The Subcontract Act 60-Day Rule — Obligation to Deliver the Article 3 Document

This section explains specific trouble cases caused by failure to deliver the required order document, and the legal problems that accompany them.

Web designer Tanaka (pseudonym) accepted a landing page production job from a long-standing client on a verbal agreement, trusting their words "as usual." After completion, the client said "the content wasn't what we had in mind" and "too many revisions," and demanded a reduction in remuneration. As a result, Tanaka received only 60% of the originally expected compensation.

The problem in this case was that the ordering party — the client company — had neglected to deliver the required document within Subcontract Act 60 days. Article 3 of the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (Subcontract Act) requires that the ordering party deliver to the receiving party a document specifying the order content within 60 days of the order date.

The specific damages from failure to deliver the document are as follows.

Risks for the Receiving Party

• Occurrence of unpaid additional work due to ambiguous scope
• Disputes arising from differing interpretations of deadlines or specifications
• Insufficient means to counter unfounded demands for remuneration reduction
• Difficulty recovering payment due to unclear payment terms

Risks for the Ordering Party

• Fine of up to 200,000 yen for violation of the Subcontract Act (Article 11)
• Guidance and recommendations from the Fair Trade Commission
• Reputational damage from corporate name disclosure
• Risk of damages claims from receiving parties

In actual on-site inspections by the Small and Medium Enterprise Agency, over 500 cases of document deficiencies and non-delivery are confirmed annually (FY Reiwa 5 results). In the Fair Trade Commission's FY Reiwa 5 results, the number of guidance cases for Subcontract Act violations reached 8,268, with 13 recommendations issued.

The most serious consequence is the cost of resolving disputes caused by failure to deliver the document. Legal fees, mediation costs, and above all the opportunity cost from operational delays can reach dozens of times the cost of preparing the document.

This section explains the institutional purpose behind the document delivery obligation under the Subcontract Act, and the types of transactions it covers.

The background to the enactment of the Subcontract Act lies in the structural power imbalance between ordering and receiving parties. Especially in transactions with significant differences in capital or company size, cases frequently occurred in which ordering parties abused their advantageous position to unilaterally impose unfavorable conditions on receiving parties.

The Article 3 Document delivery obligation is the core regulation established to resolve this problem. Its primary purpose is to clarify transaction terms through documentation and prevent future disputes.

Applicable Transaction Relationships

Transactions subject to the Subcontract Act are defined as follows based on the capital scale of the ordering and receiving parties.

1. Consignment of goods manufacturing or repair

   • Ordering party: over ¥300 million capital → Receiving party: ¥300 million or less
   • Ordering party: over ¥10 million and ¥300 million or less → Receiving party: ¥10 million or less

2. Consignment of information product creation or service provision

   • Ordering party: over ¥50 million capital → Receiving party: ¥50 million or less
   • Ordering party: over ¥10 million and ¥50 million or less → Receiving party: ¥10 million or less

Website production, logo design, system development, and similar work falls under "consignment of information product creation," so many freelancers and small production companies are eligible for protection as receiving parties.

The Practical Significance of the 60-Day Delivery Requirement

There is a clear basis for the 60-day period. It is the result of balancing the needs of both parties: the ordering party needs time for detailed consideration of contract terms, while the receiving party needs early confirmation of conditions.

If the document is not delivered within this period, the receiving party may exercise the following rights:

• Right to file a report with the Fair Trade Commission (Article 6)
• Right to request delivery of the document
• Right to claim contract termination (as a civil law right)

What is practically important is the start date of the 60-day count. This is defined as "the date of the first ordering act," counting from the point at which the ordering intent becomes clear — including an email request, verbal order, or approval of a proposal.

This section explains how to create an Article 3 Document that satisfies the legally required items and the practical procedures for efficient document management.

The Article 3 Document, as the ordering document obligation, is required to contain 12 items under Article 1 of the Subcontract Act Enforcement Order. Including all of these items without omission is a legal requirement.

Mandatory Items and Practical Response

1. Names of the ordering party and the subcontractor

   • For corporations, use the official registered name
   • For sole proprietors, it is recommended to include both the trade name and legal name

2. Date of commission

   • Date of the email, verbal order, or other first ordering act
   • For orders placed in multiple stages, the date of the first order

3. Content of the subcontractor's work

   • Not "website production" but specifically "production of a corporate website (10 pages, responsive design, WordPress implementation)"
   • Specify the deliverable specifications, file format, and delivery method

4. Due date for receiving the subcontractor's deliverable

   • Not "by end of [month]" but "by 17:00 on March 31, 2024"
   • Set a final deadline that includes revision time

5. Location for receiving the subcontractor's deliverable

   • For email delivery: the responsible person's email address
   • For in-person meetings: the specific address

6. Amount of subcontracting fee

   • Clearly distinguish between tax-exclusive and tax-inclusive amounts
   • Set unit prices for additional work if it arises

7. Payment due date for the subcontracting fee

   • Specific date within 60 days of receipt
   • Conditional language such as "within 30 days of acceptance completion" is permitted

8. Details if promissory notes difficult to discount are to be issued

   • Currently includes electronic money payments
   • Explicitly state who bears fees

9. Details if a consolidated settlement method is used

   • Terms when factoring is used

10. Details if payment is to be made using electronically recorded monetary claims

    • Details when using "densa" (electronic monetary claims) etc.

