Tony Farrow, responsible for Trett Consulting’s international operations, visited Japan last year to present a seminar for OCAJI, the Overseas Construction Association of Japan. OCAJI is an association between the Ministry of Construction and contractors and consultants involved in construction work outside of Japan. Founded in 1955, it has a membership of 56 Japanese construction companies.

Eversheds, Solicitors, were invited to take part in the seminar and Jonathan Tattersall, now with Hammond Suddards Construction and Engineering Unit in Leeds, joined Tony to make the presentation. The title of the seminar was ‘Management of Construction Claims’ and around 120 people attended. The day long seminar was simultaneously translated into Japanese by three translators. The seminar was extremely well received and OCAJI now intend to publish the Japanese transcript.
Japanese construction contracts have little in the way of formality and there is no claim culture. Claims are simply not made. A construction company will, if it is incurring a loss by reason of events outside its control, speak to the employer, but not expect in the usual course of events to recover any monies or obtain a remedy. Historically, margins in Japan have been high and so, if negotiations at the end of a project proved unsuccessful, losses would be put down to experience and be expected to be recovered in the margin on the next project.

Although Japanese firms have been working outside Japan in Asia and Europe since 1980’s, they have had many problems, cultural in Europe and economic in Asia. However, following the burst of the ‘bubble economy’ of the 90’s and the collapse of the Japanese economy, Japanese contractors have had no real option but to widen the sphere of their horizons outside their core business in Japan and their traditional loose form contractual frameworks. Their overseas operations are a major contributor to turnover.

As a result, they are having to enter into international construction contracts such as FIDIC, but are finding themselves unequipped to deal with the strict contractual conditions to which they are required to adhere. Not only is FIDIC unusual culturally, but domestic forms encountered have proved to be fraught with difficulty. In particular, they feel vulnerable in the area of making claims. They have little domestic experience in how to formulate a claim and do not feel comfortable with a culture of preparing and submitting required contractual notices. They are keen for any help at all in this area. Competing in the International sphere, margins are much tighter and Japanese contractors are realising that they have to submit very competitive bids and enforce the contract provisions i.e. make claims to maintain profit. They are simply no longer in a position to accept losses on the inevitable projects which do not run to plan.

With claims being so alien, the majority of contract managers, both on site and back in the head offices, are anxious to learn how to present a good claim document. The seminar, therefore, concentrated on two themes: the first was the legal basis and contractual framework for making claims, and the second, how to prepare a claim document. Questions raised from the floor indicated a worry that the service of contractual notices would not help the smooth running of a contract and hinder employer/contractor relations. (This is, of course, always a dilemma in any country, even for those who are experienced in correct contract and risk management!) However, most recognised that Japanese contractors must grab the nettle and devote considerable resource within their organisations to learning how to put claims together.
The other problem is that they are having to employ non Japanese subcontractors to do work and procure from outside Japan especially China. These subcontractors are far more experienced in contract frameworks and claims mechanisms. The Japanese are, therefore, finding themselves on the other end of claims!

The one thing they are not short of is the technology to present their claims graphically and effectively: what they are short of are the records to support the claims. Much of the afternoon session centred on the need to keep effective records with practical examples of how this could be achieved, completing the loop between site specific knowledge and commercial and negotiating skills in the head office.

OCAJI, in following up the seminar for their members, are looking for text books to translate into Japanese which contain examples of good construction claims in Britain, the Commonwealth or in those countries of South East Asia whose legal systems were originally based on the English common law system.

The Japanese construction industry is dominated by the 'Big 5': Shimizu, Taisei, ObayashiGumi, Kajima and Takenaka. Each of these companies has a turnover of £7,000 million. Of their substantial overseas work, 70% is undertaken in other Asian countries. Japanese contractors probably represent the most significant firms in the Far East market. However, they are investing in the European and UK markets: all of these firms now have UK operations.

PFI is another matter which is of particular interest to them. The large Japanese contractors have a history of working in partnership with the public sector and are more comfortable with the ‘partnering' philosophy than traditional adversarial UK/US construction contracting. They are keen for as much information as possible on PFI. PFI procurement has begun in Japan, but in common with other markets around the world it is meeting some resistance from those who have profited from traditional contracting and those who are always suspicious of change. However, there is no doubt that PFI will take off as one of the most important procurement methods in Japan and the Pacific Rim and as such there are great opportunities for those who are well experienced in this area.
Tony and Jonathan have been invited back to Japan by OCAJI and it is likely that future presentations will cover public procurement issues in addition to continuing to provide advice and help on claim preparation.
Jonathan Tattersall is a Solicitor specialising in Construction and Engineering