The main laws governing and regulating contracts for design and construction works are as follows:
Last modified 22 Mar 2024
There are four major requirements that building or engineering contractors must comply with prior to any construction work:
Last modified 22 Mar 2024
Under the Industrial Safety and Health Act (ISHA), employers are obligated to take measures necessary to prevent health hazards etc. at construction sites. The ISHA also applies to the use of the completed building.
Some examples of such health hazards are as follows:
Other than the ISHA, employers also have to comply with multiple guidelines published by the government.
Last modified 22 Mar 2024
The general legislations dealing with environmental issues and promoting sustainable development for building construction are as follows:
Last modified 22 Mar 2024
Utility suppliers (electric company, gas company, etc.) carry out utility infrastructure construction at the owner's expense.
Also, for water supply works, the owner must submit a notification to the relevant local government and order such works to a construction company designated by the relevant local government.
Last modified 22 Mar 2024
There are statutory required terms and conditions which must be stipulated in contracts for construction works under the CBA. Such terms and conditions include:
Regarding a design works contract, under the Act on Architects and Building Engineers, the architect's office is required to explain to the owner the following statutory mandated items in writing:
Last modified 22 Mar 2024
Yes. There are standard contract forms for private works prepared by a Japanese joint association of contractors etc. (‘Contractors Association’). Although the use of such forms is not mandatory, in most cases, these forms are, sometimes with several amendments, used by the parties when entering into a construction or engineering contract. For public works, there are also commonly used standard contract forms which are prepared by the MLIT. It is not common to use any international contract form for constructions in Japan.
Last modified 22 Mar 2024
The main parties involved in a construction contract are a building owner and a construction company. Designers and other professionals are sometimes retained directly by an owner and sometimes by a main construction company. In most large-scale constructions, sub-contractors and/or a construction joint venture is used. In the case of sub-contract, master-contractor is usually responsible for all of sub-contractors' work.
Last modified 22 Mar 2024
Risks borne by a contractor in a construction contract are usually in relation to failure to build, defective work or delay.
In general, a contractor that is unable to perform its obligations because of a force majeure event is not liable for consequences of such event so long as the contractor exercises due care of a good manager.
Last modified 22 Mar 2024
Yes. Public-private partnerships (PPPs) are a common form of collaboration between the government and the private sector for real estate developments. The Act on Promotion of Private Finance Initiative (PFI) was enacted in July, 1999 in order to realize the PPPs and to promote the development of public infrastructure by utilizing private funds.
Last modified 22 Mar 2024
Yes, it is possible to enter into a fixed price construction contract. In fact, fixed price construction contracts are quite common in Japan.
Last modified 22 Mar 2024
There is no specific construction insurance required by law. Under the standard construction contract form, a contractor is required to (i) purchase property insurance against damages to executed portion of the work and building equipment and materials at the construction site and (ii) notify the owner if the contractor purchases additional insurances.
Last modified 22 Mar 2024
In private works, except for large-scale infrastructure constructions, construction bonds are not very common. In public works, the government authority often requires a contractor to secure a construction bond for default of payment by the contractor. It is not common that a surety would assume specific obligations of the contractor other than payment of moneys.
Last modified 22 Mar 2024
Parties can freely decide on methods and terms of payments in a construction or design contract. In small and short-term projects, payments are commonly made at the completion of the construction work. In large and long-term projects, payments are commonly made at the completion of agreed stages of construction. In public works, certain percentage of the contract price is often paid to a contractor before starting the construction.
Last modified 22 Mar 2024
Yes. It is common to specify a completion date (subject to force majeure events) in construction contracts. Construction contracts normally set out a provision for dealing with delays, including liquidated damages as compensation or termination right.
Last modified 22 Mar 2024
The standard construction contract form includes a provision to deal with variations to the works and specifies which party may request variations:
Last modified 22 Mar 2024
Yes. The BSA requires owners to submit an application for completion inspection of the completed works to a designated inspection agency that will certify that the completed building and its premises abide by the relevant building regulations. These regulations cannot be overridden by agreement between the parties.
Last modified 22 Mar 2024
The general limitation period for a party to bring a claim in the courts for breach of a contract is five years from when the claiming party recognizes the breach or ten years from the breach, whichever is earlier.