11. Details if raw materials etc. are supplied on a paid basis

    • Server costs and similar charges to be borne by the receiving party

12. Due date for inspection, if inspection takes place

    • Upper limit on the number of days from delivery to completion of inspection

Practical Procedure for Efficient Document Creation

A challenge many ordering parties face is the inefficiency of creating documents from scratch each time. The following steps allow for standardization.

Step 1: Create Business-Specific Templates

• Prepare templates by work type — website production, logo design, etc.
• Design the format so that only project-specific information (amount, deadline, etc.) needs to be changed

Step 2: Build an Auto-Generation System

• Automate the input → PDF generation workflow using Google Forms + Google Apps Script etc.
• An initial investment is needed, but the efficiency gains are significant if there are 10 or more orders per month

Step 3: Standardize the Delivery Method

• Standardize the delivery method: email attachment, postal mail, electronic contract service, etc.
• Build a receipt confirmation system at the same time

In actual operations, many companies complete delivery of the document within 5 business days of the ordering decision. While the 60-day deadline may seem comfortable, early confirmation of terms has benefits for both parties.

This section specifically explains the points practitioners tend to overlook and common misconceptions about the Subcontract Act's document delivery obligation.

Misconception 1: A Quote or Proposal Substitutes for the Article 3 Document

This is the most dangerous misconception. A quote or proposal is a document from the pre-order proposal stage, and its legal nature is entirely different from an Article 3 Document that records the formal order terms.

For example, production company staff member A thought "we've shown the amount and deadline in the quote, so that's sufficient." However, the quote was missing several of the 12 required items under the Subcontract Act — payment method, inspection due date, receipt location, and others. The result was an improvement instruction from the Fair Trade Commission.

Misconception 2: Email Exchanges Satisfy the Document Delivery Obligation

The word "document" may suggest paper, but electronic email delivery is also acceptable. However, a simple order email is not sufficient — it must have the form of a formal document covering all the items required by the Subcontract Act.

Cases that create problems in practice include the following:

• Terms were determined through multiple email exchanges, but no final consolidated document exists
• An abstract statement like "on the same terms as last time"
• Revision and additional instruction emails are scattered, making the final terms unclear

Misconception 3: In Ongoing Transactions, a Single Delivery at the Start Is Sufficient

Even in an ongoing transactional relationship, an Article 3 Document must be delivered for each individual order. However, items that have not changed do not need to be fully re-stated each time — a citation such as "as stipulated in Article [X] of the Basic Agreement" is acceptable.

What is important is that items that change with each order (deadline, amount, specifications, etc.) are clearly stated. Even when an annual contract has been concluded, the delivery of individual order documents for each monthly or project-based order must not be neglected.

Overlooked Issues of Applicable Scope

Pattern 1: Misunderstanding of Capital Requirements

The applicability of the Subcontract Act is determined by the capital amounts of both the ordering and receiving parties. Assumptions like "the other party is a freelancer so it always applies" or "it doesn't apply if we're not a large company" are dangerous.

Particularly important to watch: if the receiving party incorporates and its capital increases, a previously covered transaction may suddenly fall outside the scope.

Pattern 2: Differences in Applicability by Work Content

Even within IT-related work, applicability differs based on the following classification:

• Website production: consignment of information product creation (applicable)
• Server maintenance: consignment of service provision (applicable)
• PC sales: goods sales (not applicable)
• Consulting: quasi-mandate contract (possibly not applicable)

Pattern 3: Error in Start Date for the 60-Day Count

A common error is mistaking "the date the formal written contract was signed" for the start date of the 60-day period. The correct start date is "the date of the first ordering act" — counting from the date verbal instructions, an email request, or approval of a proposal make the ordering intent clear.

In an actual case, a company that gave a verbal order on February 1, signed the contract on March 15, and delivered the Article 3 Document on April 20 was found to be in violation. The start date was February 1, and the deadline was April 1.

Pitfalls in the Delivery Method

For electronic delivery, the following points require attention:

• If the document is a PDF, confirm that the receiving party can open and save the file format
• Prepare an alternative method for cases where email attachment is not possible due to size limits
• Prepare for the possibility that spam filters may prevent delivery

For postal delivery, use a method that leaves a delivery record, such as registered mail. This is because the burden of proof for claims that "we did not receive delivery" lies with the ordering party.

