Checkpoints for Reviewing SES Agreements: Practical Issues for Clients and Vendors

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

In corporate legal practice, there are many occasions to review SES (system engineering service) agreements for system development, maintenance and operations, support for information systems departments and the like. They may look like standard outsourcing templates, but in practice, where risk lies changes greatly depending not only on the wording of the contract but also on who actually gives work instructions on site, whether the vendor is obliged to complete deliverables, and whether billing is based on hours worked.

Both clients and vendors tend to proceed with the sense that it is an ordinary quasi-mandate contract, but if actual on-site operations and the contract clauses diverge, problems may surface concerning disguised contracting, information management and the ownership of intellectual property.

The Reality of Direction and Supervision and the Legal Nature of SES Agreements

An SES agreement is widely used as a form of transaction in which engineers take part in the client's system development, operations, research, improvement support and so on, and are paid according to hours worked or support provided. "SES" is not defined as the name of a contract type under the Civil Code. Therefore, regardless of the contract title, the substance is judged from the specific work agreed, the relationship of direction and supervision, and how compensation is calculated. In many cases, it is positioned not as a contract for work, which promises the completion of work, but as a quasi-mandate contract, which entrusts the handling of affairs.

The central point in the review is whether there is a relationship of direction and supervision. If the client directly instructs the engineers employed by the vendor on the allocation of daily tasks and how to perform them, and carries out labor management such as approving working hours and leave, so that the engineers work under the client's direction and supervision, it may be judged that, in substance, this constitutes worker dispatch even if the contract is titled quasi-mandate. Communicating business specifications or requests to the vendor and giving safety and health instructions based on laws and regulations are distinguished from direction and supervision of work depending on the individual circumstances. If the client goes as far as allocating detailed daily tasks or managing attendance, the inconsistency between the contract and reality will be called into question.

Consideration must also be given to the Act on Ensuring Proper Transactions with Small and Medium-sized Entrustees (the Torihiki Tekiseika Act), which came into force on January 1, 2026. This Act is a different framework from the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators (Freelance Act), and its application is determined transaction by transaction. If a transaction falls under entrustment of the creation of information-based products or entrustment of the provision of services and meets the applicability criteria such as stated capital or number of employees, regulations such as delivery of a written order, payment deadlines and the prohibition on reducing the price when the vendor is not at fault apply, so check whether both the contract clauses and operations meet the requirements.

Defining the Scope of Work and Rules for Settling Hours Worked

If the description of the work is limited to broad expressions such as "system development support" or "operations and maintenance support," the boundary between what is included in the base fee and what incurs additional charges becomes vague. Specifying the assigned phases, target systems, working hours and whether night and holiday support is included makes it easier to prevent discrepancies at the time of billing.

In the compensation clause, check whether it is a fixed monthly fee or an hourly rate, and whether there is a settlement range. An arrangement setting a settlement range of 140 to 180 hours is one design example; this is not a statutory working-hours framework but a contractual settlement rule agreed between the parties. When setting a settlement range, settle the deduction rate when hours fall below the lower limit, the excess rate when hours exceed the upper limit, and the treatment of standby time. In addition, determining whether the contract presupposes a specific engineer or whether a substitute can be assigned in cases such as absence, the skill level required of substitutes, and who bears handover costs upon replacement helps secure flexibility on site.

Ownership of Deliverables, Security Management and Handover

Even where an SES agreement is operated without a clear obligation of completion, deliverables such as programs, design documents, research reports and procedure manuals may be created on site. Stating the name of a deliverable in an individual purchase order does not immediately turn the arrangement into a contract for work, but unless the ownership of intellectual property rights, licensing and the terms of use of open source software (OSS) are set out, disputes may arise later over the scope of use. It is necessary to clearly separate deliverables that will belong to the client from the rights to general-purpose know-how and tools that the vendor has held from before.

In terms of information management, in addition to the confidentiality clause, check access rights management, the handling of personal information and the management framework for subcontractors. For projects that touch production environments or customer data, incorporate into the contract a response flow covering the deadline for notification when a security incident occurs, cooperation in investigations, cost allocation and measures to prevent recurrence.

In the limitation of liability clause, while checking the cap on damages and the exclusion of indirect damages and lost profits, consider whether to carve out willful misconduct, gross negligence and breach of confidentiality obligations as exceptions. The vendor will want to limit excessive liability risk, but for the client as well, if even serious information leaks and operational accidents are limited by a uniformly low cap, it may be unable to recover its losses. Setting out whether interim deliverables may be used upon termination, the return of loaned materials, the handover of necessary accounts and the revocation of departing personnel's access rights makes it easier to prevent business stagnation accompanying departures.

Risks for Each Party and Aligning with On-Site Operations

A risk on the client side that is easily overlooked is unconsciously expecting completion of deliverables or strict quality assurance even though the contract is a quasi-mandate. It is important to organize roles: if the client definitely requires completion of deliverables, it should use the form of a contract for work in the individual contract; if it requires the performance of the work itself, the design should center on the duty of care of a good manager and reporting procedures. In addition, when granting external engineers access to production environments or administrator privileges, the client must not rely solely on contractual confidentiality obligations but must thoroughly enforce procedures for granting and revoking privileges and log collection on site.

The main risk for the vendor is the scope of work expanding too far. If the clauses are comprehensive, such as "all related work" or "work instructed by the client," the vendor may be required to provide night support or emergency incident response that was not originally anticipated without additional charges. Clarifying the boundary between basic work and additional work and providing that additional work requires separate approval or a quotation helps protect the vendor.

A point both parties should bear in mind is to align what the contract says with the reality on site. Even if the contract states that "the vendor shall perform the work at its own discretion and from an independent position," if the client's personnel give instructions directly to the engineers every day, putting the contract in order alone will not make it effective. It is important to review not only the contract but also how the chain of instructions on site is organized.

I find generative AI easy to use for checking whether clauses in an SES agreement are excessive or missing. However, a gap from reality, such as the contract stating that the vendor performs the work autonomously while the client's project manager gives direct work instructions on site, cannot be detected by having AI read only the text of the contract. By supplementing it with individual circumstances such as your company's position, the chain of direction and supervision on site, settlement rules and the contract term, AI review can be brought closer to a level that is useful in practice.