MAKING CLAIM/DISPUTE MANAGEMENT SYSTEM IN JAPANESEPUBLIC WORKS CONSTRUCTION COMPATIBLE WITH
INTERNATIONAL CONSTRUCTION MARKET
Rajendra NIRAULA*, Shunji KUSAYANAGI*
Kochi University of Technology*

ABSTRACT: A claim in Japanese society is often considered as complain and the construction industry is in
no exception. However, unlike in the Japanese construction industry a claim in the international construction
market is taken as someone’s rightful due. This paper discusses the claim/dispute management systems inJapanese construction industry with comparison to international construction market based on the FIDIC
conditions of contract. The existing claim/dispute management system prevailing in the Japanese public
works has made the owner dominated construction industry and contractors to depend on the owner’s
determination. A questionnaire survey regarding the Japanese conditions of contract for public construction
work has revealed that: no respondent were confident over the impartial and fair determination of the projectmanner; nearly 90% of the respondent used to accept the owner’s determination over the cost; about 90% of
the respondent agreed that the owner directly or indirectly influence contractors to accept the owner’s
determination; no respondent did have intention to go for arbitration even they could not accept the decisionof the owner at first.
KEYWORDS: Claim/dispute, Japanese public works, FIDIC.
control and responsibility. Every party to a contract

1. INTRODUCTION

has a right to depend on the terms, conditions andIn construction, a claim may be related to additional

provisions contained within that contract at the time

cost or extension of time for completion of works or

the parties agreed to and executed the contract. Ifothers like release of contractual obligation/liability,

any of those terms, conditions or provisions are

etc. or combination of one or more of theses. A claim

altered by the actions of the other party (or by forces

turns into dispute when the defendant does not agree

beyond the control of either party) the impacted

to the assertion made by the claimant. In other words, party has right to recover the impact damages (timea construction claim turns into dispute when a party,

and/or money) suffered as a result of thosefor instance the Employer, does not agree to thealterations in the contract provisions and stipulations

claim made by the other party to the contract the(Nielsen, K.R.).

Contractor for such as additional cost and/or
extension of time for completion and/or release ofThis paper discusses the claim/dispute management

contractual obligation/liability incurred due to theprovisions stipulated in contract and practice inevent which the contractor assumes is beyond his

Japanese1

publicworks

andcomparestheDamages for arrears (article 45).

provisions/system with civil construction project
based

on

FIDIC

conditionsofcontractininternational construction market. Since the Owner

2.2 Claim Procedure for Adjustment ofdesigns the project in Japanese public works theConstruction Period and Contract Priceclaim management provisions and systems of

The conditions of contract for Public construction

Japanese public construction work is compared withworks allow the contractor to claim for additional

the stipulations made in the FIDIC 1999 Redbook

time and cost if incurred due to such as inclement

which have been using for the project designed byweather, cooperating with other contractor working

the Owner in international construction market.

for the Owner, changes/situations which werebeyond the Contractor’s control and do not fall under

2. CLAIM/DISPUTE MANAGEMENT IN

the Contractor’s liability, etc.

Once the Contractor

JAPANESE PUBLIC WORKS

notify the project manager of the changes andsituations due to which the contractor deems to be

2.1 Standard Form of Contract for Public

compensated with additional time and/or cost and if

Construction Works In Japan

the Contractor is unable to complete the works

A construction project is executed under thewithin the stipulated construction period, theconditions and scopes stipulated in the contract. The

contractor may claim specifying the reasons in

special and general conditions of contract stipulates

writing for extension of the construction period andthe roles, responsibility and liabilities of theadditional cost. However, there is no notifying

contracting parties and provides the procedures forperiod stipulated in the contract which allows thewholecontractor to claim until the completion of thecontract

execution

includingpayment,

project.

inspection, variation, claim/dispute settlement. The
major provisions included in the Japanese generalconditions of contract for public construction works

The owner’s project manager confirms the situations

for

of

and consultation between the Owner and Contractor

claims/disputes are: i) claims on action regarding thestarts. The dates of meeting are decided by the owner.

Superintendent, Engineer and Project Manager

The(article 12), ii) Differing Site Conditions (article 18),

constructioniii) Changes to drawings and specifications (article

consultation between the owner and contractor.

