Taiwan Today

The Public Construction Commission is pushing reform and liberalization of the construction industry. Although it’s proving difficult to bring the industry under control, PCC Chairman Arthur Chen says that his organization is making progress.

Arthur Y. Chen (陳豫) is chairman of the Public Construction Commission (PCC), an organization established in July 1995 under the Executive Yuan to regulate Taiwan's construction industry. Before assuming his present position, Chen was head of the Public Construction Supervi­sory Board, the forerunner of the PCC. In March, he spoke with the Free China Review about problems in the industry and the steps being taken to overcome them. Excerpts follow.

FCR: The regulations governing par­ticipation in major infrastructure projects are said to be skewed in favor of local construction firms, even if they aren't qualified. Is it true that this shuts most foreign firms out of the market?

Arthur Chen: Most complaints con­cern registration and licensing. But these issues shouldn't concern foreign contrac­tors. Local construction companies must meet certain requirements to be registered and licensed. Depending on their qualifica­tions under these requirements, they receive grades of Class A, B, or C. The level [A is the highest] determines the size of projects a company can handle. Foreign companies don't have to follow this procedure. For projects open to international tender, they only need to submit their qualifications and comply with commercial registration re­quirements.They face no grade restrictions.

To join the GPA [the Government Pro­curement Agreement, an international agreement to open up construction mar­kets, and a prerequisite for Taiwan's acceptance into the WTO], project contracts valued at US$5 million or at another agreed threshold must be open, without discrimination, to foreign and domestic enterprises. So we are establishing regulations that allow any foreign company to participate, as long as it is qualified and can perform the work. Government control over its involvement only concerns tech­nical qualifications, management exper­tise, and related matters. Foreign companies are not like local companies. When they finish their work, they'll leave. They're not going to stay for good.

The large number of small local compa­nies participating in major projects is said to have resulted in numerous cases of project mismanagement. What is your view?

Such problems have been mainly the result of the antiquated registration proce­dure for local companies. It was estab­lished in 1928, and required companies to have a minimum capitalization of 750,000 silver dollars [a large amount at that time but currently equivalent to only US$1.1 million] to register as Class A construction firms. Because the capital requirement is so low, we now have hundreds and hun­dreds of small Class A contractors. Under existing regulations, they have the right to participate in almost any kind of project. But how can a company [capitalized] with only one million dollars handle a billion dollar project? Under international stand­ards, they could only be subcontractors.

But in Taiwan, everybody wants to be the main contractor. As a matter of policy, the government has begun to encourage larger firms with stronger fi­nancial bases and with more technologi­cal and project management know-how to participate in major infrastructure projects. It's true that project misman­agement has in part been caused by the involvement of too many small compa­nies. It's too easy for them to get in, and many are doing work that they are tech­nically unqualified to handle.

Could the Legislative Yuan block re­forms? Some legislators are said to have strong ties to construction groups.

Taiwan's commitment to joining the WTO will prevent that from happening.If our bid fails, we will face many trade re­strictions. To join the WTO, we must first join the GPA and open our market. Govern­ment policy on the WTO will take prec­edence over any vested interests in the local industry or among legislators.

How will the PCC revise the licensing system?

We are not trying to revise it. If we tried, we would face opposition. Instead, we're adding more qualifications on top of the existing system. That will allow us to solve the problems we are facing with licensing, because we can effectively restrict the participation of companies that don't meet the required technical or project management standards. We can ask:What's your capitalization? Your capacity? Your experience? What kind of work are you really qualified to do? These are important questions for projects that require high lev­els of expertise. In the meantime, if smaller companies want to remain competitive, they should form joint ventures and become larger and better-equipped.

What about the widespread complaints of corruption in the industry?

Corruption is really a problem only at the lowest levels of govemment. Two years ago, to address this situation, we established a system of quality control for construction projects. If you have very strict quality con­trol systems, whoever does the work has to meet those standards. Quality control will eliminate companies that try to cheat the system, use substandard materials, or do inferior quality work. When we began imple­menting these measures, we found that most government organizations—at the city, county, provincial, and even ministry level—didn't have any system. Now we have one. But sometimes it's very difficult to break traditional work habits. And those habits, frankly, aren't very good.

In the past, every job had to be super­vised by the contracting authority—but that isn't right. The people doing the work must be responsible for quality control. They must have the people, systems, and procedures to ensure that work is up to standard. Quality should be evaluated from the very begin­ning of the job, and all the way through the process to completion. We are checking to see that people and systems are in place to ensure quality. If we find problems, we evaluate them and discuss how to make improvements. Sometimes we find very shoddy work, not because the contractors are corrupt or criminal, but because they're ignorant. They really don't know what they're doing.

