The Ministry of National Defense yesterday terminated a multibillion-dollar contract with financially troubled Ching Fu Shipbuilding Co (慶富造船) to build minesweepers for breach of contract.
The ministry said it had sent a letter to Ching Fu informing it that the NT$35.85 billion (US$1.19 billion) contract it won in 2014 to build six minesweepers has been terminated.
Ching Fu, which is reportedly on the brink of bankruptcy, was in breach of contract in two major areas, the statement said.
Photo: CNA
Major incidents have occurred, making it impossible for the company to meet its contractual obligations, and it was unable to correct previous breaches following a 10-day extension, it said.
Ching Fu was found to be unable to fulfill its obligations, because it has suspended operations since January and has failed to pay more than US$36 million it owes to subcontractors, the statement said, adding that it did not complete the construction of a domestic minesweeper factory in May as stipulated in the contract.
Another problem was the shipbuilder’s inability to get its creditors to provide an advance payment guarantee by the required deadline, the ministry said.
Ching Fu was contractually obligated to provide NT$1.5 billion, NT$3.3 billion and NT$2.4 billion in three phases to back the advance payment guarantee, as well as funds to cover a NT$1.7 billion performance bond.
However, while Ching Fu put up the NT$2.4 billion for the third phase, a consortium of banks financing the deal decided against issuing the guarantee by the Nov. 28 deadline, preferring instead to cut their losses, resulting in the ministry notifying the company on Nov. 28 to make the necessary improvements by Friday last week to avoid termination of the contract.
The company was unable to rectify the situation, prompting the ministry to start the procedure to cancel the contract, the statement said.
Due to the company’s inability to meet the terms of the contract, the ministry has confiscated the NT$2.4 billion and is seeking to seize the remaining NT$4.8 billion put up by the company for the advance payment guarantee and the NT$1.7 billion from the performance bond.
The ministry also cited Ching Fu’s financial difficulties as a reason to end the contract.
It said several banks have filed petitions for provisional attachments of Ching Fu’s assets, reportedly worth about NT$6.4 billion, after the company allegedly used bogus documents to obtain a NT$20.5 billion syndicated loan from nine domestic lenders led by First Commercial Bank (第一銀行).
It would take the navy about six months to assess the situation and make a decision about how to proceed with the minesweeper program, a source said.
The source said there are only two remaining options on the table for the navy: invite shipbuilders to submit new bids for the contract or scrap the plan to build the minesweepers.
A fresh request for tenders would delay the previously expected deadline for delivery of the minesweepers by three to four years, the source said.
The navy could scrap the minesweeper construction program and instead focus on upgrading older vessels currently in use, the source added.
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