19), iv) Suspension of works (article 20), v)

However, if an agreement on the adjustment ofExtension of construction period (article 21), vi)

contract price and/or construction period could not

Acceleration of construction period (article 22), vii)

be reached from the consultation, the Owner decides

Procedures for adjustment of construction period

over the adjustment and notifies the same to(article 23), viii) Procedures for adjustment ofcontractor.

theconsideration

andresolution

adjustment

of

the

contract

price

periodisdeterminedandthrough

contract price (article 24), ix) Adjustment of contractix)

The contractor may request for mediation if theGeneral provision for Damages (article 27), x)

decision by the Owner is not acceptable to theDamages upon third party (article 28), xi) Damages

Contractor. The mediation is done by member(s) offrom force majeure (article 29), xii) Alternative toConstruction

adjustment to contract price, xiii) Liquidated(Central/Prefectural). If the Contractor still do notprice due to price level change (article 25),

2

DisputeResolution

Committee

agree with the decision by the mediation theiv) Minor Works- Short form of Contract (Green

contractor may initiate the final and binding

Book 1999), v) Consultancy Agreement- (White

arbitration.

Book 1999), vi) Dredging Work (Blue Book 2006),
Design-Build-Operate (Gold Book 2006). The

2.3 Role of Project Manager in Japanese Publicconditions of contract prepared by the International

Works

Federation of Consulting Engineers (FIDIC) are

The Japanese public construction projects are carried

widely used in international construction.

out in 2-actor execution system i.e. the Owner andthe Contractor are involved in the execution of the

3.1 Conditions of Contract in FIDIC 1999

project. The project manager, an employee of the

Redbook applicable to Claim/Dispute

Owner, is the Owner’s representative for the

management

execution of the Contract. The duties of the Project

It is not always practical and possible to stipulate

Manager, according to the article 9.1, are to exercise

remedies against every possible circumstances to be

the

the

drawings

andencountered in the execution of the construction

instructions,approvals

andproject. FIDIC 1999 Redbook stipulates rules to

consultation with the Contractor’s representative;

cope with unforeseeable events and manage claim

preparation and delivery of detailed drawings, etc. or

aroused therefrom in construction project.

power

specification

mentionedforin

approval of drawings, etc. prepared bytheobservation

The clauses related to the variation (Clause 13:

including inspection of the execution of works andVariation and adjustment); claim and disputetesting/inspection of the construction materials. The

resolution procedure (Clause 20: Claims, Disputes

project manager does not have the authority to

and Arbitration) and functions of the Engineer

independently decide and give his/her opinion on(Clause 3: the Engineer) are the main clauses which

any contractual matter. The contract assumes that the

stipulates the claim/dispute management procedures

Owner itself assumes all the authority to decide overin international construction project.

Contractor;

andmanagement&

the contractual issues and notify the contractor.
3.2 Claim Procedure
3. CLAIM/DISPUTE MANAGEMENT IN

The contracting party, the Employer or the

INTERNATIONAL CONSTRUCTION

Contractor, is required to notify the other party of the

MARKET

occurrence of the claim events within the stipulated
time, usually within 28 days of occurrence of the

3.1 FIDIC

events which give rise to claim. If the contractor

The FIDIC has been developing standard forms ofintends to claim against the employer, the Contractor

contract since its establishment in 1913. The FIDIC

is required to inform the Engineer within 28 days of

has currently made available the standard forms of

the occurrence of the claim event. However, if theconditions of contract for : i) Construction forcontractor fails to notify the Engineer of the claim

Building and Engineering Works designed by thewithin 28 days of the occurrence of the event, theEmployer (Red Book 1999), ii) Conditions oftime for completion will not be extended, theContract for Plant and Design-Build (Yellow Book

contractor shall not be entitled to additional payment,

1999), iii) EPC/Turnkey Projects (Silver Book 1999), and the employer shall be discharged from all3

liability in connection with the claim. The Contractor

commenced on or after the 56th day after the day on

is required to keep all the records required towhich notice of dissatisfaction was given. The

substantiate the claim, and within 42 days after thedecision by the arbitration shall be final and binding

contractor became aware (or within such otherto the both parties.

period as may be proposed by the contractor andapproved by the engineer) of the event, the

3.3 Role of the Engineer in the FIDIC (Red Book)

contractor is required to submit the detailed claim

Contract

which includes full supporting particulars of the

The FIDIC conditions of contract (red book) requirebasis of claim and of the extension of time and/or

the owner to employ the Engineer for the execution

additional payment claimed.

of the project and the Engineer shall be deemed toact for the Employer. It clearly describes the roles

The Engineer examines and evaluates the claim andand responsibility of the Engineer such as to give

gives his/her decision within 42 days after receiving

instructions, to issue drawings, to certify the work, tothe claim. The contractor is required to include thedetermine fairly and give decision over theamounts for any claim that has been due under thecontractual issues, etc.

relevant provision of the contract in the monthly
payment claim.

