下請代金支払遅延等防止法1/Subcontract Act1

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The Subcontract Act (下請代金支払遅延等防止法) in Japan regulates the relationship between contractors and subcontractors, focusing on ensuring timely payments and fair trade practices. This article compares Japan's law with those in the United States and United Kingdom, highlighting key trends and offering advice for foreign businesses operating in Japan.

Japan’s Subcontract Act

• Legal Classification: Administrative law focused on fair trade, enforced by the Japan Fair Trade Commission (JFTC).

• Historical Context: Enacted in 1956 to prevent abuse of smaller subcontractors by larger firms, ensuring payment timelines and prohibiting unfair reductions.

• Key Provisions:

  • Payments must be made within 60 days after delivery.

  • Reductions in contract amounts post-agreement are prohibited.

  • Violators may face administrative penalties or public disclosure by the JFTC.

Global Comparison

United States: Prompt Payment Acts

• Scope: Federal and state-level laws regulate contractor-subcontractor payment timelines in public and private projects.

• Key Provisions:

  • Federal projects require payment within 7-30 days depending on state laws.

  • States like Texas recently allowed subcontractors to halt work if not paid for additional work valued at more than 10% of the contract​

  • Interest on delayed payments is a common penalty, and subcontractors can suspend work if payment is not timely​

• Differences: U.S. law allows contractors more flexibility when disputing payment, whereas Japan’s law emphasizes prompt payments unless there are performance issues.

United Kingdom: Late Payment of Commercial Debts Act

• Scope: The Act applies broadly to business-to-business transactions, with special provisions for the construction industry.

• Key Provisions:

  • Payments must be made within 30 days, with an 8% interest penalty for delays​

  • Conditional payment clauses (such as "pay-when-paid") are prohibited, offering more robust protections than Japan’s framework​

• Differences: The UK’s statutory interest penalties for late payments differ from Japan's administrative penalties enforced by the JFTC​

Global Trends

1. Stricter Payment Deadlines: Countries like the U.S. and the UK have increasingly codified strict payment deadlines to prevent exploitation. For instance, New York introduced a 5% cap on retainage​

1. Prohibition of Conditional Payment Clauses: The UK leads in banning conditional payment clauses, while Japan’s regulations on this matter remain less defined​

1. SME Protections: Japan, the EU, and other regions are strengthening legal frameworks to protect small and medium-sized enterprises (SMEs) from unfair practices​

Advice for Foreigners in Japan

• Ensure Clear Contract Terms: Confirm that your contracts include clear payment schedules to avoid disputes, with a firm 60-day deadline in Japan.

• Leverage JFTC: Foreign subcontractors can report violations to the Japan Fair Trade Commission, which has enforcement authority.

• Global Best Practices: Familiarize yourself with how payment laws vary across regions. For example, UK subcontractors benefit from interest penalties, while U.S. subcontractors can use lien rights to secure unpaid claims.

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References

1. Japan Fair Trade Commission – Overview of the Subcontract Act and enforcement mechanisms. JFTC Website

2. U.S. Prompt Payment Laws – Federal and state prompt payment acts ensure timely payments for contractors and subcontractors. USA.gov

3. UK Late Payment Act – Regulates late payments with interest penalties in business transactions. UK Government Website

4. Trends in U.S. Subcontractor Laws – Summary of prompt payment laws and updates across states like New York, Texas, and Tennessee. Mondaq Article

5. Global Conditional Payment Clause Provisions – Analysis of payment clauses in different regions, including the UK and Middle East. Charles Russell Speechlys Article