I. Basic Framework
The Accounts Law contains the basic provisions concerning national government procurement agreements. There are no specialized procurement bodies in Japan. Each government agency administers its own procurement agreement. Each agency has its own contract administrative rules. The Local Autonomy Law regulates local government procurement. This article focuses on the national government procurement. For large government contracts, the World Trade Organization (WTO) Agreement on Government Procurement is applied, and special Cabinet Orders are applied, as stated in the last part of this report.
A. Open Tendering
Under the Accounts Law, open tendering is the standard method of government procurement. When the contract value is small, however, open tendering can be avoided. Prequalification is generally required to participate in tendering. Government agencies publish the conditions for prequalification for each type of agreement, i.e. construction, manufacturing, and sales of goods. Agencies publish the list of prequalified suppliers. In addition, agencies can require prequalification for specific procurement if it is necessary because of the nature and the purpose of the procurement. In order to make the tendering process more efficient, in 2001, the national government unified the qualifications for participating in tendering contracts that relates to the manufacture and sale of products. The national government provides information and accepts application through a website.
Government procurement opportunities are advertised in the official gazette (Kanpo) and other media (e.g. newspapers) as well as government websites, until ten days before the open tendering. In urgent cases, this advertisement period can be shortened to five days. Participants in a tender must deposit 5% or more of their estimated price of the procurement with the procuring agency. The government agencies can exempt the deposit requirement from a participant if the participant has insurance that provides that the government agency is a beneficiary when the participant fails to perform the agreement, or may exempt all participants from the deposit requirement when only qualified participants can participate in the tender.
A government agency must set an “expected price” before the tender, write that price on a paper, and place the paper at the place of the tender in such a way that the price is invisible. With a procurement that requires that government agency pay for service or goods, the expected price operates as the maximum price. For a procurement where a government agency receives money, the expected price operates as the minimum price. When the expected price operates as the minimum price, the participant who tendered highest price above the expected price is the winner. When the expected price operates as the maximum price, the participant who tendered the lowest price below the expected price is the winner. In the case of the latter, in limited cases when the procurement is regarding construction or manufacturing and the expected price is 10 million yen (US$ 110,000) or more, the government agency can award the participant who tendered the second lowest price. These cases are: (1) when the price is too low, so that it is expected that the participant cannot provide the quality of service or products; or (2) it is unfair to award the contract to the participant and the awarding would obstruct fair trade practices. This may occur, for example, when the participant has tendered a much lower price than the reasonable commercial price for the honor (i.e. it is very honorable to be awarded a contract for imperial house construction), but it is expected that the participant will not sacrifice the quality because the participant can afford the loss.
When a government agency sells movable property, the procurement may be done through auction. The government procurement agreement is made when the agency representative and the winner sign the agreement unless the contract amount is small. The contractor must submit 10 % of the contract amount as a deposit. Payment of the deposit can be exempted in cases where the contractor has an insurance or where tender participants were pre qualified.
B. Restricted Tendering
Restricted tendering may be used when there are only a limited number of suppliers or when there would be a disadvantage to the government have an open tendering. In reality, open tendering has been rarely used, and restricted tendering has generally been used for government procurement, that is until the WTO Agreement on Government Procurement became effective in Japan. A limited number of supplier exists typically where a limited number of firms have a license under the relevant law. For example, when the procurement concerns the manufacture of an airplane, there are not very many licensed airplane manufacturers in Japan. Typical indicating the existence of disadvantages to have an open tendering are:
- (1) Some competitors conspire;
- (2) Extreme difficulty in examining the quality of buildings or goods because they are very special; and,
- (3) A breach of the contract will cause severe damage to the government undertaking.
When an agency has restricted tendering for reasons other than those listed above, the agency must discuss the matter with the Minister of Finance. Agencies designate those who may be participants in restricted tendering. Similar to prequalification for open tendering, agencies must establish the conditions which will apply to the participants in a restricted tendering and publish the applicable conditions for each type of agreement. While agencies are required to publish the list of qualified suppliers for restricted tendering the agency is not required to publish the list of suppliers where one of the following situations exist:
- If the conditions for the participants in an open tender and restricted tender are the same;
- If only a small amount of procurement occurs for the type of procurement needed for the agency; or,
- If there is any other special reason.
Agencies must establish the standards that it would designate at a tendering and report those standards to the Minister of Finance. Agencies must designate ten or more restricted tendering participants, if possible. The procedures for restricted tendering are generally the same as open tendering.
C. Direct Negotiation
When the procurement is not suitable for competition, when severe time constraints render other methods impractical, or when there is a disadvantage to having an open tendering, direct negotiation may be used. Additionally, when tendering has been unsuccessful twice, an agency may negotiate directly with a supplier within the framework of conditions of the tendering. An agency may also negotiate directly when a winner of a tendering did not enter into a contract. Before an agency official negotiates with a supplier, the agency must estimate the expected price in the same way it does before tendering. An agency officer must have two or more suppliers’ estimates, if possible. After the agency determines the contractor, a written agreement is signed.
