Osaka-Kansai Expo: 'Unpaid Wages' and 'Unauthorized Construction' — The Reality of Structural Issues Surrounding Overseas Pavilions

Five months since the opening.

Behind the bustle, allegations of unpaid wages and unauthorized construction related to overseas pavilion projects at the Osaka-Kansai Expo are emerging one after another. Testimonies reveal a reality where a multi-layered subcontracting structure, chaotic contract practices, cultural differences, and the limits of oversight are intricately intertwined.

This video organizes the specific cases discussed, summarizing the points of contention and measures to prevent recurrence.

Summary of this report

• Allegations of unauthorized construction: In connection with the Angola Pavilion construction, the homes of subcontractor executives were searched. The president claims 'clerical errors in application' and 'prioritizing the construction schedule.' Meanwhile, the question of responsibility for verifying permits from the prime contractor down is being raised.

• Chain of unpaid wages: Large-scale unpaid wages and subcontractor bankruptcies have occurred at the USA, Romania, Serbia, and Nepal pavilions, among others.

• Structural factors: (1) Multi-layered subcontracting (1st to 5th tier), (2) specification changes and verbal instructions on-site, (3) delays in procedures for contracts, inspections, and additional work, (4) differences in cross-cultural business practices (deficiencies in legal checks and insurance verification), and (5) limits on the involvement of supervisory agencies.

• Conflicting claims: Subcontractors claim 'unpaid wages for completion, support, and additional work,' while prime contractors argue for offsets or payment withholding due to 'quality issues, delays, and overbilling.'

• Urgent issues: A crisis for individuals is occurring, including strained on-site labor and cash flow, bankruptcy risks, and impacts on daily life.

1. What is happening (Chronological outline)

• Suspicion of unauthorized construction (Angola Pavilion)
  A search was conducted on suspicion that a subcontractor accepted approximately 120 million yen in construction work without the permit required under the Construction Business Act.
  The company explained it as 'clerical errors by the accounting department' and 'inability to withdraw due to prioritizing the construction schedule.' As the chain continues from prime contractor to 2nd tier, 3rd tier, etc., the point of contention is which layer bears the responsibility for permit verification.

• Expansion of unpaid wages (multiple national pavilions)

  • USA Pavilion: Bankruptcy of a 3rd-tier contractor led to approximately 28 million yen in unpaid wages for sub-subcontractors and below. This directly impacted lives, such as forcing families to give up on higher education.

  • Romania Pavilion: Conflicting claims between the 1st-tier and prime contractor regarding 125 million yen in payments versus a 40 million yen offset demand. Approximately 10 million yen in unpaid wages occurred at the 2nd-tier level and below.

  • Serbia, China, Nepal, Germany Pavilions, etc.: Unpaid wages in multiple cases have been identified. Construction at the Nepal Pavilion has been halted since January.

• Suspicions of Misappropriation of Funds
  At some sites, allegations of embezzlement by accounting staff have emerged. There are claims of large sums being transferred from accounts to affiliated companies.

• Management's Stance
  The Japan Association for the 2024 World Expo explains that it is 'difficult to intervene in private-sector contract disputes.'

• Government's Stance
  The government has announced a policy to 'verify the facts and urge participating countries to take action.'

2. Structural Bottlenecks (4 points)

1. Multi-layered Subcontracting: Responsibility and payments are fragmented across deep hierarchies from the 1st to 5th tiers. Information and risks are concentrated at the bottom. (Short construction periods are also a contributing factor.)

2. Contract and Additional Construction Practices: Due to drawing changes, verbal instructions, and delays in electronic approvals, inspections are unclear, causing the basis for payment to waver.

3. Differences in Culture and Business Practices: Overseas prime contractors request flexible changes on-site, while the Japanese side prioritizes contract precision—this 'gap' in procedures leads to costs and delays.

4. Limits of Supervision: Since the management side is not a party to the contract, it is difficult to intervene directly. The prime contractor's subcontract management system serves as the practical line of defense.

3. Differences in Claims Observed in Case Studies (Clarification of Issues)

• Claims from Subcontractors

  • Despite responding to specification changes, requests for support, and night work, contracts/inspections/payments are not being fulfilled.

  • 'Bankruptcy/unreachability mid-project,' 'unilateral reduction under the guise of offsetting,' and 'loss of funds due to embezzlement by staff.'

• Claims by the Prime Contractor

  • There were quality defects/delays, and costs were offset by repairs and substitute work.

  • The volume/unit price of additional construction is excessive. It requires time for scrutiny.

• Positioning of Supervision and Administration

  • Association: Principle of non-intervention in private contracts.

  • Administration: Unauthorized construction and violations of the Subcontract Act, etc., are subject to separate law enforcement. It is possible to urge participating countries to act.

4. Legal and Practical Perspectives (Key Points)

• Construction Business Act: Licensing categories, subcontracting guidance, and the management responsibility of the prime contractor. Accepting construction orders without a license is a serious matter.

