Taiwan Today

What happened? In the 1960s and 1970s, Taiwan's con­struction industry was sec­ond in quality only to Japan in Asia. Government officials and builders from neighbors such as Singapore and South Korea used to visit, seeking point­ers on large-scale construction work. No longer. South Korea's contractors have built an international reputation, and Sin­gapore boasts some of the best public works in the world, putting its neighbors to shame.

And Taiwan? "Stagnation pretty well summed up the situation here in the con­struction industry until the Six-Year National Development Plan [1991-1996] got under way—and now we can't handle most of its projects," says Arthur Chiang (江金山), executive secretary of the ROC Construction Industry Foundation for Re­search & Development. The foundation, established in late 1987, is funded and di­rected by a dozen major private construc­tion firms and has become a leading stimulus for improving the industry.

But the greatest stimulus for change is the huge pool of money projected for construction in the US$310 billion six­-year plan. Roughly half will go into construction-related projects. And there's nothing like an estimated budget of NT$4 trillion (US$176.5 billion) to catch the at­tention of contractors.

Not surprisingly, domestic and for­eign investors have rushed to get a piece of the action. According to official statis­tics, there are currently more than seventy foreign contractors in Taiwan. Half are Japanese firms, the top thirty of which have set up local joint-venture offices. The other major foreign contractors come from the United States, South Korea, Europe, and several Southeast Asian countries.

Local companies are also hustling to get six-year plan projects. There are ap­proximately three thousand domestic con­struction firms, hundreds of them newly founded since the plan started. They are grouped into class A. B. or C. Class A con­tractors can handle projects of all sizes, Class B can take projects under NT$6 million (US$240,000), and Class C is lim­ited to projects under NT$2 million (US$80,000). Of the eight to nine hun­dred Class A contractors, about one hun­dred are active. Firms in the other two classes are primarily subcontractors, most of them quite small. With the escalation of project size under the six-year plan, a large number of the projects are beyond the capabilities of most local contractors.

The sudden, rapid expansion of the market, and the fierce competition for the huge amount of money involved, have given higher visibility to both new and old problems in the construction industry. Taxpayers are demanding that govern­ment agencies do a better job of planning and supervising construction. The call for greater accountability in both the public and private sector is sparking an increase in the pace of the industry's reform.

One of the most important issues fac­ing the government, at least according to private-sector critics of the construction industry, is the need to improve the bid­ding process. Skewed market competi­tion, say such industry heavy hitters as Glyn T.H. Ing (殷之浩), chairman of Continental Engineering Corp., has stunted the growth of the local construc­tion industry.

According to Arthur Chiang, the gov­ernment has for decades assigned major public projects exclusively to govern­ment-owned contractors, such as Ret-Ser Engineering Agency and BES Engineering Co. "The private sector was forced to re­ strict its business to the construction of buildings or subcontractors' work," Chiang says. He cites the Ten Major Con­struction Projects (launched in 1973) as an example: Ret-Ser, one of the subsidiar­ies of the Vocational Assistance Commis­sion for Retired Servicemen (VACRS), was responsible for eight of the ten projects.

Chiang says it is understandable that the government wanted to take special care of the retired servicemen from mainland China after World War II. These people had no roots on the island, and they were considered a "weak group" when it came to receiving social benefits. But the argument has become less compelling now that most of the war-time servicemen have passed retirement age. "For decades, the construc­tion market has been very unjust," Chiang says. "As a result, private companies couldn't invest and grow. The development of an industry hinges on fair market compe­tition," Chiang says.

In fact, in recent years, due to grow­ing public pressure, the government has decided to privatize most of its enter­prises. For example, BES Engineering is scheduled to complete privatization by the end of the fiscal year 1993. But in the case of Ret-Ser, the biggest construction company in Taiwan, privatization is ex­pected to be a complicated task. At present, the company employs 10,200 people, including 2,600 engineers, 600 administrative staff, and 7,000 workers (95 percent are former military personnel who had a minimum of five years serv­ice). Its annual sales volume is about NT$30 billion (US$1.2 billion).

