Part 5-2, Advanced Civil Engineering Construction，台科大高等土木施工學教材(2021)
MT KAO (Blog: http://mtkaoforum31.blogspot.tw/) (email@example.com)1)
5:The Modern Construction Industry and its Major Players.
1) Frontage Players: general contractors, consulting engineers, architects, specialty contractors, labor gangs, investors.
2) Supporting Entities:
Banks offer credit lines, grant loans, and acting as agents to collect or pay bills, draft, and cheques to companies or individuals doing business related to 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 entities such as 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 amount reasonably required in performing contracts with ultimate owners, the main contractors or upper tier contractors.
Banks will evaluate the profitability, sizes, collateral, and reputation of the company, and grant them amount of credit and rates of premium and interest; there will be fluctuation of their offer 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. 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 they're sharply reduced the existing credit amount, it's pushing them 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 great damages like the case happened to the second biggest contractor, Carillion of UK. 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
All the 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 contractors to be compensated for maximum and paying minimal fee. The public work owners are big customer so they will prescribe what they want in the contract document, and supposed insurance companies and the follow contractors will comply the stipulation.
However, in many occasions the crooked contracting parties seeking improper profit will ask acquiescent insurers to provide conforming policies with internal agreement deleting the critical clauses demanded by the employers. Though the insurance companies are more law abiding but there are brokers sticking to the old way doing business, its a headache for employers and reasonable contractors.
Compensation to the contracting parties when perils occur spelled another trouble for contractors, too. The appraisers' proffer can be wide ranged and unpredictable. On the other hand, some of the contractors in Taiwan didn't invest sufficient in construction facilities to avoid risk but later come up with plump figures for compensation and made money with obvious and intentional negligence of the insurers.
There were stories that the re-insurer like Lloyd's of London rejected to re-insure tunnel work construction of Taiwan in 90's as many "names" losing so much money. We don't know the root reasons of tunnel failure are the result that they're too hard to drill or the peril mostly caused by insured, appraisers and insurers yet.
In the United States, the project surety is issued mainly by insurance company or bondsman for the full contract amount or its double. It's under different philosophy that in US, the employers want to be guaranteed for a completed project so the insurer or bondsman need to provide greater than or equal amount of project value to convince the employers that they've ability to finish the works.
And in place like Taiwan, the employers demand pay immediately an amount considered to be 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 found it difficult to implement, so it only remained on the law.
The insurance companies provide so much in the construction projects, they're indispensable, but many in the industry including high ranking persons have wrong concept toward the insurance; 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 recognize there should be price escalation and it has been covered by inflation formula, and any other risk shall be identified and priced in the work items so there's no proper position for the risk that can't be named but a veteran constructor will perceive that it is a cost finally will happen according to his understanding of the market and industry.
(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 they should be lucrative. But they were meticulous in Taiwan for such investment as they cared about the risks like design, construction and operation that can go wrong during construction phase.
The tedious regulations imposed by the government and "not in my backyard" populism would also aggravate the budget and deadline problem. And as projects procrastinate, the impact could range from returns that are lower than expected, to bankruptcy in the most extreme cases.
So the international investment company or fund including Japanese trading houses have to wait until recent that they start to buy shares of solar power plants, wind mills and sewage system when they see government and grass root are more matured with regards to PPP initiative.
The international investment company or fund, despite its low investment in infrastructure projects here 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.
In Taiwan the real estate business elicit capital and people for its high growth and profitability. Developers are busy to hunt lands, deal with building codes, handle design and construction, sell house and mansions, that they're not so interested in PPP initiative as released by the government, otherwise there will be forces pulling the government for un-conventional procurement. That's the reason why international investment company or fund only settle themselves, in stock and security investment.
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, machinery, building infrastructure, and supporting utilities in industrial, business, governmental, and residential installations. The requirement hasten the delivery of the company operating for new facilities while many of the owners don't have experience and also restrained by financial condition.
They're O&M companies, 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.
The Engineers and the Contractors alike need the Operators' feed back 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 increasing financial constraint and employees admission.
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.
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 will he be, it will tell that an engineer of tomorrow won't be confined for doing structural calculation; that only realizing the profession is service oriented, i.e. to follow money's lead, he has future.
