Author: Eve Y. Tsai, Of Counsel

A contractor on a Taiwan public project may encounter an event not attributable to it, and apply to the owner for an extension of time. The owner is often a state-owned company, and the letter that comes back is the kind these organizations send by default. It simply responds that the works are to be completed by the date in the contract, and that liquidated damages will run if the works finish late. The contractor is now under pressure to choose between paying liquidated damages for a delay it did not cause, and spending money to catch up. Where the liquidated damages are substantial, catching up may cost less, so the contractor adds crews, works longer shifts, brings in extra equipment, and finishes earlier than the extension it was entitled to would have required. Who pays for that acceleration cost is a question that arises only afterwards, and it is the subject of this article.

Photo by CHUTTERSNAP on Unsplash

A Doctrine Familiar to International Contractors
International contractors entering the Taiwan market will usually be familiar with the doctrine of constructive acceleration. It originated in United States government procurement and has since been carried into construction contracts more generally. Five elements must be established: “(1) that the contractor encountered a delay that is excusable under the contract; (2) that the contractor made a timely and sufficient request for an extension of the contract schedule; (3) that the government denied the contractor’s request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the government that it regarded the alleged order to accelerate as a constructive change in the contract; and (5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule.” (Fraser Constr. Co. v. United States (Fed. Cir. 2004).)

How Contractors Have Actually Recovered Under Taiwan Law
Taiwan law has developed no doctrine of constructive acceleration. The doctrine is mentioned in the Taiwan court cases only occasionally, and the courts have never treated it as a settled basis of claim. There are nonetheless scattered instances, in arbitration and in court, where a contractor has recovered its acceleration costs. What those cases have in common is that the claim rested on the contract or on the Public Construction Commission (PCC)’s Acceleration Guidelines, not on the doctrine. Among other things, at least three questions run through them: whether the owner required the works to be finished sooner than the delay entitled the contractor to, whether the delay was the contractor’s responsibility, and what the acceleration actually cost.

In an early arbitration case involving the Taipei metro, the authority handed over the main facilities of a depot in scattered batches, disrupting the work that followed. The authority required completion some seventy days earlier than the date both sides later accepted the metro line could reasonably have opened. A letter from the authority had acknowledged an extension of the contract period while directing the contractor to finish each stage by a target date. The tribunal held that that letter amounted to an acceleration order under the provision of the contract dealing with accelerated completion, and that the contractor could require a fair adjustment for the additional costs.

On public projects a further basis is available. Point 6 of the PCC’s Acceleration Guidelines provides: “Where an agency, before accepting a variation proposed by the contractor, notifies the contractor to proceed with acceleration, and thereafter does not process the variation in whole or in part in accordance with that notification, it shall compensate the contractor for the additional necessary costs incurred.” In a highway widening case, the agency wanted an early opening and told the contractor at a coordination meeting to begin accelerating from a fixed date. The contractor accelerated for months, but no variation was ever signed and the acceleration period and price were never agreed. The court awarded the contractor its necessary acceleration costs under Point 6.

A 2024 Taiwan High Court judgment went a step further. The contract required the contractor to submit an acceleration plan for approval when the engineer called for acceleration. The owner held repeated review meetings, required acceleration plans, and approved them, but argued that approving a plan was not the same as agreeing a variation, that no variation had ever been processed, and that nothing was therefore payable. The court was unpersuaded, as Point 6 pointed the other way: having required the acceleration, the owner could not rely on its own failure to process the variation.

One strand of the court’s reasoning in that case is worth highlighting. The court grounded the claim in Article 490(1) of the Civil Code, the provision defining a construction contract as work done for remuneration. By requiring acceleration for a delay that was not the contractor’s responsibility, the court found, the owner had agreed that the additional cost be added to the contract price, and was liable under the contract and Article 490(1). What showed that the owner had required the acceleration was its own conduct: calling the contractor to repeated review meetings on the delay, requiring an acceleration plan, and approving the change of construction method that followed. In substance that conduct is read as an agreement to pay, and the acceleration cost becomes part of the contract price. This contractor-friendly reasoning, however, appears in a single judgment so far.

In that same 2024 case, the way the court granted the acceleration cost is instructive, because it explains why the whole of the acceleration cost was granted. To accelerate, the contractor had switched to a construction method that cost many times more per unit than the one originally priced in the contract. The court took the rate for the method actually used, deducted the rate for the method the contract had priced, and applied the difference to the quantity executed. That difference was the cost of the acceleration. Because the owner’s acceleration requirement was treated by the court as an agreement to pay it, and because Article 490(1) defines a construction contract as an agreement under which one party completes work and the other pays for it once the work is done, the acceleration cost fell to be treated as part of the price of the work rather than as a loss. The owner argued that the acceleration had only been partly effective and that payment should be reduced in proportion, but the court declined to apportion, and the contractor recovered that cost in full. Nonetheless, that was one court’s approach on the facts before it, and it should not be read as a settled rule on how acceleration costs are quantified under Taiwan law.

Choosing the right basis of claim is therefore critical. Article 227-2 of the Civil Code, the change of circumstances provision discussed in the previous article in this series, would have led somewhere else. It asks the court to adjust a contract that has become manifestly unfair because of an event neither side foresaw, and since such an event is usually no one’s fault, the court divides the additional burden between the parties. Half is a common result.

How to Write Back When the Owner Says Hurry
Article 490(1) produced a good result for the contractor in the 2024 case, but it is not something a contractor can rely on in advance. It worked because the court was willing to read the owner’s conduct as an agreement that the extra cost would be added to the contract price, and whether a court will read it that way depends on the facts in front of it. So far one court has. What the contractor can control is what it puts in writing at the time, and this is where Article 491(1) of the Civil Code earns its place. It provides: “Where, according to the circumstances, the work is not to be done without remuneration, remuneration is deemed to have been agreed upon.”

The reply to the owner should therefore be written so that those circumstances are on the record. Good practice is to identify the event and the facts showing that the delay is not attributable to the contractor, to confirm that an extension has been applied for under the contract procedure, and to describe what the owner is requiring the contractor to do in order to accelerate and hold the date, whether that is a change to a more expensive construction method, additional crews, longer shifts, or extra equipment, together with what each of those will cost. The reply should close by stating, with Article 491(1), that the contractor is not accelerating for nothing. Written at the time, that line becomes contemporaneous evidence that the contractor never agreed to accelerate at its own expense.

Managing the Claim Before It Becomes One
By the time the dispute arrives, the acceleration is finished and the cost has been spent. What remains is the record made while it was happening: the owner’s demand, the reason the delay was not the contractor’s, and the contractor’s response, written with Article 491(1) in hand, that the work was not being done for free. The next article in this series turns to the extension of time itself, and how the days are counted.