A Study on Construction Management Contract for Construction Projectin Japan
Takashi GOSO*

Shunji KUSAYANAGI***Research Center for Social Management, Kochi University of Technology, Japan**Department of Infrastructure and Engineering systems, Kochi University of Technology, Japan
Abstract Construction projects based on Construction Management Contract (CM Contract)
have been spread out in Japanese public works. Under the project based on CM contract,“Process control” is necessary. By “Process control”, transparency of project implementation is
expected to be improving. This matter contributes to recover nation’s confidence in improving
transparency in the construction industry.
Japanese construction contract is based on two-party system- Owner and Contractor. To
implement CM contract in Japan, suitable environment to integrate the function of theConstruction Manager (CMR) as third party is necessary. This research reviewed and revised“Standard Form of Construction Management Agreement between Owner and Construction
Manager” and “Standard Form of Contract for Public Construction Works” based on three-party
system established in previous study. Furthermore, “Standard Form of Design Agreement
between Owner and Designer” based on CM contract was tried to established in this study.
Key Words : Construction Manager, CM Contract, Claim Document, FIDIC
1. Introduction
Construction projects based on Construction
Management Contract (CM Contract) have been
spread out in Japanese public works. Ministry ofLand Infrastructure and Transportation (MLIT) aims
to develop transparency, to secure quality and to
reduce cost by introducing CM Contract. Project
execution based on CM contract needs “Process
Control” to keep transparency.
Examples of public works based on CM Contract
are Moriyoshizan-Dam and Isawa-Dam construction
projects executed by Tohoku Regional Bureau,
MLIT. These projects have been monitoredcontinuously from viewpoint of effect and problem
of CM Contract. Many suggestions to spread out
CM Contract in Japan can be found out from thesemonitoring.

“Standard form of Contract for Public
Construction Works in Japan” is based on two-party
system. To spread out CM Contract, making basis
for the participation of the Construction Manager(CMR) as third party is necessary. As a concretemeasure, Construction Management Contract basedon three-party system should be established.
By previous research by this research group,“Standard Form of Construction Management
Agreement between Owner and Construction
Manager” and “Standard Form of Contract for
Public Construction Works” based on three-party
system were established, referred to many Standard
form of agreements in Japan and other countries.
This research is based on our previous research as
mentioned above. Main propose of this research isto revise Standard Form of Contract of previous
research to apply for civil works especially dam<1.Review and revising of Construction Management
Agreement between Owner and Construction Manager>
z Actual two dam projects
z Establised in previous researchContractor A

Control<3.Establishing Design Agreement basedon three-party system>z Present standard form of agreement
based on two-party system

Owner<2.Rwview and revising of Standard Form ofContract for Public Construction Works >z Actual two dam projects
z Established in previous researchContract

