How to Work Correctly Under a Quasi-Mandate Contract and Avoid Disguised Contracting — It Comes Down to Direction and Supervision, Not the Name on the Contract

“We’re on a quasi-mandate contract, so it can’t be disguised contracting.”

You hear this now and then on system development projects, but it is a misunderstanding. Whether something is disguised contracting is not determined by whether the title on the contract says contract for work, quasi-mandate or outsourcing agreement (gyomu itaku) — it is determined by what actually happens on the ground, that is, by who directs and supervises the engineers. Even with a quasi-mandate contract in place, if the client tells the contractor’s engineers directly how to do the work or when to work, that is disguised contracting.

This article works through the differences between contracts for work, quasi-mandate contracts and worker dispatch; the criteria for judging disguised contracting (Notification No. 37); where the acceptable/unacceptable line falls on a real development project; how to think about agile development; and the practices that both the client side and the contractor side need to put in place — all based on material published by Japan’s Ministry of Health, Labour and Welfare.

One caveat: this article explains the rules and the practice around them; it is not legal advice. For a judgment on whether a particular contract or a particular site amounts to disguised contracting, consult your Prefectural Labour Bureau (Labour Supply and Demand Adjustment Division) or a lawyer.

1. The Bottom Line First

There are broadly three ways for companies to exchange engineering labour and services between them. The difference between them turns on one thing: can the client (the place of work) direct and supervise the engineers?

Contracts for work and quasi-mandate contracts are both contracts that create no relationship of direction and supervision between the client and the contractor’s workers. The party that directs and supervises is the contractor company, which is the engineers’ employer. If the client wants to direct and supervise directly, the contract to choose is neither a contract for work nor a quasi-mandate, but worker dispatch.

And where the parties sign a contract for work or a quasi-mandate in form, while in substance the client gives specific instructions directly to the contractor’s workers and has them work under those instructions, that is what is known as disguised contracting. The Ministry of Health, Labour and Welfare’s Q&A on Points of Interpretation (Volume 3) states clearly that even under a quasi-mandate contract, if in substance there is a relationship of direction and supervision, the arrangement constitutes a worker dispatch business regardless of the form of the contract and is subject to the Worker Dispatching Act.

In other words, there is no “it’s fine because it’s a quasi-mandate” and no “it’s fine because it’s a contract for work”. Whether it is fine is decided by the day-to-day working arrangements on the ground, not by the contract — and that is the conclusion of this article as a whole.

2. Contract for Work, Quasi-Mandate and Dispatch — Telling the Three Apart

2.1. Contract for Work — Responsibility for Completing the Work

A contract for work (Article 632 of the Civil Code) is a contract in which one party promises to complete a piece of work and receives remuneration for that result. In system development the typical form is “complete and deliver a system meeting these requirements”; the contractor bears an obligation to complete, and bears liability for nonconformity with the contract if the deliverable does not conform to what was agreed.

2.2. Quasi-Mandate — Handling the Work With Due Care

A quasi-mandate (Article 656 of the Civil Code) is a contract entrusting the handling of affairs that are not juristic acts. In a system development context it is used where what is being commissioned is not so much “completion” as “performing the work as a professional” — requirements-definition support, technical investigation, design review, maintenance and operations, development support and so on. The contractor bears not an obligation to complete, but an obligation to handle the work with the care of a good manager (the duty of due care, Article 644 of the Civil Code).

The amended Civil Code that came into force in April 2020 also expressly provides for what is known as outcome-based remuneration (Article 648-2), under which remuneration is paid for the outcome rather than for time spent on the work. A quasi-mandate is therefore no longer “a contract that can only be settled by the hour”.

Note also that SES (systems engineering service), a term much used in the Japanese IT industry, is not a legal term. It is a name for a transaction in which an engineer’s technical capability is supplied as a service, and in contractual terms a quasi-mandate is often used for it. Whether or not the name SES is used has no bearing on whether the arrangement is lawful.

2.3. Worker Dispatch — The Only Lawful Way to Hand Over Direction and Supervision

Worker dispatch means having a worker employed by the dispatching company work for the host company under the host company’s direction and supervision (Article 2 of the Worker Dispatching Act). If the client wants to issue work instructions, manage working hours and allocate tasks directly, this is the only form available. In exchange, the dispatching company needs a licence from the Minister of Health, Labour and Welfare, and the host company also takes on numerous obligations, including period limits and the appointment of a responsible person at the host company.

Lining up all three makes the shape of disguised contracting obvious. Disguised contracting is an attempt to obtain the working arrangement of dispatch (direct direction and supervision) via a contract for work or a quasi-mandate, without bearing the costs and obligations of dispatch.

3. What Is Actually Wrong With Disguised Contracting — Risks on Both Sides

You might think “if the project is running smoothly, why split hairs?” But there is a reason disguised contracting is regulated. When the party that directs and supervises (the client) and the party that bears employer responsibility (the contractor company) are separated, responsibility for managing working hours, for occupational health and safety, and for workplace accidents becomes unclear, and the worker is left in a gap in protection. The Worker Dispatching Act manages that separation with a licensing regime plus a set of obligations on both the host and the dispatching company. Disguised contracting creates the same separation outside that management.

The specific risks are as follows.

