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The Construction Ministry is looking into reports that small and medium-size contractors are charging commissions by “subcontracting” public works projects they can’t handle to major construction firms, it was learned Monday.

Under political pressure to promote local employment and economic revitalization, the percentage of smaller contractors among firms awarded with public development projects has recently increased, and more are subcontracting the awarded projects to major construction firms, ministry sources said. “It is possible that the project cost will rise with such ‘reverse subcontracting’ practices,” a ministry official said. “It’s OK if these small and medium-size businesses have substantial management ability. But if they only take kickbacks from major contractors and subcontract the whole project to them, it is a violation of the Construction Business Law,” he added.

The ministry will send questionnaires to prefectural governments about development projects that were awarded to small contractors in their areas. The survey will deal with projects estimated at more than 25 million yen each and ask whether the awarded businesses checked nine points, including management on quality, scheduling and safety, the sources said.

It will also request lists of their subcontractors. If major construction companies are on those lists, the ministry will determine whether the project in question was entirely undertaken by the major businesses, they said. The ministry plans to examine its own development projects, they said.

The survey also aims to examine how local governments limit businesses entry to public bidding. In such events, many municipalities accept only local companies whose head offices are located in their prefectures, the sources said.

Small and medium-size contractors are defined as those capitalized at less than 100 million yen and with less than 300 employees.

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