CMR
Designer

Contractor B

Contractor C

Figure 1: Subjects of this study

Contractor Dconstruction works.
In this study, hearing on persons concerned toMoriyoshizan-Dam and Isawa-Dam construction
projects done by Japan Dam Engineering Center(JDEC) was referred. Objection by persons
concerned were referred to find out problem andstudy measures for previous Standard Form ofContract of previous research from. Moreover,“Standard Form of Design Agreement between
Owner and Designer” based on CM contract wastried to established in this study. This study is joint
research project between JDEC and our researchgroups. Figure 1 shows subjects of this study.
2. Purpose to introduce CM contract
Purpose to introduce CM contract was reviewed
in this study. Previous study of this research group,
MLIT and other research groups has taken“developing transparency”, “keep quality” and “costreduction” as purpose of introducing CM contract.
Each purpose is restructured in this study.
“Developing transparency” was the core to
restructuring
First problem of transparency is the“transparency of construction industry fromcitizens’ viewpoint”. Previous study express
following about transparency of constructionindustry.
z Japanese two-party system is the “Public sector
lead private companies” style. In this style,relationship of owner and contractor has been
complicated. This relationship makes rapid
reconstruction of Japanese infrastructure.
z Two-party system adjusted market before 1st oilshock (1973). In those days, construction
investment in Japan is increasing 15% per year.
In such condition, construction industry neednot market analyzing and getting citizen’s
needs. Two-party system has made good
performance by using its characteristics in suchmarket condition.
z Construction investment has not increasingfrom 1978 (year of 2nd oil shock). A period
from 1978 to start bubble economy in Japan(1986) called “Ice age of construction industry”.
This period is thought to be that Japanese
infrastructure has been almost prepared. Japan
thought to be a developed country form at thattime.
z Changing from high economic growth society
to low economic growth society meanschanging of quantity and quality by citizen’s
needs. Construction industry should develop
infrastructure based on citizen’s opinion in suchcondition. At the same time, constructionindustry should change their system that theyshow not only “result” but also “process” ofconstruction projects.
z From viewpoint of transparency, it is difficult
to execute public construction project only by
two-party(OwnerandContractor).
Construction
project
essentiallyhavecooperation with owner and contractor basedon contract in every stage of project. It has
possibility that fair cooperation for concernedwith the project thought to be cozy relationshipby outsider.
By above states, from changing economical
condition, citizens have started to requiretransparency of construction industry. But two-party
system have limit to ensure enough transparency.
There is the case that taking part in public project by
third party who has enough knowledge is profitableto get citizen’s understanding.
Second problem of transparency is the“transparency of each concerned of project”.
Principal objective of present Japanese publicconstruction project execution system is “result
control” which control complete date, final amountof money and quality. Fundamental measure toensure transparency is changing principal form
“result control” to “process control”. Changing to“process control” makes realize developing
construction site management and engineering
competitiveness of concerned (technical proposal
and discussion of each other). Based on above
condition, “keep quality” and “cost reduction” will
be achieved.
Introducing CM contract is the one of the＜Present Condition＞

Citizens

1. Transparency of Construction

Construction Industry

Industry(Citizen’s needs have been strong)

Owner

Control

Contractor

2. Transparency of each concerned(It become difficult to keep transparency)＜CM Contract System＞
1. Transparency of Construction

Citizens
Construction Industry

Industry(From “2. Transparency of eachconcerned”, owner have basis to

Owner

CMR
Control

explain to citizens)

Contractor
・Establishing “Process Control” to show outsider

3. Realizing “keep quality” and・Developing management by taking part in CMR“cost reduction”

・Promotion of engineering competitiveness2. Transparency of each concerned(“Process control” by CMR is monitored by owner)

Figure 2: Purpose to introduce CM contract

measures for realizing “process control”. Taking
part by a third party who has enough knowledge ofengineering and management is expected to makedeveloping construction site management andengineering competitiveness of concerned. In thissystem, owner changes from executer to procurer,
he monitors construction work done by contractor
and construction management by CMR. Based on
above developing “transparency in the activities ofeach concerned of project”, “transparency ofconstruction industry from citizens” will be realized.
Figure 2 shows above story.
3. Problem of Tender-Contract system andStandard form of contract in Japanese public
works
In this study, each clause of contract is revised. But
before revising clauses, problem of tender-contractsystem and Standard form of contract in Japan
should be reviewed. This chapter takes problem oftender-contract system and Standard form ofcontract, and makes basic policy to revise eachclause of contract.
(1)Problems of tender-contract system in Japanesepublic worksa) Actual cost control is not necessary for present
tender-contract system
As Bill of Quantity (BOQ) and other contact
documents become detail, transparency of public
works is developed. Changing of cost and schedulefrom unexpected event are estimated based onagreed BOQ and contract documents. Transparency
is ensured by these records.
In the case of tender of international construction
project, bidders are required to apply contact
documents, BOQ, schedule, statement of works.
These documents are reached about 1,000 pages.
Owner checks these documents, and about top 3
companies are clarified as candidates for bidding. In
clarification stage, based on clarification for unclear
point of tender document, estimation for alternatives
by bidders, and studying on validity of BOQ, etc,
successful bidder is decided. To analyze problem
and to manage cost and schedule based on suchdetail agreed matters, suitable level of engineeringknowledge is necessary. Significance of existence of
CMR is for this point. Based on such tendercontract system, CMR works from starting stage of
project, transparency of project are realized.
The other hand, bidder submits only total cost inalmost case of tender of Japanese public works. In
almost case, successful bidder is decided from cost,and contract will be concluded. Moreover,“Standard Form of Contract for Public Construction

Table 1: Difference of contact documents for Japanese public works andinternational project based on FIDIC contract
Contract
Document

