JAPAN Law and Practice Contributed by: Makoto Terazaki, Taku Matsumoto, Suguru Yokoi, Naoko Takasaki and Jun Suzuki, Anderson Mori & Tomotsune
should also be concluded with the lowest-priced bid - der within the estimated price. A contract by discretionary award is procedurally the simplest form of procurement, and it also allows the procuring authority to select a counterparty by tak - ing into account factors such as creditworthiness and technical capability. At the same time, because it may result in an unfavourable price and does not ensure fair competition, its use is subject to certain condi - tions. In the defence sector, this form of procurement is used exceptionally, reflecting the limited supplier base and the security-sensitive nature of the subject matter, and defence contracts are often concluded by the relevant government body at its discretion. 2.7 Offsets, Industrial Participation and Sovereign Capability Requirements The content of defence procurement contracts is determined on a case-by-case basis, depending on the terms of each tender, and it is therefore not possi - ble to state a single uniform rule. As a general rule, off - set obligations, industrial participation requirements and sovereign capability conditions are not commonly imposed in Japanese defence procurement. Qualifi - cation criteria may be set and disclosed in advance, however, and bids that do not satisfy those criteria may be treated as invalid. That said, requirements relating to information secu - rity and similar considerations may, in practice, result in contract terms that operate to the advantage of domestic companies. Even so, Japanese public pro - curement is based on the principle of equal treatment, and domestic companies are not, in principle, given preference without objective justification. 2.8 Security of Supply and Resilience Requirements Security and resilience considerations are built into defence procurement on a case-by-case basis, depending on the terms of each tender. Where the relevant tender conditions require a certain level of supply security or continuity, the contract will be structured accordingly. In that sense, there is no single uniform rule applicable across all defence contracts.
In practice, security of supply and operational conti - nuity are important factors in defence procurement. Defence goods require advanced technology and security-sensitive handling, and procurement is often carried out through a more controlled process for that reason. The procuring authority may also require bid - ders to satisfy specified qualification criteria before bidding, which allows it to assess performance capa - bility and supply reliability at the selection stage. Accordingly, while the content of each contract depends on the specific tender, defence procuring authorities are generally able to address concerns relating to capability, reliability and continuity through pre-bid qualification requirements and the procure - ment structure adopted for the relevant project. 2.9 Evaluation Criteria and Award of Defence Contracts In Japanese public procurement, the contractor that offers the most advantageous proposal for the pro - curing authority is generally selected. In practice, however, many defence procurements are awarded through competitive bidding in which price is the deci - sive factor, provided that bidders satisfy the required qualification criteria in advance. Those qualification criteria are treated as threshold requirements, rather than evaluation factors, and may include the bidder’s capability, technical capacity and other prerequisites for participation. Where technical capability or other non-price factors need to be evaluated, the Comprehensive Evalua - tion Method is used. Under this method, the procur - ing authority evaluates not only price but also other conditions, such as the execution plan, experience in similar work and the ability of technical personnel. In defence procurement, these general evaluation fac - tors are further shaped by the technical and security- sensitive requirements specific to defence equipment. The price for defence equipment is determined by a cost calculation system. As noted above, procurement is conducted against the background of a pre-determined target price. In general, the contract must be awarded within that target price. The target price is usually not disclosed in advance, and the disclosure or leakage of a target
118 DEFENCE CONTRACTS 2026
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