Newsletter
DRAFT CONSTRUCTION ENTERPRISES LAW PASSED
The construction industry is a key link in the overall economy, with power to drive the development of related industries and the economic growth. Since 1973, the only regulations governing construction enterprises have been the Regulations Governing Construction Enterprises promulgated by the Ministry of the Interior (MOI) pursuant to Article 15 of the Constriction Law. In response to a Judicial Yuan interpretation stating that the penalty provisions of those regulations should be prescribed by law and in view of overall deficiencies in the regulatory framework, the MOI set about actively composing the Construction Enterprises Law, a draft of which was passed by the Executive Yuan on 25 March 1999. The draft law has 66 articles. Major contents are outlined below:
Construction enterprises can be divided into the two major categories of general construction enterprises and specialized construction enterprises. The former refers to firms licensed and registered by the central authority-in-charge (the MOI) to handle the overall administration of construction and management work in construction projects. The latter refers to firms licensed and registered by the central authority-in-charge to undertake specialized construction work.
General construction enterprises are divided into Classes A, B, and C on the basis of their amount of capital and number of full-time engineering personnel. Class A general construction enterprises are further evaluated by the central authority-in-charge and divided into Grades 1, 2, and 3 on the basis of factors such as their past accomplishments in the construction industry, the quality of their work, their organizational scale, and their financial condition. Once Class B and Class C general construction enterprises have met Class A criteria for amount of capital and number of full-time engineering personnel, they may apply for evaluation and upgrading.
Specialized construction work that may be handled by specialized construction enterprises is divided into 19 categories such as steel framework construction and retaining wall and brace construction, as well as other categories that may be designated by the central authority-in-charge. No single enterprise may apply for registration in more than two specialized categories.
The central authority-in-charge is authorized to prescribe minimum capital requirements for all classes of general and specialized construction enterprises. Cash, immovables, and machinery and equipment should account for a combined 90% or more of an enterprise's capital. If the enterprise is a company limited by shares, its "capital" refers to its paid-in capital.
Construction enterprises may not operate without a license, registration, and industry association membership. An enterprise operating without a license, or with a canceled license, may be ordered to cease business and fined not less than NT$1 million and not more than NT$10 million; such fines may be consecutively imposed.
A construction enterprise should initially submit the following documents to the central authority-in-charge to apply for a construction industry license: the application; documentation of the amount of capital; employment consent certificates and credential documents for full-time engineering personnel; names, addresses, resumes, and capital subscription certificates of promoters or partners; and business plan. The enterprise should carry out company or business registration procedures within six months after the construction industry license is secured. Within six months after the company or business registration is completed, the enterprise should further apply to the central authority-in-charge for construction enterprise registration, issuance of a construction enterprise registration certificate, and a Construction Contracting Manual. Only then may the enterprise begin operation.
Construction enterprises, civil engineering contractors, shaft sinking enterprises, and darling enterprises registered prior to the law's enactment should apply for a new license and Construction Contracting Manual within two years of the date of the law's enactment. Otherwise, their license and registration will be revoked. Firms registered as Class A general contractors prior to the law's enactment should be fully evaluated by the central authority-in-charge and fulfill registration alteration procedures within three years of its enactment. Foreign construction enterprises must also have license, recognition under the Company Law, and issuance of a construction enterprise registration and a Construction Contracting Manual before they may begin operation.
The value of individual construction projects contracted by a construction enterprise may not exceed the contract ceilings prescribed by the central authority-in-charge for the various classes and grades of construction enterprises; nor may the total value of the projects contracted within a certain period prescribed by the central authority-in-charge exceed 20 times the enterprise's net worth. Before contracting for a turnkey project, a general construction enterprise must first enlist qualified planning and design personnel to work in conjunction with it. When a general construction enterprise subcontracts out specialized work, it should bear joint and several liability with the specialized subcontractor.
The requisite contents of construction contracting agreements are specified, including provisions for handling variations/changes in the agreement, and for adjustment of construction prices in tandem with the price index.
Enterprises evaluated as "outstanding construction enterprises" by the central authority-in-charge may, when contracting for government projects, enjoy a 50% reduction in the amounts of the required bid bond, performance bond, or project retention bond, and a 10% increase in the amount of the advance payment that may be applied for.