(Part 4, NTUST, 5908701)

Part 4, Advanced Civil Construction, 台科大高等土木施工學教材(2023)

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

(mtkaoforum31@gmail.com)

 

(1). Banks

 

Banks offer credit lines, grant loans, and acting as agents to collect or pay bills, draft, and cheques to companies or individuals doing business of construction and engineering.

 

Banks issue guarantee letters or cheques to the clients for bid bond, performance bond, advance payment bond, and warranty bond at the request of construction companies, design consultants, professional engineers, and architects.

 

In many cases, banks will issue letter of credit for contractors to buy equipment, material and service required to complete the project.

 

There will be overdraft facilities for companies to pay outstanding cash amount reasonably required in performing contracts.

 

Banks will evaluate the profitability, sizes, collateral, and reputation of the company, and grant them credit lines or loan, and quote the premium and interest rates subject to fluctuation over time.

 

There is possibility that the banks agreeing to offer loans for BT, BOT, or BOO projects, based mainly on feasibility, completion guarantee, and the ultimate owner of the projects (and in the case of overseas projects, the government and the owner). Usually commercial banks need backups of fund, investment companies or even state.

 

When construction related entities wouldn't obtain the credit lines as required or the existing credit amount sharply reduced, they could be pushed toward insolvency. The consequence usually is very serious and could probably invoke chain reactions for subcontractors and sub vendors for several times the amount main contractors indebted.

 

If the state won't go for rescue, banks, subcontractors, vendors, their employees will be induced for damages like the case happened to the second biggest contractor, Carillion of UK (https://www.arlingclose.com/insights/what-happened-with-carillion). But normally in a democracy, no sane politicians will vote continuing to finance the troublemaker, that's why banks are cautious in Taiwan.

 

(2). Insurance Company

 

a.      Most of construction contracts need insurance company to provide coverage for damages to property and persons related to the projects unless it happens due to excepted risks.

 

The employers wish themselves and the follow contractors to be compensated for maximum and paying fee in minimum. The public work owners are big customers so they will prescribe what they want in the contract document, and insurance companies and the contractors usually will comply the stipulation.

 

However, in many occasions the crooked contracting parties, seeking to reduce even very few percent of the insurance premium, will ask acquiescent insurers to provide conforming policies with covert agreement deleting the critical clauses demanded by the employers.

 

Though the insurance companies ostensibly are more law abiding these days, but there are brokers sticking to the old way doing business. It’s not fair to the honest contractors.

 

b.      Compensation to the contracting parties poses as a hard bargain when perils occur. The appraisers' proffer can be wide ranged and unpredictable. The approaches are much influenced by the commercial interest of the insurance industry, which is conflicting to the requirement of the insured, not mentioning the request of the endured.

 

The reality in Taiwan is that many of the contractors don’t pay much attention in safety requirement and spend money for proper construction facilities. When peril occurs, the insured may come up with plumped figures and ask for compensation.

 

There were stories that the re-insurer like Lloyd's of London rejected to reinsure tunnel work construction of Taiwan in 90's as many "Names" losing so much money. There were days that many tunnel failures occurred in Taiwan, whether or not they were the result of complicated geological condition or insured’s wicked intention o solve the progress and cost problems, we didn’t know. But we understand that the local appraisers and insurers weren’t innocent.

 

c.      Note always the proposed settlement has more to do with the commercial convenience of the insurers than what the contractors ought to accept. In other words, the staff and the managers of the contractors shall resist the mesmerizing persuasion by the policy sales and appraisers.

 

The insurance policy buyers shall study words by words for the compensation clauses attached to the main policy; and be careful about the practicality of the blockers, insurance company and appraisers before they procure the policies.

 

d.      In the United States, the project surety is issued mainly by insurance company or bondsmen for the full contract amount or its double. It's a different philosophy that the US employers want to be guaranteed for in-time and quality project completion so the insurer or bondsman needs to provide greater than or equal amount of project value to convince the employers that they'd have ability to finish the works.

 

And in place like Taiwan, the employers demand pays immediately an amount no less than their loss in the project with reservation that they can claim the difference of their loss later. Once people in Taiwan advocated that the insurance company can issue policies to serve as performance bond or for other purpose but find it difficult to implement, so the alternative only remains on the law.

 

e.      The insurance companies are involved so much in the construction projects, they're indispensable, but many in the industry including high ranking persons have wrong concept toward the insurance. The biggest problem is they can't distinguish the difference between contingency cost and insurance premium paid, the mistakes come from that they considered everything can be covered by insurance.

 

They may recognize there should be price escalation and it has been covered by inflation formula, and they continue to think that any other risk shall be identified and priced in the work items and a risk that can't be named shouldn’t be a risk. 

However, an experienced constructor will perceive that it is a cost attached to the project only in a way that nobody will know how and for what magnitude it will happen.

 

Finally, people responsible to establish the project budget will consider the contingency provision shouldn’t be entered for unnamed items lest it should become the additional profit of the tenderer. It’s wrong but widely accepted by the officials here.