The limitation period for defect liability under the Civil Code is five years from when the claiming party recognizes the defect (breach) or ten years from the defect (breach), whichever is earlier. (In the standard construction contract form, except for certain types of defects in residential buildings for which the defect liability period is ten years from the delivery under the Housing Quality Assurance Act, (i) the defect liability period is two years from the delivery or (ii) as to interiors, furniture, or the like, the claiming party needs to do inspection after the delivery and to make a claim immediately after that, or if a defect cannot be found in such inspection, the defect liability period is one year from the delivery; provided, however, that if the defect has been caused by the contractor’s wilful misconduct or gross negligence, not these provisions but the Civil Code provisions apply.)
In addition, the claiming party is required to notify the contractor of the defect within one year from when the claiming party recognizes the defect; provided, however, that such notice is not required if the contractor knows the defect or does not know the defect with gross negligence. (In the standard construction contract form, this one-year notice requirement is excluded.)
Last modified 22 Mar 2024
The contractor is liable to the owner (end-user) which is a party to the construction contract for any physical damage or economic loss suffered by the owner in accordance with the general defect liability rules. In addition, the owner may request the contractor to repair defect(s) of the building. Even though there is no contractual relationship between the contractor and the owner, tort liability of the contractor could be sought by the owner in some cases. Or, in some cases, subrogation by the owner could be an option.
In the case where the owner is an individual executing a contract not for business, the contractor’s liability for damages cannot be excluded totally by any agreement between the parties. In the case of structural defect(s) of a new residential building, defect liability of the contractor (and the seller) cannot be excluded by any agreement between the parties. Under the Product Liability Act, the manufacturer of a product is liable for damages caused by a defect even if there is no negligence on the part of the manufacturer. This act does not apply to real properties, but applies to building equipment etc.
Last modified 22 Mar 2024
For sub-contractors, there is usually no contractual relationship with the owner (end-user). For an architect, designer or consultant, it depends on each case. Even though there is no contractual relationship between the contractor and the owner, tort liability of the contractor could be sought by the owner in some cases. Or, in some cases, subrogation by the owner could be an option.
Last modified 22 Mar 2024
Due to lack of contractual relationship with the contractor, third parties may not seek the contractor's contractual liability. Tort liability of the contractor could be sought by a third party in some cases. Or, in some cases, subrogation by a third party could be an option.
Last modified 22 Mar 2024
There are no specific courts dealing with construction disputes. Construction disputes are dealt with by normal civil courts, therefore, decisions of the courts can be appealed.
Last modified 22 Mar 2024
The Construction Works Dispute Settlement Board (CWDSB) was established under the BSA, which provides for settlement of construction disputes through mediation (assen), conciliation (chotei) or arbitration (chusai). In domestic deals, the CWDSB is often used, and in CWDSB about 30% is settled through arbitration. There is an arbitration agreement form to submit disputes to the CWDSB prepared by the Contractors Association.
Arbitration is more flexible in procedures than litigation through the courts and less time is required to obtain a resolution. In addition, arbitrators are usually experts in construction matters.
The CWDSB's arbitration is not very expensive because reward of arbitrators is not paid by the parties in the dispute.
Last modified 22 Mar 2024
As mentioned above, in addition to arbitration, mediation and conciliation are also available in CWDSB. Though the CWDSB was established under the BSA, use of ADR or the CWDSB is not mandatory.
Last modified 22 Mar 2024
During what period of time following execution of a construction contract may a party to that agreement bring a claim in the courts for breach of contract?
The general limitation period for a party to bring a claim in the courts for breach of a contract is five years from when the claiming party recognizes the breach or ten years from the breach, whichever is earlier.
The limitation period for defect liability under the Civil Code is five years from when the claiming party recognizes the defect (breach) or ten years from the defect (breach), whichever is earlier. (In the standard construction contract form, except for certain types of defects in residential buildings for which the defect liability period is ten years from the delivery under the Housing Quality Assurance Act, (i) the defect liability period is two years from the delivery or (ii) as to interiors, furniture, or the like, the claiming party needs to do inspection after the delivery and to make a claim immediately after that, or if a defect cannot be found in such inspection, the defect liability period is one year from the delivery; provided, however, that if the defect has been caused by the contractor’s wilful misconduct or gross negligence, not these provisions but the Civil Code provisions apply.)
In addition, the claiming party is required to notify the contractor of the defect within one year from when the claiming party recognizes the defect; provided, however, that such notice is not required if the contractor knows the defect or does not know the defect with gross negligence. (In the standard construction contract form, this one-year notice requirement is excluded.)
Last modified 22 Mar 2024