Risk Management and Governance for PFI Project ... - Title Page - MIT

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Contracting System The contract system in Japan has many ambiguous factors compared with the US and EU countries. For example, the Japanese contract standard, the “Standard Form of Agreement and General Conditions of Government Contract for Works of Building and Civil Engineering Construction (GCW)”, stipulated that “any matter which is not set forth in this agreement or contract shall be prescribed after consultation between first and second party if necessary.” Because the Japanese construction industry is fundamentally based on mutual trust, it is assumed that both parties will find a convincible direction and respect each other’s position without clear stipulations on the contract about how to resolve conflicts and contract modifications. Table 15 compares the GCW with the FIDIC’s 24 Conditions of Contract, which has become the de facto standard for international construction contracts. This comparison reveals that GCW is a relatively "ambiguous" contract standard. For example, in the GCW, the contract amount is the total value, and it demands a breakdown of the amount. However, the FIDIC has a standard contract based on the quantity surveying, which requires a submission of a detailed bill with quantities showing the unit prices for each item at the time of bidding. Furthermore, in the GCW, there is no establishment of a “third-party engineer”, and the design changes can be freely ordered by orderer. In terms of changing the procedure of the construction period, GCW states that it shall be determined by a consultation between the orderer and contractor, whereas FIDIC stipulates that the contractor shall have the right to extend the completion time limit by the claims. In addition, the GCW does not mandate to stipulate the definition of a term that the contractor cannot figure out, and GCW extensively uses the term "good faith", which all make the contract ambiguous. Despite such an ambiguous contract system, there is a cooperative relationship rather than a hostile one in the Japanese public-private partnership. In fact, there were few cases where a confrontation was actually brought to “the committee for construction work dispute adjustments” in the Japanese construction contracts. The reason for this is as follows. In a usual contract, the orderer plays a leading role with respect to the contract changes. The contractor is the agent of construction based on the “fair and equitable principle 25 ” in the Civil Code and is required to not cause a moral hazard. Furthermore, ”contractors often respond flexibly to the needs of the orderer […]. Contract prices are seldom markedly raised due to changes made to the contractual terms after a contract is awarded.” (Ono & Harada, 2006) In Japan, because the relationship of the contractor with an orderer should continue for the long term, it guarantees the effectiveness of the “fair and equitable principle” working between them. 24 The acronym FIDIC stands for Fédération Internationale Des Ingénieurs-Conseils, French for the International Federation of Consulting Engineers. 25 The “good faith principle” is the principle prescribed by Article 1-1, paragraph 2 of the Civil Code that "The exercise of rights and performance of duties must be done in good faith". According to the study of Kobayashi et al., "good fair principle" means the law of prohibition of moral hazard using the information asymmetry (Kobayashi, Omoto, & Yokomatsu, 2001). 86
Amount of the contract Payment of the price Engineer - Clarification of contract Design changes Change of co nstruction period Change of contract pr ice Claim - Resolution of Disputes Other Table 15: Comparison between GCW and FIDIC GCW (Japanese contract standard) Fidic 1999 conditions of contract for construction • Total value contracts • Submit a breakdown 26 Pre-payment, (fee-for-service) partial payment Specify the agenda among the orderor and contractor in the particular specification • Orderer can change the design books • Orderer must change the fee amount or construction period, if needed. Consultation between orderer and contractor If the consultation was not be settled, orderer can set the change and notify it to the contractor Consultation between orderer and contractor in some cases, or the price can be set based on the unit price in the detailed statement If the consultation was not be settled, orderer can set the change and notify it to the contractor • Arbitration or mediation by the Construction dispute mediation by Construction Work • Dispute Examination • No term definition • Frequent use of the term “good faith” 87 • Contract based on quantity surveying • Submit a detailed bill of quantities showing unit prices for each item at the time of bidding Monthly fee-for-service payment • Orderer appoint the engineer carrying out the delegated obligations under the contract • If engineer needs to obtain the approval of orderer before exercising the authority, its requirements should be described in the special conditions • Engineer can give the contractor the necessary instructions, and issue additional or modified drawings. Clarify the responsibilities in the contract book • Engineer is able to invoke the change by the request of the proposal submission or instructions against orderer • Contractor is entitled to extend the time limit for completion by the claims under certain conditions - • Orders notifies the engineer about the extension of completion time and additional payments • Engineer answers approval or disapproval of the claim • Arbitration by Dispute Adjudication Board (DAB) • International arbitration Source: Government of Japan, Ministry of Land, Infrastructure, Transport and Tourism (2010). Attempt of orders and contracts with reference to the FIDIC It is said that this Japanese system has some advantages from the viewpoint of the social cost. In a country with an adversarial contractual relationship, where the incentive of moral hazard works 26 Since April 2010, a new method was applied in the general civil engineering work under the direct control of the government, which requires the agreement of unit price after total price contract. • -
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Risk Management and Governance for
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Acknowledgements I would like to ex
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[PFI] Luton Airport (UK) ..........
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List of Tables Table 1: Types of PP
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Introduction Japan has a long histo
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Chapter 1: History of PPP in Japan
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Table 2: Strength and Weakness of P
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interested in the close relationshi
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second construction of a second art
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Cause of problems ● Optimistic de
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provision of a public service of a
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design-build-maintain-operate steps
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Figure 4: Concept of VFM (in the Ca
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Types of Tendering In a PFI project
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Source: Government of Japan, Cabine
Page 36 and 37: The Reason Why the PFI in Japan is
Page 38 and 39: Office of the Cabinet Office is con
Page 40 and 41: Project Central Government Building
Page 42 and 43: yen (Nagano Board of Trade, 2006).
Page 44 and 45: Basics ● Initially, the airport h
Page 46 and 47: Basics ● The plan of this project
Page 48 and 49: Project overview Project period 33
Page 50 and 51: [Example of utilizing the lesson]
Page 52 and 53: ● Absence of supervisory function
Page 54 and 55: Classification Examples Risk classi
Page 56 and 57: Appropriate Risk Allocation This se
Page 58 and 59: “risk allocation matrix”, there
Page 60 and 61: Construction defect risk (Spopark M
Page 62 and 63: etween the public and private secto
Page 64 and 65: Risk perception is a starting point
Page 67 and 68: Chapter 5: Potential Problems and P
Page 69 and 70: For Designing Better Indicators As
Page 71 and 72: cases include the Lowdham Grange Pr
Page 73 and 74: the viewpoints of “Accuracy”,
Page 75 and 76: in previous chapters. Fortunately,
Page 77 and 78: Bibliography Akai, N., & Shinohara,
Page 79 and 80: Hellowell, M., & Pollock, A. (2009)
Page 81: Oshima, M. (2009). The Introduction
Page 84 and 85: Tendering System After understandin
Page 88 and 89: strongly between contracting partie
Page 91 and 92: Appendix 2: Related Regulations in
Page 93 and 94: Appendix 3: Additional Risk Actuali
Page 95 and 96: [PFI] �agoya Port Italian Village
Page 97: changes in the medical and economic
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