are susceptible to criticism, however, the rules shall be respected at least for some time. There will be some time for confidence building, even if people are not fraternally to each other.

(4) Defying the International Norms.

For long past and even for now, the developed countries especially Europeans and Americans have big say on the codes, standards, disputes solutions and financial arrangement of the international projects. They are establishment enjoy privileges and power more than their competency.

The Asian powers are late comers in the field and also they are to follow specifications and conditions established by the advanced economies. As a result not to have sufficient chances or clout to interpret the contract, they suffers considerable losses in international construction market despite they have good engineering knowledge and construction dexterity. 

We believe it's not an intended design based on the race and culture but is an essential market problem after long time practice, and realize to change it immediately will be difficult if not impossible. 

There could be solutions, one is forceful and intransigent, complete "westernization" like what South Korean have gone under through; that they're indisputably good in high rise building and complicated plant built-up. The other is to change the game rules as Chinese have approached in their Belt and Road Initiatives, success or failure, remain to be seen. 

People have to recognize that many of our practice in construction business, which shall be very local, actually involve many western norms; you modify them, or they change you. Again, to be patient.