However, the Engineer’s decision can be challenged
in DAB and in arbitration. The Engineer is required

If either the Owner or the Contractor is not agreed

if necessary to give evidences and to act as a witness

with the Engineer’s decision, then the Owner or the

before the arbitrator(s) of any matter related to theContractor may refer the claims to Disputedispute.

Adjudication Board (DAB). The DAB is comprisedof either one or three qualified persons and isestablishedusually

within28

days

4. SURVEY RESULT

after

commencement of the project. Both the parties are

A questionnaire survey regarding the Japaneserequired to make available to the DAB all additional

conditions of contract for the public construction

information, access to the site and appropriate

work including claim/dispute management systemfacilities for the purpose of making decision on thewas conducted. A written questionnaire was sent to

dispute. The DAB is required to give its decision

20 individuals/organizations who have been involvedthwithin 84 day after the reference of the case toin construction. 8 filled questionnaires have been

DAB. However, the decision of the DAB shall not bereceived indicating the response rate is 40%.

binding to the contracting parties.

Although the result mentioned below may not
represent the whole industry’s opinion however it

If either party (Owner or Contractor) is dissatisfied

indicates the general views of the construction

with the DAB’s decision, then either party, on orengineers. Regarding the project manager’s role andthclaim management in public construction project:

before 28 day after the day on which it receivedi)

notice of such decision, may notify the other party

No

respondent

were

confident

inand the Engineer of its dissatisfaction. The parties

impartial and fair determination of thethen attempt to settle the dispute amicably before theproject manager: 50% of the respondentcommencement of arbitration. Arbitration may be

told that the project manager does not
4

ii)

iii)

iv)

v)

vi)

act impartially and determine fairly

rightful due.

whereas remaining 50% were uncertain

The FIDIC conditions of contract provides clear

about the project manager’s impartial act

provisions/conditions

forand fair determination.

management

deadline

All the respondent were used to submit a

submission and decision making period, however thequantified claim proposal to the owner

Japanese conditions of contract for public works do

but no respondent had received the

not usually stipulate the time period for notifying

amount equal to what they had actuallyand decision making. Although such provisions may

claimed for.

allow flexibility to either party in notifying others

Nearly 90% of the respondent used to

but the owner without stipulated time period for

accept the owner’s determination overgiving its decision allow the Owner to make decision

the

the

according to the owner’s convenience, and the

respondent always and nearly 40% often

contractor do not have base to demand timely

accepted to the owner’s determination.

decision from the Owner.

additional

cost:

50%

of

with

the

claim/disputeof

notification,

Nearly 90% of the respondents agreed
with that the owner directly or indirectly

Although the Engineer in FIDIC conditions ofinfluence the contractor to accept thecontract is supposed to act for the Employer, theowner’s determination.

Engineer’s

No respondent did have intention to go

challenged in Dispute Adjudication Board and infor arbitration even they could not agree

Arbitration which indirectly prevents the Engineer

with the decision by the owner; theymaking the decision against the Contractor and inusually sought the solution from thefavor of the Employer. However, there is no thirdowner.

party engineer in the Japanese domestic public

No respondents were aware of theworks and the Employer’s (Owner) employee acts as

selection process and qualification of thethe project manager of the project. There is no any

members of the Construction Disputeother stakeholders’ involvement which can compel

Resolution Committee.

the Engineer to make fair and independent decision.

decision

if

found

unfaircanbeThus, under the prevailing conditions of contract thefairness and independency in decision making solely

5. DISCUSSION

depends on the integrity of the personnel employedby the employer.

A claim is considered to be a rightful due in theinternational construction market and the party
which assumes, because of for instance change in

However, from the questionnaire survey revealed

contract conditions, scopes, etc., the other party

that construction engineers do not have faith in theshould compensate him often file a claim to otherfairness of the Engineer’s decision for which 50% ofparty. However, a claim in Japanese domestic

the respondent answered that the engineer did not act

construction market is treated as complain and is

impartially and make decision fairly whereas

often filed in the form of petition (Kusayanagi, S)

remaining 50% were uncertain about the fairness andwhich indicates that the contractors in the Japanese

impartial act of the Engineer. Thus there is little

construction industry do not assumes a claim be aprospect of getting independent and fair decision5

over any issue in the Japanese domestic construction

with the engineer’s determinations. There is noworks.

hidden power in the employer which can force thecontractor to accept the engineer’s determinations.

