Construction Business Licenses and On-Site Responsibility in Construction Management SaaS and Tradesperson Matching

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

In the construction tech field, a wide variety of services have emerged, including construction management SaaS, tradesperson matching and estimate preparation tools, as well as materials procurement platforms, drone inspections and AI-based schedule management. This is because construction sites still rely heavily on person-dependent management such as paper forms and phone calls, leaving considerable room for improvement through IT.

That said, construction tech cannot be viewed simply in terms of the convenience of software. Depending on who undertakes to complete the construction work, who is responsible for on-site safety and construction quality, and what instructions are given to tradespeople, the licensing requirements under the Construction Business Act, the nature of the construction contract, and the approach to labor management and the duty of care for safety change significantly. It is important to design the service with a clear view of which role on site your system plays and where responsibility lies.

Whether a Construction Business License Is Required

Under the Construction Business Act, a person who carries on the business of undertaking to complete construction work must, as a rule, obtain a construction business license. A business that undertakes only minor construction work is an exception to the license requirement. Specifically, this covers, for work other than general building work, work with a contract price including consumption tax of less than JPY 5 million, and for general building work, work with a contract price including tax of less than JPY 15 million or wooden house work with a total floor area of less than 150 square meters. Note that contract amounts divided without legitimate reason are aggregated into the contract price, and where the orderer provides materials, their market price and transport costs are also added in making the determination.

The issue that tends to arise for companies providing matching services or SaaS is whether the company remains in the position of intermediating the exchange of information, or whether it is in substance undertaking to complete the construction work. For example, if the company not only connects orderers with tradespeople but also issues estimates and invoices in its own name and even promises a quality guarantee for the work, it is more likely to be regarded as a party to the construction contract.

Even if the terms of use state that "the company is merely a system that provides a venue," if the company is regarded as the contractor for the work based on its actual sales materials, the flow of invoices and how it actually responds when trouble arises, the question of whether it holds a license immediately arises. You need to check that the contracting names and the scope of responsibility match the degree of the company's involvement.

Drawing the Line Between Prime Contractors, Subcontractors and Referrers

In matching-type services, the boundaries between prime contractor, subcontractor and referrer tend to become blurred. From the orderer's perspective, the operator, which serves as the contact point for day-to-day inquiries, can easily appear to be responsible for the construction as a whole, while there are many cases in which the operator believes it merely referred tradespeople and is not involved in construction quality. If this gap in understanding is left unaddressed, when defective work or delays arise, the three parties end up pushing responsibility onto each other.

To prevent such disputes, it is necessary to set out consistently who is responsible for which matters, not only in the terms of use but across purchase orders, acceptance letters, estimates, invoices and certificates confirming completion of work. If the service is designed to stop at referral, clarify who decides the terms of the work, gives construction instructions and conducts acceptance inspection, and decide the scope of involvement as a referrer. Conversely, if the company chooses a business model in which it guarantees quality as the prime contractor, then on the premise of obtaining the necessary construction business license, managing the construction system and handling non-conformity are built into the business operations.

Consideration must also be given to the prohibition on wholesale subcontracting (marunage) under the Construction Business Act. As a rule, it is prohibited to have another contractor undertake work accepted as prime contractor in its entirety without substantive involvement. There are exceptions, such as where prior written consent of the orderer has been obtained for private-sector work, but there is also work for which wholesale subcontracting is not permitted at all, such as new construction of apartment buildings, so it is important to check carefully the relationship between the contracts and actual operations.

On-Site Instructions and Labor Management

Work instructions and shift adjustments through an app, progress reports by photo and communication by chat greatly streamline on-site communication. At the same time, labor issues about who is directing and supervising workers tend to arise. Worker dispatch for "construction work" such as building tasks is prohibited. Fee-charging employment placement for occupations engaged in construction work is also prohibited in principle, and for construction employers' organizations to carry it out requires certification and permission under a special system. Even when matching tradespeople under contracts for work, it is essential to consider whether the arrangement in reality amounts to the supply of labor or disguised contracting.

In particular, if the service operator gives detailed directions to self-employed tradespeople (hitori oyakata) or subcontractors' workers, down to working hours and specific work procedures, there is a risk that a relationship of employment and subordination will be recognized even though the arrangement takes the form of a contract for work. General safety management instructions on site and confirmation of specifications as the orderer are not in themselves immediately unlawful, but check whether excessive direct instructions have become routine, including chat practices and the content of notifications. Also decide who is responsible for safety measures regarding entry into hazardous areas, wearing protective equipment and communication in the event of an accident.

Assignment of Chief Engineers and Supervising Engineers

Construction tech offers many functions that support site management, such as remote site attendance using cameras, progress management across multiple sites and AI-based checks of construction status. These tools help reduce workload, but introducing technology does not automatically exempt a contractor from the obligation itself to assign chief engineers and supervising engineers under the Construction Business Act.

The special rules allowing engineers to serve concurrently at multiple sites each have their own requirements. Check the requirements of the special rule for dedicated assignment using ICT and the like, and the conditions under which engineers at business offices may also serve at sites, in line with the system being used. Since the mere existence of a remote checking function does not uniformly exempt the dedicated assignment obligation, it is important to work out in advance how the orderer, the prime contractor and the engineers will divide roles in managing the site. If the system assumes concurrent service at multiple sites, check individually whether it complies with the statutory requirements and whether communication with the sites and emergency response procedures are secured.

Ownership and Use of Construction Data

Information such as site photos, design drawings, schedules, estimate data and tradespeople's work records accumulates in large volumes through the operation of construction tech. The rights and interests of orderers, prime contractors, designers and tradespeople are intricately involved in such data, and it does not unconditionally become the sole property of any one party. If the company is going to make secondary use of the data or use it for AI training, it needs to sort out who holds what rights or confidential information, and to what extent use has been licensed under the terms of use and individual contracts.

In addition, site photos and videos may capture the interiors of buildings, private homes and workers. Even if the data is described as "statistically processed" or "anonymized," it does not immediately constitute anonymously processed information under the Act on the Protection of Personal Information (APPI), so it is desirable to set handling guidelines that give sufficient consideration to the protection of trade secrets and privacy.

At LegalAgent, we support companies developing construction tech businesses with analyzing whether licenses are required under the Construction Business Act, preparing contracts, and legal design concerning on-site chains of instruction and data use. Precisely because these services streamline on-site work, I think it is important to carefully put in order the legal responsibilities that lie behind them.