Is this partly the result of having no cen­tral, coordinating body, like a Ministry of Public Works?

Generally speaking, government con­trol of public engineering projects is highly fragmented. Every ministry runs its own projects. For example, the Ministry of Education oversees the construction of universities, and the Ministry of Health oversees the construction of hospitals. But there is no common system, or set of stand­ards or regulations. That's why the PCC was set up. We are a step toward the establish­ment of a Ministry of Public Works. Up to now, problems in the industry have not only been caused by the players, they've also been caused by the referee. We need to set up rules, regulations, and systems that everybody can follow.

What kind of obstacles do you face?

Much of our work is seen to be con­trary to the interests of certain officials and construction groups, so they oppose it. We say there must be qualification standards, and they say we can't have such a system because it limits their ability to compete. They do not want international firms in­volved at the expense of local firms. But that's one reason why we developed our quality control system. When you talk about qualifications, contracts, and procedures, there's always debate about what qualifications are important, and what is fair. But when you talk about quality, no­body can object. They can't say,“We don't care,” or “We don't need that.”

There has also been criticism of project estimates.

Sometimes people say the estimates are too low, or too high. So we established a system called the Public Construction Cost Estimate Guidelines. It's a framework for everyone involved; it's one that everybody can follow to ensure that we're all talking about the same thing. We also set up a con­struction management control division whose job is to monitor the progress of every project. We have developed a very sophis­ticated computer program to help us do this. We can monitor the progress of most pub­lic projects. We know if they are delayed, are over or under budget and by how much, and the reasons why

We've also developed a computer database accessible through the Internet, with complete information on project tenders and conditions. This was done to ensure that all companies inter­ested in participating in projects—for­eign and local—have full access to as much information as possible. On the same system we have a government procurement gazette, which is updated three times a week so that everyone can stay on top of procurement opportuni­ties. Right now it's only available in Chinese, but we will make it available in English when we join the WTO.

Organized crime is said to be a problem in the industry. How do you fight back?

We have examined the influence of organized crime, the reasons why it exists in the industry, and how to eliminate it. There are problems. Extortion is a fact of life. People will destroy your equipment if you don't pay them money or they will threaten you if you try to bid on a project they want—things like that. That's why we want to make the tendering process as open and transparent as possible. Increased openness and clarity will allow more peo­ple to participate in the process and will reduce the influence of criminal elements. Criminal elements might be able to intimi­date three people, but not thirty.

Can you point to any milestones in your progress?

We have studied the industry, identi­fied its problems, and developed solutions to those problems. We have established in­dustry standards, systems, regulations, and quality control guidelines. We visit project sites and ministries and show them how to check and improve their work. We also hold conferences to discuss problems and spread the word about new systems and standards.

One of the biggest problems is that, while we have developed a very good system, no one implements it. Last year, we issued our system and standards guidelines to everyone involved with the industry, such as contractors and government agen­cies, and then after six months we con­ducted an audit by questionnaire. Over 70 percent of the organizations to which we issued this material basically ignored it. They just put it into a drawer, and forgot about it. Or they just didn't implement it because they didn't think it was important.

We realized that we needed a mecha­nism to ensure that policies are imple­mented, to check on problems in these organizations, to find out what they know or don't know. We visited different agencies, discussed their problems, and asked why they were unable to implement our systems. Then we established an evaluation team to visit each project site to see if work was be­ing done properly. In the past year we've evaluated nearly five hundred projects with a combined value of over US$ 11 billion. In our first audit, 50 percent of the projects we inspected were passable, 25 percent were good, and the remaining 25 percent were shoddy. In the most recent audit, only 7 percent of the projects were shoddy, and the number of good projects has risen to around 37 percent. The overall standard of work is improving. That means our qual­ity control systems are having some posi­tive effect. Some of the places we visited when we first started were terrible—it really was embarrassing.

Everybody has been working by their own rules. We've never had a regulated construction industry before. Some people say they can't implement policies because they don't have enough money or man­power. We go and find out why they haven't done it, and find ways to correct the situation. Last year we had twelve very bad projects, so we pulled together all the people involved—government employ­ees, contractors, consulting engineers, and so on—for a seminar. For years the manu­facturing sector has used quality control programs; otherwise companies could not sell their goods. Now with the construction sector, it will be the same. But it takes time for people to understand that such meas­ures are for their own benefit.