D. Anti-Bid-Rigging Legislation
After many bribery and bid-rigging cases concerning public works procurement became public, in 2000, the Diet (Japanese Parliament) passed the Act for Promoting Properness of Bidding and Contracting in Public Works. This Act regulates both national and local public work procurement. This Act made additional public works information public and established guidelines on public works procurement. In 2002, the Act Concerning Exclusion and Prevention of Bid Rigging Involving Government Officials was enacted. The Act introduced penalties, including imprisonment, for government officials who initiate, assist, or coordinate bid rigging.
E. Small and Medium-Sized Enterprises
The Small and Medium-sized Enterprises Basic Law provides that the national government must take measures to increase the opportunities for small and medium-sized enterprises to be awarded government procurement contracts. Based on this Law, the Act to Secure Small and Medium-sized Enterprises to Receive Orders from Government and Public Entities requires the government to determine government contract policies concerning small and medium-sized enterprises, which must be drafted by the Ministry of Economy, Trade and Industry. Each year since the enactment of this Act the government has released the Guidelines on Government Contracts Concerning Small and Medium-sized Enterprises. At the end of the fiscal year, each government agency must report regarding contracts with small and medium-sized enterprises.
II. Domestic Sourcing Requirements
There is no particular requirement in Japan for domestic sourcing.
III. Exempted Industries
No industry in Japan is exempted from application of the Accounts Law.
IV. Cohesion With World Trade Organization Guidelines
Japan was a party to the GATT Agreement on Government Procurement, and is a party to the WTO Agreement on Government Procurement. The government issued cabinet orders and ministerial ordinances to implement the Agreement. National government procurement is governed by the Cabinet Order Stipulating Special Procedures for Government Procurement of Products or Specified Services. This Cabinet Order created exceptions to the Cabinet Order Concerning the Budget, Settlement of Account and Accounting in order to meet the WTO Agreement requirements. Local government procurement is governed by the Cabinet Order Stipulating Special Procedures for Government Procurement of Products and Specified Services in Local Government Entities. The WTO Agreement on Government Procurement is applied to government procurement where the estimated value is the relevant threshold or more that is specified in Japan’s Appendix 1 to the Agreement. Procurements of the Ministry of Defense or government procurements that involve national secret are excluded from the application of the WTO Agreement and this Order.
The Cabinet Order Stipulating Special Procedures for Government Procurement of Products or Specified Services facilitates the participation of foreign suppliers in government procurement tendering. Requirements for prequalification are advertised at the beginning of the fiscal year by each agency, and a prequalification examination is done any time. Advertisement of open tendering procurement is done at least forty days before the tendering, though this can be reduced to ten days in case of urgency. The 40 day minimum advertisement period was extended to 50 days by the Government Action Program that is explained below. In case of restricted tendering, the period for minimum advertisement is 20 days, except for procurement in the field of supercomputers, telecommunications, medical technology and satellites not for research and development purpose. These procurements require an advertisement period of 40 days. Direct negotiation can be used for procurement under the WTO Government Procurement Agreement in situations defined in the Agreement. The Cabinet Order requires the direct negotiation that is available under the Accounts Law and regulations in conformity with the WTO Agreement.
In addition to the Cabinet Order which implemented the WTO Agreement on Government Procurement, the Japanese government has voluntarily improved the access that foreign suppliers have to the government procurement process. Japan tried to open access for foreign suppliers to more than those contained in the GATT requirements by enacting the Action Program to Improve Market Access in 1985. The Action Program had programs in six areas, which included customs, import restrictions, and government procurement. The Action Program Implementation Promotion Committee monitored the progress of the programs, and implementation of the programs was completed in 1988.
The Committee continued to review three areas of programs; standards and certifications, import process, and government procurement. In 1991, the Committee adopted the Arrangement on Government Procurement. This Arrangement included requirements concerning beginning of fiscal year advertisement, extension of advertisement period, among others. The government also expanded the scope of government procurement required by the GATT Agreement by lowering the threshold estimated value of applicable procurement that the GATT Agreement assigned.
After many bid-rigging cases of public works surfaced in 1993 and pressure came from the United States to improve fairness of government procurement, the Committee adopted the Action Program Concerning Government Procurement and the Guidelines on Government Procurement on Goods in 1994. Further, the Committee adopted the Guidelines on Government Procurement on Services in conformity with the WTO Agreement in 1995, just before the WTO Agreement became effective. The goal of these guidelines was to increase the clarity, fairness and competitiveness of the government procurement procedure, and improve advertisement methods. The Guidelines created the Government Procurement Review Board to hear complaints about procurement over a certain threshold by central government agencies. Overall, Japanese regulations opened government procurement for foreign suppliers more than that required by the WTO Agreement.
Prepared by Sayuri Umeda
Senior Foreign Law Specialist
 Kaikei hō [Accounts Law], Law No. 35 of 1947, last amended by Law No. 53 of 2006.
 Id. art. 29.
 Chihō jichi hō [Local Autonomy Law], Law No. 67 of 1947, last amended by Law No. 79 of 2009.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-3, para. 1.