Japanese Public Works

International Construction Project basedon FIDIC

Condition of ●Applicable contents for usual project●Part I (General Conditions) states
Contract
are stated in“Standard Form of Contract applicable contents for usual projectfor Public Construction Works”●Part II (Particular Conditions) states●Applicable contents for each project are revised matter from Part I to apply each
not stated. Generally, Condition ofproject.
Contract is not changed for each project ●Part I and Part II are unified to makefrom “Standard Form of Contract for
Condition of Contract to stipulate rightPublic Construction Works”
and duty of stakeholders
Specification ● General Specification●Specification● Special Specification
Priority of●Special Specification have high priority ●Priority of ducuments are stipulated ascontract
than General Specification
followings
documents ●Order of priority between Condition of ①The Contract Agreement (ifContract and Special Specification are not completed)stipulated. Reason is thought to be that
②The Letter of Acceptance;
concrete contents are stated in Special③The Tender;
specification; same kind matters are not ④Part II of these Conditions;stated in Condition of Contract. In actual ⑤Part I of these Conditions; andbusiness, Condition of Contract has high ⑥Any other document forming part of
the Contract.
priority than Special Specification.
Handling
situations ofCondition ofContract in
actualbusiness

Special information of each project is
Condition of Contract has high priority
stated in Special Specification. Condition than Specification. Condition of Contractof Contract does not state actual
states special information of eachprocedure to solve problem. So, Condition project. Moreover, Condition of Contractof Contract does not referred in actual
states actual procedure to solve problem.
business.
So, Condition of Contract should referredfrequently in actual business.

Works” says “The BOQ and Work Program shallnot be binding on the Owner and Contractor”. In
this condition, important significance of existence of
CMR has possibly to be lost.
Existence of CMR itself can not ensuretransparency and not reduce public work’s cost. In
present trial two dam projects, above clause are kept
unchanged. Moreover, construction managementagreement between owner and contractor in theseprojects doesn’t require CMR to control project cost.
As a result, effect of introducing CM contract
thought to be limited, for example cost reduction
from VE proposal by CMR. In hearing forconcerned of two dam project, owner said that“from view point of cost control, change is notfound out from previous two-party system”. Basedon above Condition of Contract, owner’s above
opinion thought to be correct.
b) Changing of Tender-Contract system and Clauseof Standard form of contract
Public works can be defied as “Execution ofannual budget”. Based on this character, cost controlof Japanese public works place importance on final
total project cost. Purpose of such kind control is tofinish project within lump sum cost. View point on
this control is total cost. This is different fromgeneral meaning of “Cost control” which monitors
each cost of BOQ item.
Symbol of this matter is bidding without BOQ. It
is difficult to manage project cost without detailBOQ. Suitable estimation to each bid cannot bedone without a detail BOQ.
Cost
controlrequireunderstandingof
disbursements of each cost item; disbursements ofeach cost item are compared with BOQ or budget;
cost items which is larger or smaller than budget are
picked up; reasons and measures for such condition
are found out and execution of measures. These data
is applicable to next project. Cost control is defined
as above cycle.
In Japanese public works, such kind cost control
is contractor’s inside jobs. Owner doesn’t concern
such kind of cost control.
To realize developing transparency and cost
reduction, CMR should have function of cost
control. In previous study, function of cost control
was taken to CMR’s duty in “Standard Form ofConstruction Management Agreement between
Owner and Construction Manager”. Moreover, toperform this function, “The BOQ and Work
Program are a part of Contract Documents” was put
on “Standard Form of Contract for Public
Construction Works”.
In the future, to realize developing transparency
and cost reduction, these clauses have importantmeaning.
Moreover, to select appropriate contractor fromviewpoint of cost and quality, submitting detailtender documents (e.g. BOQ, schedule, andstatement of construction method) and clarification
procedure are necessary.
(2)Handling of contract documents and specificationin Japan
BOQ, Schedule and Statement of method for
project execution should be a part of contract
documents and binding to both the parties.
Moreover, state of Specification in Japanese publicproject should be changed. From view point oftransparency, contents of Condition of Contract
should be referred and used in daily work. But“Scope of works”, “Documents to be submitted”,“Procedure for change of works” and other contents
are written in specification of almost Japanesepublic works. Most of above contents should be
written in Conditions of Contract or other contract
documents. In this condition, Conditions of Contract
and other contract documents except specification
are not used in actual work. Specifications of someproject are made by execution level staff of project
execution section. This situation can rapidly solve
problems from negotiation of execution level staff
of each organization. The other hand, in thissituation, essence of contents of contract can beunderstood by execution level staff of eachorganization. Transparency of project becomes low.