According to Sun Kuang (孫光), di­rector of public relations at Ret-Ser, changes are inevitable because the com­pany has been receiving increased pres­sure from the media, legislators, and the Control Yuan. In a Legislative Yuan session in March this year, Chou Shih-pin (周世斌), the new chairman of the VACRS, promised to privatize all the enterprises under VACRS by 1996, including Ret-Ser. The process will not be easy, but it ap­pears inevitable, and company officers are making the best of the situation. "Privati­zation is the government's decision, and we are preparing ourselves for it," says Y.Y. Tseng (曾元一), Ret-Ser's president.

The government has decided to put greater emphasis on balancing the devel­opment of the industry. Tseng himself points out that this would have already happened if the government had given private contractors the opportunity to grow through systematic incentives. Some things are being done to correct the situation. For example, the Ministry of the Interior has recently submitted a draft bill, "Measures for the Encouragement of Excellent Contractors," to the Legislative Yuan for consideration. If approved (it is scheduled for implementation in July 1993), the new measures will help ration­alize the industry by establishing objec­tive criteria for judging construction company performance. If contractors re­ceive high ratings, they will receive spe­cial considerations in the bidding process. Furthermore, the firms may also be eligible to receive assistance in winning contracts overseas.

Another bill under consideration, "Regulations for Upgrading the Construction Industry" targets the necessary legal underpinnings of the industry. Among other issues covered, the draft clarifies the steps the government can take to help firms develop into large-scale contractors through joint ventures, company mergers, and increased capital investment.

One quick way to gain insight into the range of problems facing the industry is to look at the current status of construction management on building sites. "Ten years ago, if you mentioned the idea of construction management, people would give you the cold shoulder," says Tseng Ting-chi (曾定祁), manager of the construction management section of the China Productivity Center, a quasi-public organization. "Today, more people in the field are willing to introduce advanced ideas and methods." Tseng points out that when the construction field began to pros­per almost a decade ago, people and or­ganizations with sufficient capital—but no experience—jumped into the industry for "big-and-quick profits," much of it gained from short-term speculation. Qual­ity suffered.

It is becoming more difficult to get away with shoddy work. When people buy places to live, instead of speculating, they pay closer attention to quality. In ad­dition, the construction field is upgrading, especially as the skyline moves from two­ and four-story buildings to ones thirty, forty, and fifty stories high.

Sophisticated, large-scale construc­tion sites require complex on-site management. This involves the integration of all work, from the initial feasibility analy­sis to planning and design, bidding, con­struction, and post-construction operation and maintenance. Its chief function is to ensure efficient communication among clients, architectural designers, consult­ ants, contractors, and materials suppliers. Construction site management also helps clients define reasonable engineering quality, progress, and costs, as well as help accumulate and upgrade construc­tion technology and management experi­ence. Its ultimate aim is to reduce costs, shorten construction time, and maintain construction quality. "Money is earned by efficient management and high productiv­ity," Tseng Ting-chi says.

More directly, the quality of a con­struction project hinges on successful cooperation among architectural designers, engineers and technicians who form a technical team. But turnkey jobs (in which design and construction are done by the same organization, usually a large contractor) are still not popular here. In about 90 percent of the construction projects, design and construction work are done by different organizations. "The distribution of responsibilities between architects and professional engineers is not clear, and this greatly affects working relations," says Tang Hung-chih (唐洪之), architect and manager of the design de­partment, Pacific Construction Co.

Huang Ming-yu (黃明煜), a civil and structural engineer, says the problem hinges on "the general inadequacy of the system." According to law, a construction contractor company must hire a profes­sional engineer to be responsible for the technical aspects of a construction project. But in Taiwan, most small contractors are family-type businesses. Usu­ally the boss is a former worker-foreman, who may have the experience, but probably lacks the theoretical background to adopt modern building techniques. To meet the terms of a construction contract, it is not unusual for small contractors to hire certified engineers, at US$2,000 to US$3,200 per month, and then just tell the engineers to leave them alone. If engineers actually make suggestions, contractors are frequently unreceptive. Therefore, most engineers have avoided work in construction site management. The practice obviously contributes to lower construction standards.

There are related problems. As mod­ern engineering becomes more compli­cated, stricter division of work and responsibility is necessary. But local archi­tects find themselves sharing responsibility for all engineering designs, foundation and structural work, and so on. "This is really strange," Tang says. "How can I be respon­sible for all this?" Furthermore, there are no established rules regarding payment of design fees. Tang says of his experience, "In most cases, the client is indifferent, and I often have to pay the engineers myself." Ideally, engineers should work with the technicians to implement the design. But it is not the case here. "Ninety percent of the problems we have to deal with arise from the fact that the design is inadequate," Tang says.