This section presents specific action plans for both ordering and receiving parties to prevent violations of the document delivery obligation and build appropriate transactional relationships.

Action Plan for Ordering Parties

Phase 1: Assess Current Situation and Build a System (within 1 month of starting)

First, accurately understand the scope of Subcontract Act applicability in the company's transactions. Use the following checklist to identify all counterparties.

• Confirm capital amount and corporate form of all counterparties
• Classify the type of commissioned work (manufacturing consignment / information product creation consignment, etc.)
• Investigate document delivery track record for the past 6 months
• Identify transactions with high violation risk

Next, clarify the responsible person and business flow for document delivery. A common problem in many companies is coordination failures between departments — the sales person decides on the order, but the legal department creates the document.

The recommended structure is as follows:

• Person with authority to make ordering decisions: responsibility for managing the 60-day deadline
• Document preparation staff: responsibility for confirming legally required items
• Document delivery staff: responsibility for reliable delivery and receipt confirmation

Phase 2: Standard Forms and Systemization (months 2–3)

Create Article 3 Document templates by business category. Rather than simple Word documents, systemization to prevent input errors is recommended.

Example of a simple system using Excel macros:

• Basic information input sheet (counterparty name, person in charge, etc.)
• Project-specific information input sheet (amount, deadline, specifications, etc.)
• Auto-generation sheet (generates Article 3 Document from entered data)
• Delivery management sheet (records delivery date, receipt confirmation date)

Companies with more than 20 orders per month should also consider adopting a cloud-based contract management system. While initial costs are involved, this is a worthwhile investment when legal risk is considered.

Phase 3: Operations and Monitoring (from month 4 onwards)

Check the following items at the end of each month to detect signs of violations early:

• Projects with fewer than 10 days remaining before the 60-day deadline
• Projects where the document was delivered but receipt confirmation has not been obtained
• Projects where order content has changed but an amendment document has not been delivered

Conducting a quarterly external audit by a legal specialist to confirm the appropriateness of operations from a third-party perspective is also important.

Action Plan for Receiving Parties

Phase 1: Understanding Rights and Building a Record System

Many freelancers and small business operators do not recognize that they are protected parties under the Subcontract Act. First, confirm the following:

• Does the Subcontract Act apply to relationships with major clients?
• Is there a right to receive delivery of the Article 3 Document?
• What means of resistance are available if the document is not delivered?

Next, build a system for preserving transaction records. Since these become important evidence in later disputes, the following records must always be kept:

• Initial order request (email, meeting notes, etc.)
• History of condition negotiations
• Whether the document was delivered and the delivery date
• Deficiencies or omissions in the document content

Phase 2: Actively Requesting Document Delivery

It is important for receiving parties to proactively request document delivery. Concerns about it being "hard to ask" or "the relationship will suffer" are unfounded — this is the legitimate exercise of a legal right.

An effective way to make the request: "We would like to request delivery of the order document pursuant to the Subcontract Act. We believe written confirmation is necessary to prevent any misunderstanding about deadlines and specifications."

This approach points out the ordering party's Subcontract Act violation risk while explaining it as a mutual benefit.

Phase 3: Using Alternative Means

Even if the ordering party is reluctant to deliver a document, the receiving party can prepare a confirmation document summarizing the contract terms and obtain the ordering party's consent.

Items to include in an "Order Content Confirmation Document":

• Detailed work content
• Deadline and delivery method
• Remuneration amount and payment terms
• Acceptance period and criteria
• Attribution of intellectual property rights
• Confidentiality arrangements

Obtaining the ordering party's signature of consent or email response to this confirmation document achieves substantially the same effect as an Article 3 Document.

Ongoing Improvement Measures Common to Both Parties

Monthly Review

To maintain the health of the transactional relationship, a monthly review is recommended:

• Status of document delivery
• Divergence between contract terms and actual work content
• Signs of payment delays
• Impact of legal amendments

Gathering Industry Information

The application of the Subcontract Act changes in response to Fair Trade Commission guidelines and precedents. Regularly check the following sources to stay current:

• Fair Trade Commission annual reports
• Industry association guidelines
• Related articles in legal specialty publications

When both ordering and receiving parties correctly understand the Subcontract Act 60-day rule and practice appropriate document delivery, healthy and sustainable transactional relationships can be built. Avoiding legal risk is not the goal — it should be understood as a means of building better business relationships.

References

Overview of the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (2024)

Subcontract Promotion Seminar Text (2024)

Guidelines for Creating an Environment Where Freelancers Can Work with Peace of Mind (2021)