JAPAN Law and Practice Contributed by: Eriko Ozawa, Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada & Matsumoto
7.4 Management of Schedule-Related Risk Schedule-related risks can be managed by the payment of liquidated damages by the contrac - tor. Such contractual arrangements are allowed under Japanese law, and the courts are bound by the amount of liquidated damages agreed, without having to ascertain the actual damages incurred. In particular, the Form Terms and Conditions for Construction Contracts provide that if the con - tractor fails to deliver the completed work by the due date for any reason attributable to the contractor, the owner may claim liquidated dam - ages calculated at 10% per annum of the agreed construction price (minus a portion of the con - struction price equivalent to the part of the work already completed and delivered), calculated on the basis of the number of days delayed. On the other hand, the Form Terms and Condi - tions for Construction Contracts allow the con - tractor to seek an extension of the due date if there is any justifiable reason, such as a force majeure event or a need for adjustment of the works. If the delay is caused by any reason not attributable to the contractor and the owner agrees to extend the due date, the owner is not entitled to liquidated damages. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance For domestic construction projects, additional forms of security such as performance bonds or parent guarantees are not common. Normally, it is difficult to get major construction companies to provide additional security.
tion contract with a construction company. Each contract’s terms and conditions are usually pre - pared and negotiated based on general terms and conditions made available as templates by the pertinent industry associations in Japan. 7.3 Management of Construction Risk The general terms and conditions of a typical construction contract that are made available jointly by the pertinent industry associations (the “Form Terms and Conditions for Construction Contracts”) provide for the construction contrac - tor’s obligation to take out insurance, and for defect liability. With respect to insurance, the Form Terms and Conditions for Construction Contracts require the contractor to purchase and maintain fire insurance or contractor’s all risk insurance for the completed portion of the work, materials and building equipment and other materials delivered to the construction site. The details of the insur - ance coverage are left for the parties to agree. With respect to defect liability, the Form Terms and Conditions for Construction Contracts pro - vide that the owner may demand that the con - tractor repairs the defect, reduces construction fees and/or pays damages. In principle, the contractor’s liability is subject to a time limita - tion of one to two years, depending on the con - struction materials (such as wood, stone, metal or concrete). However, in the case of a newly constructed residential building, the defect liabil - ity period for certain major structural works is mandatorily set at ten years after the delivery of the building, pursuant to the Housing Quality Assurance Law, a special law to ensure the qual - ity of residential buildings.
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