Contracting Procedures of theJapanese Government《 Content 》①Outline of the contracting scheme②Programmes for fair public procurement<For the Regional Seminar on Good Governance, the United Nations Asia and Far
East Institute for the Prevention of Crime and the Treatment of Offenders (UNAFEI)>

Junichi Izumi
Legal Division, Budget Bureau, Ministry of Finance① Outline of the Contracting Scheme(Basic act: Public Accounting Act)- 91 -How Does the Japanese Government
Decide its Counterparty?
《 Competitive approaches 》
GeneralGeneralcompetitivecompetitivecontracts
contracts
This type of contracting method is employed in principle.
The ordering party makes public announcement, decides a successful bidder through public bidding among the unspecified
number of bidding participants, and enters into a contract with the successful bidder.

Designated
Designatedcompetitivecompetitivecontracts
contracts
The ordering party decides successful bidder through bidding among competition participants designated by theordering party, and enters into a contract with the successful bidder.

AuctionAuctionsalesale
An unspecified number of competition participants are invited through public announcement and join competition
each other orally or with their specific act.

《 Noncompetitive approach 》
NegotiatedNegotiatedcontracts
contracts
The ordering party decides its counterparty and enters into a contract with such counterparty, without employing thecompetitive bidding process.

Negotiated Contracts
NegotiatedNegotiatedcontract
contractisisemployedemployedininthe
thefollowing
followingcases:
cases:① Competition is not possible owing to the characteristics or purposes of the contract <Noncompetitive negotiated contract>- A contract is for a land lot at an unsubstitutable location (for example, a road site). Purchasing a land lot at a different
location will not accomplish the intended purpose of the contract.
- The counterparty has special know-how that is unsubstitutable with the other person’s know-how, and the government will
not accomplish the intended goal of civil services if it does not enter into a contract with the counterparty.
- A museum intends to purchase a certain work by a certain artist.
- The government intends to procure defense equipment manufactured under license.

②Competition is not desirable owing to urgent needs.

- The government takes first-aid actions during disasters to protect a citizen’s life and ensures safety of properties when adisaster occurs.

③Competition will pose some negative impacts- The government sometimes needs to enter into an additional contract for ongoing construction projects if an unexpectedcircumstance occurs.

NegotiatedNegotiatedcontract
contractmay
maybe
beemployedemployedininthe
thefollowing
followingcases:
cases:
Estimated contract price stands at a small sum, etc.

(Other example)(Example of small-sum negotiated contracts)
Unsuccessful negotiated contracts without successful bidder
Construction or production: ¥2.5 million or lessThis type of contract is employed if competitive bidding or follow-up bidding does not yield
Acquisition of physical goods: ¥1.6 million or lesssuccessful bidder, or if successful bidder fails to enter into the contract.

- 92 -② Programmes for Fair Public Procurement

OutlineOutlineofofScandals
Scandals[Fractionated, small-sum negotiated contract scandal (cash registers)] July 2004
Social Insurance Agency only explained to certain providers the specifications of cash registers and thenumber of cash registers installed, and it entered into negotiated contracts. In addition, social insurance
offices have split up the purchasing unit into small-lot orders of nine cash registers or less without
justifiable reasons.
[Bridge bid-rigging scandal] May 2005
In the central government’s construction projects of steel bridges, 47 companies that belong to the two
bid-rigging societies (Society K and Society A) engaged in collusive bidding (by adjusting new orderacceptance) and decided successful bidders and bid prices in advance on the basis of the past recordsso that successful bidders would always win new orders.
* These 47 companies belonging to the bid-rigging societies have successfully won most orders forconstruction works placed by regional development bureaus of Ministry of Land, Infrastructure,
Transport and Tourism from FY2002 to FY2004.
It is revealed that Society K and Society A have adjusted the approach to be followed by their member
firms for accepting new orders placed by Japan Highway Public Corp. Executive officers of Japan
Highway Public Corp. were also involved in the adjustment process of new order acceptance.
[DFAA-led bid-rigging scandal] January 2006
As for competitive bidding for US Yokota Air Base, Defense Facilities Administration Agency (DFAA)
decided successful bidders in advance so that a bidder that accepts parachutists from former Defense
Agency on the advantageous conditions will win new orders for construction works on favorableconditions.

- 93 -

Appropriate Public Procurement(Outline of Scandal and Actions Taken (1))[Fractionated, small-sum negotiated contract scandal (cash registers)]
July 2004{ Handling clerical duties on negotiated contracts(Notice of Ministry of Finance to the head of ministries/agencies dated February
25, 2005)- Imposing stricter disclosure criteria on negotiated contracts
Except for small-sum contracts (¥1 million in the case of a consignmentcontract), the ordering party must disclose counterparties, contract prices, andjustifiable reasons on the website.
{ Handling clerical duties on negotiated contract-type consignment contracts(Notice of Director General of the Budget Bureau to directors of Accounting
Division of ministries/agencies dated February 25, 2005)- Prohibiting lump-sum re-consignment and introducing an approval scheme forre-consignment

Appropriate Public Procurement(Outline of Scandal And Actions Taken (2))[Bridge bid-rigging scandal] May 2005