• Act against Delay in Payment of Subcontract Proceeds, Etc. (Subcontract Act): Prohibition of unfair price reductions, payment delays, and coercive price cutting.

• Contractual Practices:

  • Additional work = Prior written/electronic approval (quantity, unit price, delivery date) is the principle.

  • Clearly specify acceptance criteria, the party responsible for approval/rejection, and the division of responsibility for corrections in the contract.

  • Transparency regarding the feasibility, scope, and procedures for offsetting.

• Bankruptcy/Embezzlement: Recovery becomes difficult upon the commencement of bankruptcy proceedings. Embezzlement involves both criminal and civil tracks.

5. Useful 'On-site Checklist'

Before Contracting

• Confirm the subcontracting hierarchy (1st to nth tier) and the highest level of payment responsibility

• Approval process for additions/changes (who approves, and by what means)

• Acceptance procedures (authorized personnel for completion judgment, criteria, and deadlines)

• Handling of correction costs for delays/quality defects (caps, calculation formulas, third-party judgment)

During Construction

• All specification changes must be electronically recorded (revised drawings, emails, meeting minutes)

• For additional work, accumulate the three-piece set of purchase order number/estimate/approval

• Weeklywork progress and acceptanceclosing and documentation of agreement

• Ledger of outstanding balances and offset itemssharing

Payment

• Due dates and payment methods, payment guarantees (security deposits/escrow) availability

• When claiming offsets, details, grounds, and third-party evaluation are mandatory

• Clauses for rapid dispute resolution (ADR/arbitration) in case of default

6. Recommendations (Short-term, Medium-term, Recurrence Prevention)

Short-term (Minimizing damage)

① Evidence packaging: Organize contracts, additional approvals, work progress, invoices, demands, recordings, etc., into folders
② Joint action: Cross-verify facts among subcontractors under the same prime contractor/pavilion
③ Rapid procedures: Coordination for payment demands, preservation, ADR (commercial mediation), and creditor meetings
④ Emergency bridge financing: Consider utilizing small-scale funding/guarantees from local governments/public systems

Medium-term (Standardization of contracts and operations)

① Electronic approval workflow for additional construction (mobile approval + version control)
② Weekly closing of work progress/acceptance + spot introduction of third-party inspections
③ Stricter offset procedures: Contractualize limits, calculation formulas, and third-party evaluations
④ Payment guarantees: Standardize payment guarantee bonds/escrow/advance payment guarantees for projects above a certain scale

Recurrence prevention (Governance)

1. Prime contractor subcontract management KPIs (permit confirmation rate, approval SLA, unpaid balance ratio, etc.)
2. Supply chain ledger (visualization of hierarchy, contracts, and payment status)
3. Operational 'duty of best efforts' framework: Making ledger submission and audit acceptance by prime contractors a condition of participation
4. Cultural difference training: Mutual training for overseas prime contractors and domestic subcontractors, and multilingual standardization of contracts

7. 'Human Stories' That Emerged During Reporting

• Testimonies of direct impacts on daily life, such as giving up on higher education or considering selling homes due to a chain of bankruptcies.

• Cases of unpaid work despite responding to 'support' requests (night work, sudden specification changes).

• Paradoxical situations where social media posts are blamed for 'hindering fundraising'.

• The intersection of regret for 'wishing I hadn't done it' and the pride of 'believing in a national project'.

8. Frequently Asked Questions (Q&A)

Q1. Won't the Association help?
A. Basically, these are private-to-private contracts, making direct involvement difficult. However, there have been statements that fact-checking and urging participating countries is possible.

Q2. Can offsetting be done for anything?
A. Within the scope of contracts and law. It requires grounds, itemized statements, and procedures; arbitrary reductions could violate the Subcontract Act.

Q3. How should verbal instructions be handled?
A. Obtain written/electronic confirmation on the same day and assign a purchase order number. It is desirable to establish a rule to stop work if it remains unapproved.

9. Summary

The Expo is a 'dream machine' but also a 'reality of contracts and labor'.

This chain of events is the result of overlapping multi-layered subcontracting × delays in contract practices × cultural differences × supervisory limitations.

For relief and prevention of recurrence, standardized contract operations, visualized payment ledgers, and rapid third-party procedures are essential. Above all, there is a need to establish a system to protect the livelihoods of those who worked hard on-site before the next national project.

[Reflections]

• The purpose of holding this Expo is stated as 'The Expo has the centripetal force and communication power to attract people and goods, and will serve as a catalyst to sustain Japan's growth.'.

• Furthermore, it sets its goals as 'Contribution to achieving the Sustainable Development Goals (SDGs)' and 'Realization of Japan's national strategy Society 5.0'..

  • Society 5.0 is a concept of a human-centered future society that balances economic development and the resolution of social issues by highly integrating cyberspace and physical space and utilizing advanced technologies such as AI and IoT.

• The Expo ironically foresees 'the arrival of a society where Society 5.0 is a Japanese-style society where earnest, hardworking people are neglected,' by hindering the growth and sustainability of small domestic businesses..

• In an era with significant foreign investment, the time of working solely on trust may have ended.