In this situation, level of specification may become
different by each project.
Therefore, important and normal matters ofspecification should be moved to Condition ofContract; and Condition of Contract should be
separated to part I (General Condition) and Part II(Conditions of Particular Application).
Condition of Contract made in this study iscorresponded to Part I.
Moreover, Condition of Contract should not be
written by abstract word but be made from actual
procedure to solve problems (ex. Submission
deadline and party). Condition of Contract forWorks of Civil Engineering Construction by FIDIC(Federation Internationale Des Ingenieurs Conseils)
is a good reference of this matter.
“Standard Form of Contract for Public
Construction Works in Japan (Japanese standard
contract)” and “Condition of Contract for Works ofCivil Engineering Construction by FIDIC (FIDIC
contract)” are compared. FIDIC contract states
actual procedure to solve problem in construction
site, more than Japanese standard contact.
For example, in “Extension of Time forCompletion” clauses, Japanese standard contact
basically says
“Any adjustment of theConstruction Period shall be through consultations
between Owner and Contractor”. Foreseeablereasons, negotiation procedure and schedule tochange schedule are not stated in Japanese standard
contact .The other hand, FIDIC contract says states
5 items of foreseeable reasons to change schedule.
Moreover, actual procedures are stated in FIDIC
contract. Other clauses are also in same situation.
Difference of contact documents for Japanesepublic works and international project based on
FIDIC contract are compared in Table 1.
Condition of Contract does not clearly state actual
procedure to solve problem in Japanese public
works. So, execution staff can implement their workwithout referring Condition of Contract. They
almost can implement their work only with referring
Special Specification. This condition is same as
Design Agreement between owner and designer.

The other hand, Condition of Contract ofInternational Construction Project states actual
procedure to solve problem.
Based on detail procedure stated in Condition ofContract, documents are exchanged between ownerand contractor though The Engineer as third party.
This condition leave on record of project; andtransparency will be developed.
Introduction of CM system aims to developing
transparency. To realize this purpose, actual
procedure to solve problem should be stated in notSpecial Specification but in Condition of Contract.

So, Standard procedures to solve problems inconstruction site which are stated in specificationlevel documents in Japan are stated in new
Condition of Contract revised in this study.
4. Review and revising of Construction
Management Agreement between Owner andConstruction Manager
Management Agreement between Owner andConstruction Manager of actual two dam projects
established in previous research are reviewed andrevised in this study. Hearing on persons concernedto two dam project done by JDEC was referred tofind out problems.
Main points are followings.
(1) Cost control
One engineer belongs to owner says that hecannot find out effect of introducing CMR fromviewpoint of cost control. Condition of Contract andSpecification for Construction Management does
not state about cost control by CMR. In suchcondition, above opinion by owner side is thought tobe properly.
First purpose of introducing CM system is todevelop transparency. To realize this matter, CMR
should have function of cost control.
(2) Fee for cost reduction from Value Engineering(VE) proposal
CMR sometimes realize owner’s idea. Such case isdifficult to share cost reduction between owner and
CMR. Generally, CMR should get suitable fee torealize cost reduction idea from other party.
(3) Evaluation procedure for VE proposal
Condition of Contract and Specification of two
dam project does not state about evaluator. Actually,owner estimate VE proposal. To developtransparency, third party should evaluate VE
proposal. “Standard Form of Construction
Management Agreement between Owner andConstruction Manager” established in previous
study does not include procedure of VE evaluation.
In this study, procedure of evaluation of VE
proposal is stated in revised Agreement.
(4) Claim evaluation
One engineer belongs to contractor says that hecannot find out notification procedure of their claim.
Under present contract, if owner received claim
document from contractor, owner decides “designchange” by oneself based on negotiation andinvestigation. CMR evaluates such kind of claim
documents under control of owner in two dam