As such the Japanese conditions of contract give theThus the international construction market provides

Employer unilateral authority, if the employer andthe engineers opportunity to use full of their

the contractor could not reach to an agreement, toknowledge and skills to recover their rightful lost

decide the additional time and cost required for thetime and money in the execution of the project.

completion of the project, the contractors do not

However, the Japanese system in public works

have other way except accepting the employer’s

construction does not provide such opportunity for

determination. In addition, the Employer has

the contractors and as a result the construction

discretionary power in designating the contractors

engineers always sought solution from the employer

for bidding. If an employer does not like a contractor

instead of striving for enhancing their knowledge

the employer usually avoid such contractors fromand skills in negotiation and administration. Because

participating in the bidding. Thus, such practices andof such cultures of the Japanese construction

provisions in the conditions of contract for publicindustry Japanese contractors are prone to loose

construction works give the employer huge hidden

money in international construction project.

power to compel the contractor to accept theemployer’s determination without complaining. 90%

The international construction market has recognizedrespondents’

employer’s

the existence of the mutual mistrust in project

direct/indirect influence to make the contractor

management whereas mutual trust is the base of theaccept the employer’s determination is also theJapanese contracts. Due to the recognition of theevidence to the huge hidden power of the employer

mutual mistrust, the FIDIC conditions of contract

in the Japanese domestic construction project. This isprovide the position for the third party engineer andunlikely to happen in international construction

stipulateproject.

management. However, Japanese public works

agreement

with

the

clear

provisionsforclaim/disputecontract has not envisaged the inclusion of the
The questionnaire survey also revealed that no

independent engineer’s function and gives huge

contractors are willing to go against the employer’s

power to the owner (employer) in determining anddecision/determination and intend for arbitration. It

deciding over the contractual issues in the name ofinfers(ormutual trust. In effect, the Japanese construction

directly/indirectly forced) the Japanese contractor anindustry has been suffering from the unequal

obedient follower of the employer’s decision, andrecognition of the construction stakeholders at thethe contractors also do not want to create any

cost of so called mutual trust.

that

the

employers

have

made

situation which make the employer to loose the trustwith them. As received in the questionnaire survey,

6. CONCLUSIONS AND

the contractors usually seek the solution from the

RECOMMENDATIONS

employer over any issues. However, the case in theinternational construction market is not similar to the

The existing claim/dispute management systems

Japanese. The contractor can go for DAB andprevailing in Japanese public works have made thearbitration whenever the contractor is dissatisfied

owner dominated construction industry and the6contractor

aredependent

to

the

owner

for

determination over the contractual issues. Suchcharacteristic of the Japanese construction industry

FIDIC Conditions of Contract for Construction forhas made the contractors to be the obedient follower

Building and engineering works designed by theof the owner. Such contrasting Japanese construction

Employer, 1999

industry culture inhibits the ability of Japaneseengineers to be competent in the international
Kusayanagi, S., Lecture notes on International

construction project management including contract

Construction Management, Kochi University ofadministration, claim/dispute management, etc.

Technology, Japan, 2005
There should not be punishment in claiming forrightful due and unequal recognition at the cost of soNielsen, K.R., Avoiding a crisis in the Construction

called mutual trust. The authority of the employer toIndustry, a Ph.D. dissertation submitted to the Kochi

decide unilaterally over the contractual issues andUniversity of Technology, Japan, 2005

discretionary power in selecting the bidders forbidding should be scraped in order to initiate making

Standard form of Contract for Public construction

the Japanese domestic construction environment

Works, Latest amendment May 23, 1995

compatible with the management practices in theinternational construction. A third party engineer’sfunctions should be integrated in the conditions ofcontract for interpreting the contractual issues,evaluation of claim and giving independent decision.
By making the claim/dispute management system inJapanesepublicworks

compatible

with

the

international construction market would provide
domestic construction market opportunity to acquireenough skills and ability to be competent in theinternational construction market which ultimately
enhances the return from the overseas business ofJapanese contractors.

REFERENCES

Dispute Resolution and Conflict Management in
Construction: an International review; edited byPeter Fenn, Michael O'Shea and Edward Davies,
London; E&FN Spon, 1998.
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