 

(3). Investment Company or Fund

 

The international investment company or fund strolled around the globe seeking opportunity for investment in infrastructure projects as they felt revenue should be stable and return lucrative. But they were meticulous in Taiwan as they cared about the risks in design, construction and operation of those projects may not be in a way they’re familiar with.

 

The tedious regulations imposed by the government and "not in my backyard" populism would be detrimental to the budget and progress issues which are most critical to the infrastructure projects: returns are slower and lower, financial overburden heavier, and the market changes cancelling the necessity of the projects. And in the extreme case, the franchise company can be bankrupted.

 

So, the international investment company or fund including Japanese trading houses have to wait until now, start to buy shares of solar power plants, wind mills and sewage system when they feel the government, industry and the related player are more matured with regards to PPP initiative.

 

The international investment company or fund do bring in another risk mitigation concept: placing more emphasize on unanticipated and disadvantageous market changes in demand or supply, and the long-term interest rates and the underlying asset value; subject to variation in the so-called risky macro environment.

 

There can be two types of investment in infrastructure projects: one is to secure the opportunity for investment when everything is still blank considering that the profitability is proportionate; the other is to take over the project when everything is known and the return fixed shunning of risks.

 

In Taiwan the real estate business elicits capital and talent for its high growth and profitability. Developers are busy to hunt lands, deal with building codes, handle design and construction, and sell house and mansions, that they're not so interested in PPP initiatives. They could be tomorrow’s investors for ppp (public-private partnership) initiatives.

 

(4). Operator

 

After completing the public facilities, the government agencies or the private plants or building owners need people to do operation, functional checks, servicing, repairing or replacing of necessary devices, equipment, and machinery; and sometimes for system adjustment and expansion. The requirement hastens the delivery of the new facilities while many of the owners don't have the experience to do O&M especially the government agencies under recruitment, financial and efficiency restraint.

 

They're O&M companies, which should be an inseparable part of construction industry, always working under the poor financial conditions as politicians and capitalists over the world are good at dispense money for new fund buildings and facilities but less generous for their operation and maintenance. But now it is different.

 

Technicality will also be favorable to the O&M companies. The Engineers and the Contractors alike need the Operators' feedback to get sufficient knowledge for new facilities. 

And it's a tendency that the government prefer to using public–private partnership for O&M of the facilities to solve problems of lacking of flexibility in financial support and employee’s recruitment.

 

Over the years, the owners, government or private will ask the contractors to offer engineering, construction, plus O&M; there will be different models, and more sophisticated management contract will include improvements in efficiency and performance, which only is possible to include as much scope of service in one hand.

 

As it evolved, the Operator may be required to collect bills on behalf of the utility company, and may accept some collection risk, especially the clients are governmental, and the customers will be general public.

 

Engineers of next generation must think about whatever he will be, it tells of tomorrow’s engineers to realize the profession is service oriented, and to follow money's lead.

 

3)      Third-Party Participants: notaries, law firms, inspectors, laboratories, certifiers, appraisers, unions, arbitrators

 

The modern construction contract bring in piles of paper plus those un-printed storing in the computer, most of them presented as letters, reports, records, sketches, lists, certificates, diagrams, affidavits, pamphlets, photos, books, all of them filled with words, lines, symbol, sound, totem enough to decide the success or failure of the projects, though nobody is able to read through.

 

It's more than computer technology that the frontage players, supporting entities and participants of construction contracts all are the accomplice to ask for more document. For example, when contractors want to get loans, the banks may ask them to get reports from law firms to examine the contract conditions and to ensure the applicants are accepting everything. Or, the clients may demand the records of successful operation in completed facilities, certain laboratories may be asked to do the inspection works and submit the reports accordingly.

 

When the required documents bearing the names of the supposed independent party and showing the subject party has met the requests are received by the enquirer, it will be deemed as true and authentic. And as it evolves, there will be development such as:

 

* The party which demands information only trust prints from certain parties. Because the former now depend on the latter to identify the authentication of submissions from strangers or aliens.

 

* Though that the verifying party shall be independent and only responded to the requesting party, but the demanding party will have a big say to recommend the "right" verifying party; and in most of the cases, the requesting party will comply.

 

* If the verifying party has long working relationship with the requesting party, he would have more confidence to verify what he needs to verify within sort time frame, though they are independent and neutral. It happens to law firms, inspectors, laboratories, certifiers, appraisers, and arbitrators.

 

The industry reward regular customers, so big companies that always have more chances to contact third party participants will find it's easier and more swiftly to work out required document demanded by their clients. It's the same that the independent parties or organizations who are reputable in their domain also receive more recommendation from establishment.

 

Languages and culture should be the problem but not the only, the reality of the world is that the westerners will go to international arena using contracts, codes, standards, specification and practice the same as what are used in their homeland. The advantage is more apparent when the third-party participants with fame are confident to endorse them; actually, sort pf fortification.

 

Asian contractors go out to compete international giant, would have encountered invisible barricades, sometimes can be fatal to the projects. The story can be simple just because he wouldn't be familiar to and get supported by the established third-party participants who historically are not accustomed to working with oriental minnows. Right now, they’re real third-party participants.