projects. Condition of Contract and Specification for
CMR of two dam project does not state procedure
about evaluation procedure of contractor’s claim.
Such kind of procedure should state in Condition ofContract to dispel contractor’s doubt.
Basic policy of claim evaluation procedure is“CMR evaluates Contractor’s claim. Decision
Making is done by owner”
5. Review and revising of Contract for Public
Construction Works between Owner andContractor(1) Fee for cost reduction from VE proposal
CMR are expected to make many VE proposals by
Owner side. Owner expects that VE proposal form
CMR accelerates technical competitiveness between
CMR and Contractor. However, consultant says that“Contractor may have negative image for VE
proposal by CMR. Because total cost will be
reduced”. Present Specification of two dam projects
state no incentive for contractor by VE proposal of
CMR. To encourage VE from CMR, Contractor
should get suitable fee to realize cost reduction ideafrom other party.
(2) Dispute resolution between each Contractor
Dispute between each Contractor should be solved
by negotiation between concerned with such event.
However, to keep transparency, detail of event andresolution procedure should be reported to Owner
though CMR.
(3) Claim evaluation
To dispel contractor’s doubt about evaluation
procedure, claim evaluation procedure should statein Condition of Contract for Construction works.
Moreover, duty of CMR in claim evaluation
procedure should be stated.
6. Establishing Design Agreement based on
three-party system
Based on present “Standard Form of Design
Agreement between Owner and Designer”, new
Design Agreement on three-party system isestablished in this study.
Functions of CMR are incorporated to present
agreement.
(1) Policy of reviewing
in establishing
Agreementa)State Scope of Works in Design Agreement
Present Agreement does not state Scope of Works.
Reason of such condition thought to be that such
Agreement can use any type of works. However, anAgreement is formally treated only to a particularcondition. Such condition does not have enoughtransparency. So, general design works are stated in
new Design Agreement based on present “Special
Specifications of some Design works”b) Advising for Designer and inspection of Design
Document by CMR in design stage
Main duty of CMR in design stage is to advise the
Designer. Followings two cases are prepared in
new Design Agreement
Case A: Advising by CMR for Designer are
pontificated though Owner. CMR does notadvise to Designer directly.
Case B: Based on discussion between Designer
and CMR, CMR notifies result of
discussion
toOwner.
Realizing
amendment should be agreed by Owner.
Case B is more practical and effective advice. In thisresearch, Case A and Case B are placed as
selectable options.
(2) Joint Control of Designer and CMR in
construction stage
Generally, Design works in Japan by Designer areusually limited in design stage. Designer usually
does not take part in construction stage.
However, to keep quality, information of design
stage should be notified to Owner and CMR.
Contrary, Designer should have information about
construction
stage;
andconfirm
whether

construction stage is same as expected procedure.
Such joint control based on information exchange
makes develop quality and Designer’s ability.
Present system in Japan does not have such process.
This study has tried to make such process in Design
Agreement. Figure 3 shows difference of Design
Works between present system and proposed system.
CMR makes Designer to take part in construction
stage. So, duties of CMR are stated in new Design
Agreement. Fee for Designer in construction stage isconsidered to be cost plus fee.
7. Conclusion
Project execution system based on Contracts
established in this study makes “Process control”.
Change form “Result control” to “Process control”
realizes developing transparency. Construction
Industry in Japan will get confidence of citizens
based on “Process control”<Reference>
1)Study on Standard form of Construction
Management Agreement in Japan, Japan Dam
Engineering Center and Kochi University ofTechnology, Mar 2004
2)Study Report on Standard form of Contracts basedon CM Cotract, Japan Dam Engineering Center,
Kochi University of Technology and ResearchCenter for Infrastructure System Kochi, Mar 2006

＜General Duty of Designer in Japan＞
Designer’s duty is completed in delivering design documents
Planning

Basic Design

Detail Design

Construction Stage
Design for construction

Designer’s Duty

Building：On site drawing by contractor
Civil Works：Consultant or Contractor without charge＜Designer’s Duty of Established Contract in this research＞
Delivering design documents
Planning

Basic Design

Detail Design

Designer duty is completed infinishing construction stage
Construction Stage
Design for construction

Designer’s Duty

Delivering information about design, understanding of site informationand confirming safety and quality

Figure 3: Difference of Design Works between present system and proposed system