Edward Chou (周子迪), an architect who received his master's degree in urban design from Harvard and returned to Tai­wan four years ago, agrees that there should be a better allocation of responsi­bility. "Here, the work for architects is so heavy that they can't specialize," he says. There are too many sub-specialties in planning, design, construction, and in­spection for architects to handle on their own. The construction site requires pro­fessional building management services. Until this becomes more common, how­ever, responsibility for construction will be unclear. Result? "Often the quality of construction is sacrificed," Chou says.

The government is well aware of the problem, says Chang Shyh-dean (張世典), director-general of the Building Research Institute (task force) of the Ministry of the Interior. He says that building manage­ment and the applicable building codes are in need of a drastic overhaul. "The most important missions of my office," Chang says, "include study tasks on building safety and fire protection, earth­quake-safe designs for buildings, modern construction methods and equipment, high-rise building construction technology and management, and professional training and promotion."

The task force is also concerned about improving engineering quality and work­ing conditions. "Automation is another pri­ority," Chang says. "Our goal is to increase productivity and solve the labor shortage."

Finding enough laborers has in fact become a major problem as few young Chinese are entering the field. Of the local construction workers, 70 to 80 percent of the workers are indigenous tribes people. Many contractors have to hire foreign workers in order to keep on schedule. It works. For example, for the construction of the first part of the Linkou Public Housing Project, a major project in the six-year plan, Pacific Construction Co. hired about five hundred workers from Thailand and the Philippines. The project began in 1991 and is expected to be done early next year, six months earlier than scheduled. "This is due to the cooperation of the foreign workers and good management," says Lin Cheng­-chih (林承志), director of the project.

But so far, only a few thousand for­eigners have been allowed in. The con­struction industry needs about 400,000 more workers. Statistics show that 70 per­cent of the local Chinese workers are more than fifty years old. Lin's company got enough foreign workers because the government considered the project a high pri­ority. There are about three hundred local workers working on the Linkou project.

But older Chinese workers can cause problems when new ways of doing things are suggested. "There are often disagreements about quality," Lin says. "To in­crease efficiency and safety, we try to per­suade them to accept new ideas and methods, but the response is often not very enthusiastic. They will say, 'I've done it this way for decades, why change?' They think we are criticizing them, when all we want to do is upgrade standards." But Lin says that with pa­tience, local workers will gradually change, "because they like to finish tasks with less effort." According to Lin, the construction industry is improving as it replaces manpower with more machines. This also takes time. "The problem here is that we do not have enough qualified technicians to handle machines," he says.

Several years ago, Lin's company opened a class targeting vocational school graduates. Its aim was to familiarize young people with new construction con­cepts and methods, but it failed. The grads were more interested in getting higher de­grees or going into other professions with a more comfortable environment and easier work. This changing attitude to­ ward work makes it imperative to upgrade the industry or lose competitiveness. "The major task is to encourage more invest­ment in upgrading productivity and technology," says Pan Lii-man (潘禮門), di­rector-general of the Construction & Planning Administration of the Ministry of the Interior.

Industry insiders also worry that be­cause of environmental protection issues, construction materials, such as cement and sand are now in short supply. "Two solutions are to slow down the pace of the six-year plan and to develop new and high-strength materials," says Hwang Chao-lung (黃兆龍), a professor in the Department of Construction Engineering at National Taiwan Institute of Technol­ogy and also executive director of the newly founded Structure Steel Technol­ogy R&D Foundation. Hwang, who also di­rects a materials testing laboratory at NTIT, is working on ways to recycle industrial waste for construction materials. For exam­ple, the fly ash produced by the Taiwan Power Co., slag from China Steel Corp., and rice husks—if properly handled—can all be used for aggregate and cement, two major construction materials. "It is exciting because this will transform waste into us­ able resources," Hwang says.

Hwang points out that the key for successful upgrading of the industry is in the integration of the 5-Ms—manpower, money, machines, methodology, and ma­terial. It's a slogan that rings true as Tai­wan rebuilds its construction industry.