Katsuhiro Iwayama, Attorney at Law

The outsourcing agreement is one of the most common types of contracts across all industries.

The attached document is an example of an outsourcing agreement structured as a quasi-mandate agreement (“jun-inin”) under the Japanese Civil Code. Accordingly, it does not contain provisions such as liability for non-conformity or obligations relating to completion of work. Please note that the attached example covers only the essential elements in simplified form. In practice, the specific terms and conditions of an outsourcing agreement vary depending on the circumstances of each case, and the example assumes that separate individual agreements will be executed as needed.

Based on that premise, the following provides several supplementary explanations.

<1. Differences in Contract Style>

Compared to agreements used in common law jurisdictions, Japanese contracts tend to be more concise. Common law contracts generally set out detailed and comprehensive provisions, whereas Japanese contracts typically focus on fundamental matters and leave issues not expressly stated to interpretation or subsequent negotiation.
If you are entering into a contract with a Japanese company, you may find the draft surprisingly brief. This is a structural difference rather than an omission.

<2. Appointment of a Person in Charge>

Although not directly part of the outsourcing terms themselves, outsourcing relationships may become problematic if the client gives detailed instructions regarding how the contractor should perform its work. This may cause the arrangement to be viewed as a de facto employment relationship or “disguised outsourcing.”
Even without express instructions, frequent on-site requests may create a level of control inconsistent with a true outsourcing arrangement.

<3. Representations and Warranties>

The sample agreement includes relatively strict representations and warranties by the contractor. These may be moderated by adding qualifiers such as “to the best of Party B’s knowledge” or by limiting liability for indirect or consequential damages, as noted below.

<4. Fees and Payment>

The sample assumes monthly payments. In a contract structured as a “work-for-completion” agreement, payment would normally be made upon completion and inspection of the deliverables, so the timing and method of payment may differ.

<5. Confidentiality>

The confidentiality clause is generally standard. However, paragraph 5 may appear unclear, as it is drafted on the assumption that the agreement involves a subcontracting relationship.

<6. Damages>

In the sample agreement, liability for indirect or consequential damages is excluded. This is based on the generally accepted view that allowing such damages would make the scope of liability unreasonably broad.
However, the limitation may be lifted in cases involving intentional misconduct or gross negligence.

<7. Intellectual Property Rights>

In the sample, newly developed intellectual property rights are assigned to the client. The opposite structure—assigning ownership to the contractor—is also possible, but in either case, the arrangement must be reflected in the outsourcing fee.
It should also be noted that shared or split ownership of intellectual property often results in restrictions on use or transfer without mutual consent, and may merely postpone potential disputes.

The appropriate structure and provisions of an outsourcing agreement depend on whether you are acting as the client or contractor, as well as the specific nature of the engagement.
If you require assistance in preparing or customizing an agreement to fit your circumstances, please feel free to contact us.