August 3, 2005

Inquiries:

General Policies Bureau

Construction Industry Section

Phone: 03-5253-8111 (ext. 24754)

 

The Study Group on the State of Construction Warranties (President: Kanemoto Yoshitsugu, Professor, Graduate School of Economics and Graduate School of Public Policy, University of Tokyo) has met 6 times since its establishment in June last year and herein presents a report of its studies.

 

Members 

Yoshitsugu Kanemoto (President), professor, Graduate School of Economics and Graduate School of Public Policy, University of Tokyo

Noboru Utatsu, Chief Legal Inspection Officer, Compliance Supervision Division, Sompo Japan Inc.

Fumihiko Omori, professor, Department of Law, Toyo University, and Attorney, Omori Legal Office

Hideo Kasami, professor, Faculty of Architecture, Department of Engineering, Kogakuin Daigaku

Isao Kitai, professor, Faculty of Law Research, Graduate School of Law, Keio University

Kozo Kusakari, professor, Department of Law, Kanto Gakuen University

Tetsushi Gencho, chief, Warranty Credit Insurance Office, Department of New Insurances, Mitsui Sumitomo Insurance Co., Ltd. (Meetings 1-5)

Tetsuo Shibata, Same as above

Kobayashi Yasuaki Professor, Ashikaga Institute of Technology

Shunichi Sekiguchi, Assistant Director, Department of Financial Services, Tokyo Marine Nichido Insurance Co.

 

Meetings

1 - June 7, 2004

2 - July 30, 2004

3 - October 13, 2004

4 - December 13, 2004

5 - March 17, 2005

6 - June 24, 2005

 

 

Introduction 

○Events in recent years have lead to the situation where one can only be alarmed about the quality of construction work due to the spread of dumping and the grave management situation. In order to secure the quality of construction work and protect contracting organizations, it is necessary to ask about the time requirements and responsibility for defects as warranty measures after the specified object has been handed over based on selection of skilled construction businesses and accurate surveillance and inspections.

○The current warranty period for public works is 10 years for intentionally caused defects or gross negligence of the contractor and 2 years for other cases; however, it is evident that this period is insufficient to protect contracting organizations, and it is necessary to reconsider the warranty period.

○During periods with high levels of business bankruptcy, there is the worry that businesses will not be able to meet warranty obligations due to bankruptcy, and in order to protect ordering organizations, it is necessary to study insurance systems to secure fulfillment of warranties through third parties, such as financial institutions.

○Regarding the warranty system, as inspections are conducted by the guarantor at the time of obtaining insurance, it is necessary to study the construction insurance status from the standpoint that conduct of inspections of credibility and the possibility of occurrence of defects can contribute to evaluation and selection of construction businesses and elimination of inferior and unqualified businesses.

  

○From the standpoint of the warranty period set by Civil Code (10 years), the warranty period for houses (10 years), and promotion of work execution skill, after enactment of public regulations, examination of the appropriateness of the publicly regulated warranty periods is necessary, as currently dumping is on the rise and the quality of public works is alarming.

○In the case of consideration of extension of the warranty period, it is appropriate to extend the warranty period to 10 years for defects of the basic function of the constructed object; however, concerning parts that are unaffected by the defects, the current warranty periods are appropriate. In this case, the warranty period should be extended for the specified items whose functions are affected.

○However, under the current circumstances, in which the responsibility of contracting organizations and contractors are unclear and where it is evident that something could easily become the burden of the contractor, general revision of public regulations could result in an even greater burden on the contractor.

○As a condition of extension, it is necessary to draft and examine the requirements, such as clear and objective definitions of defects, regulations for the defect judgment standards, and a defect proofing scheme via a neutral third party institution.

○Regarding the issue of clarifying the responsibilities of the contracting organization and contractor, it is also possible to examine extension of the warranty period and to put it into effect with the agreement of contracting organization and contractor.

 

○The warranty system can ensure that contractors carry out their warranty responsibilities, protect contracting organizations, enable selection of contractors by inspections at the time of insurance, and lead to exclusion of inferior and unqualified businesses.

○The following is the layout of the system if systematization of warranties is considered:

　●Limit defects covered by warranty to those of the basic functions by clarifying the range of coverage

　●Impose the warranty costs on the contractor

　●Limit use of a warranty to cases where a defect has occurred or where the contractor is bankrupt

　●Regard defects caused by intention or gross negligence of the contractor as also being subjects of the warranty

　●Warranty money is to be paid after the defect has been verified by a third party

　●Regard insurance companies acting as guarantors to be a basic part of the system

　●The warranty period should be extended gradually, such as beginning with a 2 year extension.

　●The estimated insurance rate should be 10%. 

○As currently defect warranty risk, the rate of defect occurrence, scale of defects, and method of determining responsibility are unclear, even for guarantors, it is currently difficult to set up a full defect warranty system.

○It is more realistic to use preexisting contract fulfillment systems with special contracts for defect warranty and to build a track record concerning matters for bundled planning and construction ordering systems in which it is easy to check for defects caused by the contractor.

 

 

○Identifying the defects covered by warranty with regard to the functions demanded by the constructed object is a condition of realizing extension of the defect warranty period and establishment of a defect warranty system.

○Regarding extension of the defect warranty period and establishment of a defect warranty system in the case that one-sided relations between contracting organizations and contractors are widespread, as there are many potential problems concerning the increased burdens on the contractor, inspection and study are required for regulation of objective standards to clarify the relations between the two parties and to judge the responsibility for defect warranties. Furthermore, for truly equal relations, plans should be made to improve the way the two parties approach each other and to clarify the process of mutual consultations.

○Debate by this study group has uncovered the current situation concerning responsibility for defect warranties in Japan and clarified that, based on clarification of the responsibilities of contracting organizations and contractors, it is necessary from this point forward to engage in measures to secure the quality of construction work through equal relations. In addition, even if immediate systematization is difficult, the design of the system when extending the defect warranty period and establishing a new defect warranty system could be clarified. This is the foundation for future systematization.

 

●Concerning the Study Group Report on the State of Construction Warranties

●Concerning the Study Report on the State of Construction Warranties

 

 

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