CLAIM/DISPUTE MANAGEMENT PROVISIONS IN JAPANESE PUBLICCONSTRUCTION WORKS AND ODA CONSTRUCTION PROJECTSRajendra Niraula1) and Shunji Kusayanagi2)
1) Center of Excellence for Social Management Systems, Kochi University of Technology
185 Miyanokuchi, Tosayamada-cho, Kami city, Kochi 782-8502, Japane-mail: rajendra.niraula@kochi-tech.ac.jp
2) Department of Infrastructure System Engineering, Kochi University of Technology
185 Miyanokuchi, Tosayamada-cho, Kami city, Kochi 782-8502, Japane-mail: kusayanagi.shunji@kochi-tech.ac.jp

INTRODUCTION
The Japanese construction business law requires parties involved in a construction contract to make thecontract based on equal footing and to fulfill their own duties faithfully and honestly. Thus Japanesecontracts are formed on the basis of ‘mutual trust’ where the contracting parties are expected to performtheir duties and fulfill obligations honestly and faithfully. Japanese public construction works have been
carried out under the two-party i.e. Owner-Contractor system and the role of the Consultants is not evident
for the execution of the projects. The Consultants are being employed for design and making construction
documents. However, the Consultants are employed in Japanese official development assistance (ODA)
projects for investigation, design and supervision of the construction in the aid recipient countries.
Unlike to the Japanese public works construction and grant aid projects, the contracts under the JBIC
(Japan Bank for International Cooperation) ODA loan projects have been designed and executed under the‘mutual mistrust’ environment. The owner in the Japanese public construction works assumes large
authority to determine and to make decision over any issue aroused whereas the Consultants playsignificant role in the claim/dispute management in ODA construction projects. This paper based on thestandard form of contract for public construction works, typical contract agreement used in Japanese grant
aid project and JBIC procurement guidelines for civil works discusses the related clauses/sub-clauses toclaim/dispute management in public construction work in Japan, and Grant aid and JBIC ODA project
execution in aid recipient countries.
PUBLIC CONSTRUCTION WORK IN JAPANStandard Form of Contract for Public Construction Works
A construction project is executed under the conditions and scopes stipulated in the contract. The specialand general conditions of contract stipulates the roles, responsibility and liabilities of the contracting parties
and provides the procedures for whole contract execution including payment, inspection, variation,claim/dispute settlement. The major provisions included in the Japanese general conditions of contract for
public construction works for the consideration and resolution of claims/disputes are: i) claims on action
regarding the Superintendent, Engineer and Project Manager (article 12), ii) Differing Site Conditions(article 18), iii) Changes to drawings and specifications (article 19), iv) Suspension of works (article 20), v)
Extension of construction period (article 21), vi) Acceleration of construction period (article 22), vii)
Procedures for adjustment of construction period (article 23), viii) Procedures for adjustment of contract
price (article 24), ix) Adjustment of contract price due to price level change (article 25), ix) Generalprovision for Damages (article 27), x) Damages upon third party (article 28), xi) Damages from force
majeure (article 29), xii) Alternative to adjustment to contract price, xiii) Liquidated Damages for arrears(article 45). The main players’ roles and other stipulations regarding the claim/dispute management arediscussed below.
Role of Project Manager
The project manager is the Owner’s representative for the execution of the Contract. The duties of theProject Manager, according to the article 9.1, are to exercise the power mentioned in the drawings andspecification for instructions, approvals and consultation with the Contractor’s representative; preparationand delivery of detailed drawings, etc. or approval of drawings, etc. prepared by the Contractor; andmanagement & observation including inspection of the execution of works and testing/inspection of theconstruction materials. The project manager does not have the authority to independently decide and givehis/her opinion on any contractual matter. The contract assumes that the Owner itself assumes all theauthority to decide and notify the contractor.
Role of Contractor’s Superintendent/Engineer
The Contractor’s representative is normally supposed to exercise all the powers vested to the Contractor.
However, the superintendent/engineer in Japanese public construction contract by virtue of the Contractor’s
representative only can not exercise the Contractor’s power such as to adjust the contract price; make claim
and receive payments; receive, determine & notify claims against the Contractor’s personnel; and toterminate contract. The Contractor needs to notify the Owner beforehand in writing what authority thesuperintendent/engineer shall exercise directly on behalf of the Contractor.
Variation
Variation in the Japanese construction industry has been addressed under the articles: Differing Siteconditions (article 18) and Changes to Drawings and Specifications (article 19). These articles require theContractor to promptly inform the Owner about the differing site conditions but do not stipulate any
notification deadline beyond which the Contractor is not entitled to be compensated. The contract is notclear about the requirement for the Contractor to submit the Owner sufficient supporting documents toshow the changes in the site condition has actually affected or will affect in the schedule and quantity ofworks, but it provides the provisions for the Project manager to verify and survey to confirm the differencein the site conditions. Similarly, when the Owner changes the original drawings and specifications it is dealt
under Changes to drawing and specifications. In both the cases if the Owner confirms the changes, thearticles say that ‘the Owner shall adjust the Construction period or the Contract price, if necessary, andshall bear damages incurred by the Contractor, if any.’
Procedure for Adjustment of Construction Period and Contract Price
Once the Contractor notify the project manager about the changes and situations which were beyond theContractor’s control and do not fall under the Contractor’s liability that caused contractor to spend moretime and money, the contractor may claim specifying the reasons in writing for extension of theConstruction period if the Contractor is unable to complete the works within the stipulated construction
period. The owner’s project manager confirms the situations and consultation between the Owner andContractor starts. If the agreement on the adjustment of contract price and/or construction period could not
be reached from the consultation, the Owner decides over the adjustment and notifies the same to contractor.
The contractor may request for mediation if the decision by the Owner was not acceptable to the Contractor.
The mediation is done by member(s) of Construction Dispute Resolution Committee (Central/Prefectural).
If the Contractor still do not agree with the decision by the mediation the final and binding arbitration
process will be started. The process of claim/dispute management has been summarized in figure 1.
JAPANESE GRANT AID PROJECT
A typical contract document for construction contracts under Japanese Grant Aid has envisaged claim freecontract and the execution in good faith. Lump Sum contract with advance, interim and final Payment
system without incorporating any clause for time and/or cost claim has been used. It does not include anydistinct procedure for notifying the other party regarding the intention of the party to claim for time and/orcost. However, the contract has envisaged the occurrence of dispute concerning the interpretation orperformance of the contract and assumed to settle such disputes through mutual consultation of thecontracting parties. If the amicable settlement can not be reached, the contract dictates, the dispute referred
to arbitration by three arbitrators, one each recommended by the contracting parties and the third one isfrom the recommendation of two arbitrators. The International Chamber of Commerce (ICC) rules ofarbitration shall be followed for arbitration.