 

Despite its laissez-faire appearance, 21st century capitalism is complicated in its work division, allocation of added values and borderless monopoly to collect rents.

 

In construction industry, the conventional added value attached to exercise of craftsmanship and dexterity to maneuver the machines now become relatively small as competition is harsh between the same contractors of developing economies. The new added value is created even to surpass what can be obtained from the exercise of the substantial works. The people familiar with "norm", "standard", and "proof" usually can avoid to do the risky and competitive tangible works and usually are done by the firms and organizations in the developed economies.

 

4) Stakeholders: Public, Authority, Neighborhood and Locals.

 

(1). Public

 

The public are the users of infrastructure and facilities, but they are volatile and can be convinced for opposite proposals. And it seems only the politicians claim they’re their representatives are knowing everything and the engineers have little to say for the true benefit of the public.

 

The professionals in Taiwan aren’t prestigious and dignified facing the public, instead, the media, councilors and TV host will be louder in all technical aspects than the engineers. Because the public demand 100% perfect over construction projects: budget, progress, durability, aesthetic, and functional for at all time, which are not possible in engineering, but they are spoiled because they’ve votes.

 

The politicians will take chance at the expense of the professionals, who will be depicted as pedant never knowing the true requirement of the people and the progressiveness of the society. 

Of course, there will be sometime that the public will be awakened learning politicians won't fulfill their commitment but the professionals has been tainted during the process. It’s easy in Taiwan the professionals including those from academic will be the scapegoat but their credit will never be recovered.

 

Infrastructure construction sometimes is associated with corruption and scandal, and some professionals may be involved, giving the impression that the engineers are not cleaner than the officials and councilors. So, the public is skeptical to the construction contracts and insist to have stringent supervision and they may feel comfortable when there will be supervision on top of supervision.

 

And when, most of the government agencies in charge of public construction in Taiwan openly claim that they will accept the citizens to supervise the construction works, a political approach, is a hurt to the professionals.

 

(2). Authority

 

The Authority referred here means the government agencies responsible to award permits, edit regulations, or decide the applicable codes so that the owner and the contractors shall observed for planning, design, construction, occupation and operation from initiation, completion until operation.

 

Land acquisition for public works shall be local government's responsibility, and usually it’s a procrastination process; maybe 5% of recalcitrant landowner will stop 100% of the works for commencement; and you’d see every day in Taiwan.

 

Safety measures are the critical issues that the government will demand the owners and their contractors to follow though. If incident to happen, the law and regulation will allow the authority (under Labor Ministry and their local branches) to exert severe punishment

 

It’s also possible that the public attorney can indict the representatives of the companies or institutions for crime charges. It’s also part of the reasons that the man contractors would sub-let the works to smaller companies with the ideas that the subcontractors will shoulder the responsibility.

 

Traffic diversion plans around the site in congested towns and area can be critical which the foreign companies coming to Taiwan will have difficulty to think about; but the commuters are sacrosanct. One of the impacts to urban construction, for instance, can be the use of more tower cranes in lieu of the mobile cranes.

 

Disposal for wasted and surplus material shall be subject to the grand soil reuse and disposal plan by local government; in general, the cost of excavated soil dumping is “managed” by people close to mafia and hardly the outcome is rational.

 

Utilities authority poses another problem for the developers and the contractors; outstanding drawings and missing locations cause the digs delaying and costly. Sometimes dangers would emerge.

 

License for buildings and plants shall go through the utility authority to ensure links with existing system. In Taiwan, utility company is called company, but people would think it's a kind of authority, not least they are run by government.

 

The fishing, agriculture and irrigation cooperative surely are the juridical association membered by ordinary people, but they are offered with the rights for fishing, planting and irrigation in their premises, to which any encroachment shall be bought with exorbitant price through hard negotiation.

(3). Neighborhood and Locals

 

The mentality of Nimby (Not in my back yard) affected construction very much; nuclear power plants and its refusal treatment can't be solved, for instance, as well as substations and transmission lines.

 

Roads, parks and sewers can't be built in many places as people don't want to be disturbed even for short time. The stories may be dated back to the old days that the authority abuse the power conscript land and put the people against construction down.

 

And now it goes for another extremity, for example, people don't want to accept any deflection or slight damages in their house when the excavation nearby have influence even within the tolerable value. Some of the people exercise extra judicial means to stop the works. It happens in chemical and power plants the neighborhood always cemented together to bar or interrupt construction and operation.

 

The governments of all level are relatively weak because the officers and councilors need votes; temples and churches for their grass root nature always sided with neighborhood defying the legitimate development. It's devastating but foreign and sometimes people from big city not well aware they are standing in lower ground if Buda and God aren’t stand beside them.

 

Many business people might miss the days when construction wouldn't have any problem to deal with ordinary people decades ago. But it's the democracy that people have chosen the system to defend their property and will; and as it flourishes the developers and the contractors must have patience in communication with the neighborhood and locals to move the project