Subcontract Act


The Subcontract Act is a Japanese statute enacted in 1956. The act complements the country's Antimonopoly Act and is enforced by the Japan Fair Trade Commission. It can be regarded as a more detailed elaboration of the Antimonopoly Act's prohibition on abuse of a superior bargaining position.

Background and purpose

Subcontracting is a widespread practice in many Japanese industries and the Japanese legislature recognised the need to protect subcontractors from powerful counterparts at an early stage in Japan's post-war recovery, leading to the adoption of the Act in 1956. According to the act itself, its purpose is to ensure fairness in transactions between subcontractors and their counterparts and to protect the interests of subcontractors. This, in turn, is expected to contribute to the sound development of Japan’s national economy.

Key obligations and provisions

Some of the main obligations and legal requirements under the Act include:
  • The prime contractor must fix the date of payment of subcontract proceeds within 60 days after receipt of work from the subcontractor, or as short as possible.
  • The prime contractor must deliver a written document to the subcontractor specifying certain details of the contract: nature of the work, amount of subcontract proceeds, payment date and method, and other matters required under JFTC rules.

Amendments and recent developments

After a panel of experts proposed modifications to invigorate the Subcontract Act, a major bill to amend the Subcontract Act was passed in May 2025 and is to take effect on January 1, 2026. Key changes include:
  1. Prohibition of payment by promissory notes, etc., especially where the full amount cannot be obtained by the due date.
  2. Prohibition of unilateral determination of payment amounts without proper negotiation, or failure to provide information during negotiation.
  3. Expanding the scope of regulated transactions, including adding transportation commissions and adjusting thresholds not just by capital but also by number of employees, to capture some entities previously outside the law.
A key goal of these amendments is to ensure so-called "pass-through" of increases in labour, raw materials and energy costs, meaning subcontractors should be able to pass on the increased costs they face onto their customers. The amendment has also made changes to the title of the act and the terminology used.
  • The title of the act will be revised from “Act Against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors”" to “Act Against Delay in Payment of Fees, etc. to Small and Medium-sized Entrusted Business Operators in Manufacturing and Other Specified Fields”.
  • The term subcontractor was considered as somewhat pejorative and will be replaced by the term "small and medium-sized entrusted business operators".