The Construction Contract in Japan from a German Perspective

Abstract

SUMMARY

The comparison of substantial provisions of the construction contract presented similarities and differences in both jurisdictions. The Japanese Civil Code provides few provisions on construction contracts. In practice the standard General Conditions are widely used to provide the parties of a construction contract with detailed terms and conditions. The GC fairly balances the interests of the parties and provides flexible rules to apply in all situations that typically occur or may occur in construction projects. The general contractor contract is usually a lump-sum fee contract, and the work to be delivered is defined by the design documents and terms and conditions. There is however, flexibility as regards alterations of the work performance and adjustment of price where it becomes necessary to alter the work and where the contract price becomes inappropriate. The remuneration becomes due at delivery of the permanent work and is subject to a limitation period of three years. The General Conditions shift the risk from the contractor to the owner if the work is damaged or destroyed by force majeure prior to delivery. In the event of impossibility not attributable to any party, the contractor loses his remuneration claim and is relieved from the obligation to deliver the work. The contractor warrants the absence of any material, legal, and latent defects. Liability for defects may be excluded by agreement to some extent, but this is not popular and is unavailable in the case of willful concealment of the defect. The General Conditions have relatively short limitation periods for defects of one year for wooden buildings and two years for other permanent structures on land, except for new houses that fall under the Housing Quality Assurance Act, which mandates ten years. In construction contracts the obligee can already exercise his rights before the occurrence of a default when risk of a default exists. Liquidated damages rather than contractual penalty clauses are used in construction contracts. Enumerated contract time variation, suspension, and termination rights for both parties are provided by the General Conditions. Advance payments and bank guarantees to secure payment claims are usually used. English translation of terms should always be double-checked against the Japanese texts to avoid misunderstandings.