Editorials

Get to the bottom of the maglev project contracts

Suspicions that major construction firm Obayashi Corp. was involved in improper bidding practices over a contract on work related to the construction of the ¥9 trillion maglev line linking Tokyo and Osaka are particularly troubling given that it is among the firms that once publicly declared they would never engage in bid-rigging after they had been repeatedly accused of such practices in public works projects. Investigators should get to the bottom of the budding scandal to see whether the construction firms have in fact put their shady practices behind them.

Obayashi, one of the nation’s top four general contractors, is being investigated by prosecutors over an allegation that the firm obstructed the bidding process by Central Japan Railway Co. (popularly known as JR Tokai) on a ¥9 billion project to build an emergency exit for an underground maglev station in downtown Nagoya. It is suspected that Obayashi, which won the deal in a joint venture with two other firms in April last year, colluded with rival construction companies to make arrangements so that the latter would submit higher bids than Obayashi and let it win the contract. It is suspected that a JR Tokai employee leaked confidential information on the cost of the work to Obayashi, based on which the firm calculated the estimate that it presented to the railway operator.

Taxpayer money would be squandered if construction costs on projects ordered by national and local governments become inflated because of bid-rigging. If such a practice increases the cost of work ordered by private-sector firms, the added expenses may be passed on to customers.

JR Tokai will pay for the entire ¥9 trillion cost of the maglev project, which is scheduled to connect Tokyo and Nagoya in just 40 minutes with magnetically levitated trains in 2027 — and then extended to Osaka in 2045 — with ¥3 trillion in low-interest loans from the government. Construction work is already under way along its route by joint ventures mainly led by general contractors.

After a series of bid-rigging practices were exposed by prosecutors and the Fair Trade Commission, a revised anti-monopoly law was implemented in January 2006 that gave the FTC search and seizure powers, and raised the amount of penalties against bid-rigging and cartels. Just before that, the top four general contractors — Obayashi, Kajima Corp., Taisei Corp. and Shimizu Corp. — declared in late 2005 that they would put an end to the long-established industry custom of rigging bids for public works projects. Employees at the firms who were responsible for overseeing the process were reassigned to other positions. Obayashi introduced a compliance division in its organization.

The practice did not appear to have ended at Obayashi, however. In 2007, a former adviser to the company was indicted for his role in rigging bids for subway construction ordered by the city of Nagoya. The indictment of another Obayashi adviser the same year for a similar case that took place in 2005 involving the construction of a garbage incineration plant in Hirakata, Osaka Prefecture, led the contractor’s president to step down. Following these cases, Obayashi went on to insert an unusual clause in its corporate charter pledging never again to engage in acts that “obstruct a fair and equal bidding process.”

Last week, the special investigation squad of the Tokyo Public Prosecutor’s Office searched Obayashi’s Tokyo headquarters over its suspected obstruction of bidding. The company’s vice president in charge of civil engineering, responsible for the maglev project-related contract, has reportedly been questioned by the prosecutors on a voluntary basis, along with senior officials of the other top firms Kajima, Taisei and Shimizu. So far, the Obayashi executive is reported to have denied any improper bidding practice in the questioning by investigators.

Since 2015, JR Tokai has signed contracts for 22 maglev-related construction projects. The top four general contractors, in joint ventures with smaller firms, have won orders on 15 of them, each taking three to four projects. The prosecutors are believed to be investigating whether improper bidding practices took place in the other maglev-related construction works.

The maglev construction is a massive project aided by huge government loans. A probe should be conducted to determine if any irregularities exist that suggest the industry has not abandoned its notorious practice of bid-rigging.

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