The nation's public works projects -- notorious for their lack of transparency -- have sucked up tens of trillions of yen in taxpayers' money for decades, pushing government coffers to the brink of crisis.

The government forecasts that the outstanding public debt for local and central governments will reach 693 trillion yen in March 2003.

One reason for the projects' exorbitant costs, construction industry sources recently revealed, is that pricing data on construction materials that the national and local governments use to compile public works budgets are often set higher to benefit manufacturers and construction companies.

The market pricing data of construction materials are usually estimated by two major research institutes and appear in the monthly publications Sekisan Shiryo, or Price Data for Construction Cost Estimating, and Kensetsu Bukka, or Prices of Construction Materials and Wages.

Though there are other institutes that conduct market research, these are the only two publications that cover a wide range of construction materials. Many government-related bodies use them to estimate the costs of their projects.

The publisher of Sekisan Shiryo is Keizai Chosakai, or the Economic Research Association. A source in the ERA, which is actually a single entity rather than a group as its name implies, recently admitted that some of the prices quoted in the publication are higher than actual market prices due to pressure from construction material manufacturers, who are major advertisers.

The higher material prices usually boost the size of the budgets allocated for public works.

"There have been numerous cases where data were affected by advertisement revenues from material makers," said the source, who requested anonymity.

An expert panel reported in 1993 that Japan's public works cost 30 percent more than those built in the United States, which sparked public debate over construction costs here.

Advertising revenue fix

Pressure to raise market prices for certain construction materials is strong because the publication carries data on about 60,000 construction materials at major cities across Japan.

"The higher the data quoted, the better for us," an employee of a major construction material maker based in Tokyo said. "When we see people from the association, we always ask them to raise the price data by telling them that we buy their ads."

The January issue of Sekisan Shiryo carries ads from 723 construction material companies and industry associations. The standard price for a typical ad is 70,000 yen, according to the ERA.

Senior officials at the ERA strongly denied such allegations. They said the research institute has been fair and conducts balanced research by surveying a number of distributors and end-level buyers.

"It's totally ungrounded slander," said Isamu Nakamura, senior vice president of the ERA.

Experts and industry sources agree that price research on some major materials, such as steel-related products, has been relatively fair.

But the prices listed for many other products are higher than the actual distribution prices on the markets, they said.

"The Fair Trade Commission didn't trust the publication at all, because it was generally believed that their prices were higher than actual prices," said Mitsuru Suzuki, a professor at the Toin University of Yokohama and a former top official at the FTC, the national watchdog on unfair trading.

The ERA is supposed to quote the most frequent market price for a product by interviewing a number of distributors and end-level buyers.

But researchers at the institute, particularly those who cover construction materials for buildings, are often too busy to conduct extensive research on the plethora of manufacturers and end up asking only one or two, the ERA source said.

A lack of researchers has also contributed to the problem.

ERA has 316 employees, of whom about 180 are researchers. The researchers have to cover 300,000 entries related to 60,000 products in a monthly publication that packs a whopping 900 pages.

"Some researchers in charge of construction materials have to cover about 50 or 70 pages a month," the source in the association said. "In many cases, all they do is telephone industry groups without asking the end-level buyers of the construction materials, and simply write down what they say."

Sheet glass friction

Some of the prices listed in Sekisan Shiryo appear odd, as if to contradict the ERA's claims of legitimate market research.

An official at the Ministry of Economy, Trade and Industry recalled that the publication's listed price for sheet glass in the early 1990s did not reflect market prices.

Sheet glass was a key source of Japanese-U.S. trade friction in 1993. The official contacted glass manufacturers and distributors at the time and found the prices listed in the publication were much higher than actual market prices.

At the time, Sekisan Shiryo listed prices for 154 glass products in 17 major cities, amounting to 2,618 price entries.

Every one of the 2,618 prices quoted in the publication's 39 monthly volumes from May 1990 through July 1993 remained exactly the same.

The association source explained this odd phenomenon by revealing that the ERA had not conducted price research on sheet glass for years until the issue flared up during Japan-U.S. trade talks.

But the ERA's Nakamura insisted that legitimate research was conducted on every one of the 2,618 prices and that their constant price level during the three-year period was merely a coincidence.

Kenzo Matsuba, a Mie-based lawyer who has dealt with a number of bid-rigging cases involving public works projects, also supports the allegation that price levels in the publication are set higher than market prices.

On behalf of local citizens, Matsuba filed a damages suit in 1998 against the Ago Municipal Government in Mie Prefecture, claiming that the town's expenditures for its waterworks projects were much higher than actual costs.

The town's budget for waterworks was compiled based on prices listed in Sekisan Shiryo.

In an effort to determine actual market prices for construction materials, Matsuba checked prices of construction materials actually offered to local construction firms on similar projects in the past by the same wholesaler who was involved in the town's project.

When he compared those prices with the data quoted by Sekisan Shiryo, Matsuba discovered that actual market prices are 40 percent to 50 percent lower than those listed in Sekisan Shiryo.

Lack of transparency

These cases are not the first time public doubt has been cast on cost estimates for public works.

After a number of construction-related bribery scandals in the early 1990s, an expert panel under the construction ministry urged the ERA in 1993 to set up an expert council to enhance transparency in deciding "the most frequent prices" for Sekisan Shiryo.

Despite the suggestion, the ERA's research procedures are still opaque, said Masaharu Sakuta, a member of the panel and research director at Japan Research Institute.

However, many experts, including Sakuta, point out that the fundamental problem behind inflated prices is not the ERA or any other publication, but the budgeting system of the governments for public works and the construction industry's multilevel subcontracting structure.

When a general contractor receives a construction order from a government body, it subcontracts much of the actual work to other companies.

Much of the profit margin from the inflated materials estimates is first claimed by general contractors and subcontractors as the budget trickles down to the smaller firms, industry sources said.

"It's a kind of black box, and that's the fundamental problem," Sakuta said, indicating that the long-term industry practice has benefited from the higher cost structure of public works.

Suzuki of the Toin University of Yokohama agrees with Sakuta.

"Bureaucrats could be wrong in estimating costs, as they aren't familiar with the actual details of construction projects," he said, adding that bureaucrats only distribute budgets to general contractors based on their estimates and never check back on how much the projects actually cost.

He also pointed out that the current budget system gives no incentive for bureaucrats to reduce public works costs.

"If they save money, budget allocation in the following year will simply be reduced by the Finance Ministry. That means they will only be punished if they save money," Suzuki pointed out.

Thus, it is only natural for them to use up the budget allocated without reviewing the real cost structure of public works, he said.

Suzuki argued that incentives should be given to bureaucrats to reduce the costs of public works, such as allowing government bodies to freely use half the money they save from the initial budget.