 Id. art. 29-3, para. 5.
 Id. andYosan, kessan oyobi kaikei rei [Cabinet Order concerning the Budget, Settlement of Account and Accounting (BSA Order)], Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 72, para. 1.
 BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 72, para. 3.
 Id. art.73.
 Toitsu shikaku shinsei uketsuke saito [Site to accept unified qualification], https://www.chotatujoho. go.jp/va/com/ShikakuTop.html (last visited Jan. 19, 2010).
 Procurement information can be searched in English at the government website at http://www.chotat ujoho.go.jp/csjs/pr006/JohoInActionEN.do (last visited Jan. 19, 2010).
 BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 74.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-4, para. 1.
 BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 77.
 Id. art. 79.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-6, para. 1.
 Id. and BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 84.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-6, para. 1.
 See Mitsuaki Usui, Kokyō keiyaku hō seigi [Detailed commentaries on public contract law], 153 (2005).
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art, 29-5, para. 1 and BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 93.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-8. and BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art, 100-2.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-9, para. 1.
 Id. art. 29-9, para. 2. and Cabinet Order art. 100-3.
 Id. art. 29-3, para. 3.
 Tetsuo Kondo, Nyūsatsu Keiyaku ni kansuru mondai [Issues on tendering and contracts] in Zaisei no tekisei kanri to seisaku jitsugen [Proper management of public finance and materialization of policies], 61, 72 (Nihon zaisei hō gakkai [Japan public finance academic society] ed. 2005).
 Usui, supra note 19, 68-9.
 BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 102-4, item 2.
 Id. art. 95, para. 1.
 Id. art. 95, paras. 3 and 4.
 Id. art. 96.
 Id. art. 97, para. 1.
 Id. art. 98.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-3, para. 4.
 BSA Order, Imperial Ordinance No. 165 of 1947, last amended by Cabinet Order No.130 of 2009, art. 99-2.
 Id. art. 99-3.
 Id. art. 99-5.
 Id. art. 99-6.
 Accounts Law, Law No. 35 of 1947, last amended by Law No. 53 of 2006, art. 29-8.
 Kōkyō kōji no nyūsatsu oyobi keiyaku no tekisei ka no sokushin ni kansuru hōritsu [Act for Promoting Properness of Bidding and Contracting in Public Works], Law No. 127 of 2000, last amended by Law No. 51 of 2009.
 Nyūsatsu dangō tō kanyo kōi no haijo oyobi bōshi narabini shokuin ni yoru nyūsatsu tō no kōsei o gaisu beki kōi no shobatsu ni kansuru hōritsu [Act Concerning Exclusion of Prevention of Government Officials’ Involvement in Bid-Rigging and Punishment of Government Officials’ Acts that Damage Fairness of Tendering], Law No. 101 of 2002, last amended by Law No. 51 of 2009.
 Chūshō kigyō kihon hō [Small and Medium-sized Enterprises Basic Law], Law No. 154 of 1963, last amended by Law No. 80 of 2009, art. 21.
 Kankōju ni tsuite no chūshō kigyō sha no juchū no kakouho ni kansuru hōritsu [Act to Secure Small and Medium-sized Enterprises to Receive Orders from Government and Public Entities], Law No. 97 of 1966, last amended by Law No. 58 of 2007, art. 4.
 2009 Guidelines are available at the Small and Medium Enterprise Agency’s website at http://www.chusho.meti.go.jp/keiei/torihiki/2009/download/090612Houshin.pdf (last visited Jan. 20, 2010).
 Act to Secure Small and Medium-sized Enterprises to Receive Orders from Government and Public Entities, Law No. 97 of 1966, last amended by Law No. 58 of 2007, art. 5.
 Kuni no buppin tō mata wa tokutei ekimu no chōtatsu tetuduki no tokurei o sadameru seirei [Cabinet Order Stipulating Special Procedures for Government Procurement of Products or Specified Services], Cabinet Order No. 300 of 1980, last amended by Cabinet Order 3 of 2007.
 Id. art. 1.
 Chihō kōkyō dantai no buppin tō mata wa tokutei ekimu no chōtatsu tetuduki no tokurei o sadameru seirei [Cabinet Order Stipulating Special Procedures for Local Government Procurement of Products and Specified Services], Cabinet Order No. 372 of 1995, last amended by Cabinet Order No. 344 of 2004.
 Cabinet Order Stipulating Special Procedures for Government Procurement of Products or Specified Services, Cabinet Order No. 300 of 1980, last amended by Cabinet Order 3 of 2007, art. 3, para. 1.
 Id. art. 4.
 Id. art. 5.
 Id. arts. 12-3.
 Cabinet Secretariat, 2008 nen seifu chōtatsu ni okeru waga kuni no shisaku to jisseki [2008 Policies and achievement concerning government procurement], Chap. I, Sec. 2 (1) (Mar. 2009), available at http://www.kantei.go.jp/jp/kanbou/20tyoutatu/.
 Id. Chap. I, Sec. 2 (2).
Last Updated: 09/16/2014