In 1999, Taiwan Power Company initiated the construction of the fourth nuclear power plant on the island, known as the Lungmen Project. TPC retained SWAI to act as the balance of plant Architect/Engineer for the project, which was based on Advanced Boiling Water Reactor (ABWR) technology provided by General Electric. TPC elected to enter into separate contracts with all suppliers and contractors for the Project, rather than a turnkey or “Engineer Procure Construct” delivery method. As such, TPC bore the risk of late and defective performance due to its individual contracting parties.
The Project received approval in 1996 and construction was underway when the 921 earthquake occurred on Taiwan in 1999. Thereafter, construction was halted in 2000 due to safety concerns and a change in the governing party of the island when the Democratic Progressive Party (DPP) was elected. The DPP came to office on an anti-nuclear platform and shut the Project down indefinitely. After determination that the project shutdown was illegal, it was thereafter restarted in February 2011.
Even after the Project re-start, there were significant delays and obstacles to the completion of construction. SWAI was working pursuant to a Target Cost Contract, which included payment for actual costs, but with a provision that certain overruns would subject SWAI to repayment of up to USD 25 Million to TPC. By 2007, SWAI had exceeded the target cost and was working past the initial completion date, due to delays caused by TPC’s other suppliers and contractors.
In 2007, SWAI filed a Demand for Arbitration with the Republic of China Arbitration Association (now Chinese Arbitration Association, Taipei) seeking a USD 40 Million increase to the Target Cost of the Contract and payment of certain claims, including increased home office overhead costs. Thereafter, TPC terminated SWAI’s contract and drew on its outstanding letters of credit.
An arbitration panel was constituted in late 2007 and the initial hearing held in January 2008 with the arbitrators selected by the parties. The Chairman was chosen by the ROCAA after the parties could not reach an agreement on candidates themselves. The panel held hearings for 6 weeks in Taipei in June and July 2008, with dozens of fact and expert witnesses addressing highly technical issues, as well as the administration of the newly enacted Government Procurement Act. The hearing included submission of SWAI’s request for a USD 40 Million increase to the Target Cost of the Contract and other affirmative claims. TPC sought re-procurement costs and other claims of USD 55 Million, a penalty (repayment) of USD 25 million under the Target Cost provisions and various other claims.
In September 2008, one month after the briefs were submitted, the arbitrators ruled in favor of SWAI, denying TPC ‘s claims in their entirety. SWAI received its entire requested USD 40 Million increase to the Target Cost of the Contract and $27 Million in various other claims, including a performance bonus and attorney’s fees and costs of the arbitration. After several appeals by TPC, the Taipei High Court ruled in SWAI’s favor confirming the award and interest thereon for a total payment to SWAI of USD 29 Million.
After the Fukishima disaster and continuing political controversy, the Lungmen plant was partially mothballed in 2015 and outstanding work halted for another three years.