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 help to fuel the flame by asking 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 testify that the conditions are fair. Or in the case that 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 unbiased and independent party and showing the subject party has met the requests are received by person in charge of the enquirer, it will be deemed as true and authentic. And as it evolves, there will be development such as:
* The party which demand information only trust issues from certain parties, because the former now depend on the latter for legitimization problem that theoretically could be surfaced for each document from strangers or aliens.
* Though that the 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 conform.
* If the verifying party has long working relationship with the requesting party, he would have more confidence on and become easier to what he is required to verify, though they are independent and neutral. It happens to law firms, inspectors, laboratories, certifiers, appraisers, and arbitrators.
The industry reward frequent customer, so big companies that always have more chances to contact third party participants will find it's easier and more swiftly to work out require document demanded by their clients; it's the same that the so called independent parties or organizations enjoying prestige in their domain also receive more recommendation from establishment, thus more opportunities for their works.
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 they're doing in their homeland, if that's not enough, also out-flanked by parties or organizations claimed to be independent to ensure adaptability.
As a first timer Asian contractor to go out to compete international giant, he would have encountered invisible barricades, sometimes deadly in performing the works, because he may be strong technically together with his subcontractor and vendors but he wouldn't be familiar to and get supported by the western third party participants who historically are not accustomed to working with oriental minnows.
Despite its laissez-faire appearance, 21st century capitalism is complicated in its work division, in construction industry there's no exception that the added value are invented to the extent that will outweigh the substantial works in the form of "norm", "standard", and "proof", out of the mutual distrust created by the businessman
4) Stakeholders: Public, Authority, Neighborhood and Locals.
The public is volatile and can't be reliable that one day it's warm and next day cold. Technical people have to leave the job to convince the public to politicians, who, seems to be invincible for some time, but many of them ebbed after elections, and it's a war of attrition that politician's career life expectancy is lower than the technical people like us, from which we may find comfort.
The professionals in Taiwan all but lose their prestige facing public, the media, councilors and TV host will be much louder in all technical aspects. Because the public demand 100% perfect over construction projects: budget, progress, durability, aesthetic, and functional for all purpose, that only politicians will be answerable.
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 then the public will be awaken learning politicians won't meet their commitment; but the professionals has been tainted during the process that their credit will never be recovered though the media, councilors and TV host as accomplice also will go to hell.
Infrastructure construction is always associated with corruption, and some of the professionals are not innocent in the scandal, giving impression that engineers may be not cleaner than the pandemic officials and councilors. The industry also have problem when supervision is not in place, collusion would happen that's why the public will be always suspicious.
The Authority referred here means the government agencies responsible to award permits, edit regulations that the owner and his contractors shall be observed for planning, design, construction, occupation and operation during initial, completion or operation phases.
Land acquisition for public works shall be local government's responsibility, and usually they don't do well and procrastination is unavoidable, maybe 5% of recalcitrant landowner will stop 100% of the works for commencement, and it's daily life you see in Taiwan.
Safety measures are among the critical issues the government will interfere and the contractors have to follow though always overdone. 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.
And disposal for wasted and surplus material shall be subject to the stipulations of local government; in general, the cost of excavated soil dumping is calculated by people close to mafia and hardly the outcome is rational.
Utilities authority poses another problem for the developers and the contractor; outstanding drawings and missing locations cause the digs and laying delaying and costly and sometimes dangers emerged. 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 member-ed by ordinary people, but they are born with rights for fishing, agriculture and irrigation in their premises, to which any encroachment shall be bought with exorbitant price through hard negotiation.
In rural area down to the village level, public or private project investors shall work amicably with the authority.
(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. Roads, parks and sewers can't be built in many places as people don't want be disturbed even for short time. The stories may be dated back when the ex-ruling party and regime abuse the power conscript land and suppress people against construction.
And now it goes another extremity, for example, people don't want to accept any deflection or slight damages in their house when the excavation nearby produce them even within the tolerable value. Some of the people consider the contractors will abuse like before, and 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 don't stand on the moral high ground when they discover god and priest are in the opposite front.
Many people even started to miss gloomy days of martial law and thought any sort of construction back then wouldn't have any problem. But it's democracy that people have made choice and nothing is more important than liberty and egalitarianism embraced by the people; so that the developers and contractors have to have patience and take it soft to convince the neighborhood and locals for their cooperation.