Occurrence of Event/circumstancesleading to Claim

Notice of Occurrence of the events
to Owner’s project Manager(Promptly- no specific notice perioddefined)

Consultations between the Owner
and the Contractor

Confirmation of the events by theOwner’s Project Manager

Agreement on theAdjustments
bystipulated timeYes
Settlement of Claims

NoDecision by the Owner on theAdjustment

Acceptance by theContractor

Yes
Settlement of Claims

NoMediation/Conciliation[bymember(s) of Construction DisputeResolution
Committee(Central/Prefectural)]Acceptance by theOwner and theContractor

Yes
Settlement of Disputes

NoArbitration [by three members ofConstruction Dispute Resolution
Committee (Central/Prefectural)]Settlement of Disputes

Figure 1: Claim and Dispute Resolution in Japanese Public Construction WorksJBIC ODA LOAN PROJECT
Unlike to the Japanese public construction work, the Japanese ODA loan projects are executed in themutual mistrust environment and the conditions of contract are based on the FIDIC conditions of contract.
The process of claim/dispute management is similar to other international construction projects based on
FIDIC contracts where the engineer is required to perform his duty impartially. The notification period byeach contracting party and Engineer, and time to make decision by the Engineer and Board, and theliabilities of the respective parties are clearly stipulated in the conditions of contract.
The Contractor is required to inform the Engineer within 28 days of the occurrence of the claim event. The
Contractor has to include the claim with supporting evidences in the monthly progress report. The Engineer
examines and evaluates the claim and gives his/her decision within 28 days after receiving the claim. If
either the Owner or the Contractor is not agreed with the Engineer’s decision, then the Owner or theContractor may refer the claims to Dispute Adjudication Board (DAB). The DAB is required to give its
decision within 84th day after the reference of the case to DAB. If either party (Owner or Contractor) is
dissatisfied with the DAB’s decision, then either party, on or before 28th day after the day on which it
received notice of such decision, may notify the other party and the Engineer of its dissatisfaction. Theparties then attempt to settle the dispute amicably before the commencement of arbitration. Arbitration may
be commenced on or after the 56th day after the day on which notice of dissatisfaction was given.
DISCUSSION AND CONCLUSIONS
Unlike to the FIDIC conditions of contract for construction, the stipulations on the role and authority of theProject manager in the Japanese standard for of contract for public construction do not provide theEngineer to judge and decide independently and to improve his/her knowledge/skills in evaluating thecontractual matter. As a result the project manager may assume that his/her duties in the Contract are to justissue/approve the drawings and observe the construction works. Such practice in the Japanese constructionindustry has been inhibiting the Engineer to enhance their skills for contract administration and ininterpreting the contractual obligations, and consequently their ability has remained at lower level thanother western counterparts
The dealing and compensating variation in Japanese public works contract is very simple andstraightforward. The Owner confirms the Variations itself and provides the compensation to the Contractor
through consultation with the Contractor. The article indicates that the Owner can unilaterally decide thetime or money to be compensated to the Contractor. Because of such provision, the Owner may easily hide
its or designer’s fault if any found during the execution of the Contract and compensate the Contractor forthe same. This system of dealing variation in Japanese construction industry provides the Owner
opportunity to dictate his decision unilaterally and do not consider the Contractor on equal footing.
As such the grant aid construction projects are executed through lump sum contract and do not include
distinct claim/dispute management procedure, the contractors may suffer loss if there is design change,
differing site conditions, changes in specifications during the construction. However, JBIC loan project
includes distinct claim/dispute management procedure and provides the contracting parties equal
opportunity to exercise their rights.
Making the Japanese public works execution including the contract administration system consistent to theJBIC ODA and compatible with other international construction project execution systems would help
internationalize the Japanese construction industry, and improve the transparency in determination anddecision making system in the construction project execution including claim/dispute management.
REFERENCES
Dispute Resolution and Conflict Management in Construction: an International review; edited by PeterFenn, Michael O'Shea and Edward Davies, London; E&FN Spon, 1998.
Sample Bidding Documents under JBIC ODA Loans, Procurement of Civil Works; Japan Bank forInternational Cooperation (JBIC), November 1999
Sample Contract between Executing Agency in aid recipient country and the Contractor from Japan underJapanese grant aid system.
Standard form of Contract for Public construction Works, Latest amendment May 23, 1995