{ Instruction of the Prime Minister (with regard to amendment to “Act on Elimination andPrevention of Involvement in Bid Rigging, etc.”)
Outline of amendments to “Act on Elimination and Prevention of Involvement in Bid Rigging, etc.”- Creating criminal sentences for ordering party’s staff- Expanding the meaning of “involvement in bid rigging etc.”- Expanding the scope of ordering parties subject to this Act- Requiring disclosure of survey results on damage compensations and reasons for disciplinary
actions against staff workers, etc.
Setting up “Liaison Conference of Related Ministries/Agencies on Improvement in Bid Contracts
for Public Works” (December 2005)- 94 -Appropriate Public Procurement(Outline of Scandal And Actions Taken (3))[DFAA-led bid-rigging scandal] January 2006

{ Setting up “Liaison Conference of Related Ministries/Agencies on Appropriate Public
Procurement Practices” (January 2006){ Programs for appropriate public procurement practices(The February 2006 decision of “Liaison Conference of Related Ministries/Agencies on
Appropriate Public Procurement Practices”)- Public works: Increasing general competitive bidding and expanding the overall evaluation
bidding approach- Negotiated contracts: Conducting emergency inspections, and expanding information
disclosure on negotiated contracts

Appropriate Negotiated Contracts with Public-interest Corporations, etc.
(The June 2006 decision of “Liaison Conference of Related
Ministries/Agencies on Appropriate Public Procurement Practices”)[Developing the Negotiated Contracts Review Plan]{ Re-examining negotiated contracts with public interest
corporations, and shifting approximately 70% of thenegotiated contracts (on the monetary value basis) to generalcompetitive bidding[Programs after developing the Plan]{ Re-examining negotiated contracts with contracting parties
other than public interest corporations on the basis of thesame concept and revising the Negotiated Contracts Review
Plan in January 2007
{ Further enhancing information disclosure{ Setting up procurement-related one-stop information service
desks at each ministry/agency, etc.

- 95 -Appropriate Public Procurement (1)(Notice of Finance Minister to the head of ministry/agency
dated August 25, 2006)
1. Actions for appropriate bidding and contracting practices[Competitive bidding]{
Setting up eligibility for participating in competitive bidding asnecessary for fair and rational competitions.
{
Pushing ahead by introducing the overall evaluation bidding approachbased general competitive bidding for public procurement practices for
R&D, survey research, public relations services, etc.
[Negotiated contracts]
Except for counterparties clearly specified in applicable laws, thenegotiated contracts will be replaced with general competitive bidding.
⇒ Negotiated contracts for civil service assistance tasks, survey research,or leasing services will be replaced with general competitive bidding(including the overall evaluation bidding approach-type generalcompetitive bidding){Appropriate Public Procurement (2)(Notice of Finance Minister to the head of ministry/agency
dated August 25, 2006)
2. Actions for appropriate re-consignment practices{
Prohibiting lump-sum re-consignment{
Requiring contracting officer’s prior approval in the case of reconsignment{
Identifying compliance schemes, etc.
3. Disclosing information on contracts{
Disclosing information on competitive bidding as well and improving
user-friendliness of the overall contracting information, including
public works information⇒ Except for small-sum contracts, a list of all contracts will be disclosed.
[Information with improved visibility]- Estimated contract prices- Successful bidding rate
- If the ordering party enters into a negotiated contract with a public
interest corporation in its charge, the ordering party must disclose thenumber of central government’s former regular civil servants serving
for the public interest corporation as of the day of entering into such acontract.

- 96 -

Appropriate Public Procurement (3)(Notice of Finance Minister to the head of ministry/agency
dated August 25, 2006)
4. Setting up procurement-related one-stop information service
desks at each ministry/agency
5. Conducting internal audits{ Putting emphasis on auditing negotiated contracts{ Clearly identifying how internal audits are conducted, etc.
6. Preparing contract-related statistics{ Preparing contract-related statistics every fiscal year (sinceFY2006)- Statistics on the number of contracts and contract prices- Statistics on negotiated contracts

Status of Competitive Contracting Practices in FY2009○ In FY2009, “noncompetitive negotiated contracts” have decreased since FY2005 as a percentage of theoverall contracts by 24 points on the monetary value basis and by 30 points on the contract volume basis.
FY2009 data

FY2005 data

¥7.3 trillion (185,000 contracts)

Competitive bidding¥3.4 trillion (84,000contracts)

Competitive contracts, total
Contract monetary amount:*[54%]¥3.9 trillion
Contract volume: *[54%]100,000 contracts
Plan competitive bidding
Contract monetary amount: ¥0.5trillion (16,000 contracts)

Noncompetitive
negotiated contracts
Contract monetaryamount: ¥3.4 trillion*[46%](Contract volume: 85,000contracts, *[46%])¥8.1 trillion (174,000 contracts)“Competitivecontracts” haveincreased/decreased
from the FY2005
level as a percentageof the overallcontracts.
Contract monetaryamount: *[+24 points]
Contract volume:*[+30 points]“Noncompetitivecontracts” haveincreased/decreased
from the FY2005 levelas a percentage of theoverall contracts.
Contract monetaryamount: *[-24 points]
Contract volume: *[-30points]

Competitive bidding¥4.5 trillion (105,000contracts)
Competitive contracts,total
Contract monetaryamount: *[78%]¥6.3 trillion
Contract volume:*[84%]
146,000 contracts

Plan competition, open-type
proposals, etc.
Contract monetary amount: ¥1.8
trillion (41,000 contracts)
Noncompetitive negotiatedcontracts
Contract monetary amount: ¥1.7
trillion *[22%](Contract volume: 28,000
contracts, *[16%])(Note 1) Data in parentheses with asterisk represent “competitive contracts” or “noncompetitive contracts” as a percentage of the overall contracts.
(Note 2) The total sum of indicated data may not be 100% in some cases because data are rounded off.

- 97 -