Administrative guidance and corrective action. Disguised contracting violates the Worker Dispatching Act and is subject to guidance and corrective action by the Labour Bureau. The Ministry of Health, Labour and Welfare publishes a Guide to Conducting Worker Dispatch and Contracting Properly and is working to make the distinguishing criteria widely known.

Possible criminal penalties. If in substance the arrangement is worker dispatch, the sending side can be liable under the penal provisions of the Worker Dispatching Act for operating an unlicensed worker dispatch business. Depending on the configuration, it may also constitute the labour supply business prohibited by Article 44 of the Employment Security Act, in which case not only the supplying side but the receiving side (the client) as well can be subject to penalties (imprisonment for up to one year or a fine of up to ¥1,000,000, Article 64 of the same Act).

The deemed employment-offer rule. This is the most direct risk for the client side. As set out in the Ministry of Health, Labour and Welfare’s leaflet, Article 40-6 of the Worker Dispatching Act provides that at the moment one of the five categories of unlawful dispatch occurs (engagement in prohibited work, acceptance of workers from an unlicensed business operator, breach of the period limits at establishment level or individual level, and so-called disguised contracting and the like), the receiving party is deemed to have offered an employment contract to that worker on the same working conditions as at present. In the case of disguised contracting and the like, it is a requirement that the contract was concluded for the purpose of evading the Worker Dispatching Act and related legislation. The rule also does not apply where the receiving party did not know that the arrangement constituted unlawful dispatch and was not negligent in not knowing (the good-faith, non-negligent exception). Where it does apply, and the worker accepts within one year, an employment contract with the client comes into existence. In other words, it is legally possible for “someone you thought of as a partner company’s engineer” to become your own employee one day.

Impact on the relationship and on reputation. Putting things right will require restructuring contracts and changing the project structure, and the project will certainly be disrupted. For client and contractor alike, disguised contracting is not a case of “we gain if nobody notices”: the structure is such that both sides are hurt the moment it comes to light.

4. The Criteria Are in Notification No. 37 — Two Kinds of Independence, All of Them Required

So what, concretely, distinguishes proper contracting and quasi-mandate arrangements from worker dispatch? The criteria are set out in the “Criteria for Distinguishing Between Worker Dispatch Businesses and Businesses Conducted Under a Contract for Work” (Ministry of Labour Notification No. 37 of 1986), commonly called Notification No. 37.

Notification No. 37 provides that a contractor business operator is deemed to be conducting a worker dispatch business unless it satisfies all of the following. Broadly, there are two kinds of independence.

The first is independence in labour management — using directly, by itself, the labour of the workers it employs.

The second is independence in business operation — handling the work undertaken as its own business, independently of the other party.

For software development, the last item is normally satisfied by “handling the work on the basis of the specialist technical skills and experience it possesses”. In practice, therefore, the focus for a development company falls almost entirely on independence in labour management — and in particular on who holds “work instructions”, “working hours” and “staffing assignment”.

Article 3 of Notification No. 37 goes further: even where all the requirements are formally satisfied, if the arrangement has been deliberately disguised in order to evade the law and the true purpose is worker dispatch, it constitutes a worker dispatch business. The structure is designed so that “countermeasures” consisting only of tidying up the paperwork do not work.

5. Where the Acceptable/Unacceptable Line Falls on a Development Project

Because Notification No. 37 alone leaves too much room for doubt in practice, the Ministry of Health, Labour and Welfare publishes a Q&A on Points of Interpretation (Volumes 1 to 3). The following applies that guidance to a system development setting.

(The basis for each row is Questions 1, 2, 5, 7, 9, 10 and 11 of Volume 1 of the Q&A, and Q4 and Q7 of Volume 3.)

One principle runs through the whole table: company-to-company exchanges are fine; direction and supervision of an individual engineer by the client is not.

Two further points bite particularly hard on development projects.

An instruction is still an instruction when it goes through a document or a tool. Question 7 in Volume 1 of the Q&A states that where the client sets out the content, order and method of the work in detail in a document and has the work performed accordingly, that too is judged to be disguised contracting. It is not a matter of “don’t say it out loud, write it in a ticket or a chat message”. What is looked at is who wrote it and whether it functions as direction and supervision.

A contract that is nothing but “headcount × unit price” is dangerous. Question 8 in Volume 1 states that where the order is placed on the basis of the labour input (the number of people) rather than the completion of a product or a piece of work, and settlement is made at a unit price per unit of labour, the arrangement is a mere supply of labour and is judged to be disguised contracting. Settling a quasi-mandate on the basis of time or effort is not in itself ruled out, but a contract in which the content of the work does not appear at all and only “N engineers at ¥X per unit” is written down is a form that is readily assessed as a supply of labour. The premise is that the contract identifies what work is being commissioned.

6. Making a Quasi-Mandate Work Properly — Structure, Point of Contact, Reporting

Now that the line is clear, here is how to translate it into day-to-day operation. The key is to fix the route of direction and supervision through the contract and the project structure.

[Proper quasi-mandate]                      [Disguised contracting]

Client ──(request)──→ Contractor            Client ─┬─(contract)─→ Contractor
                          │                         │
                 Responsible manager                └─(direct order)─→ Engineer
                          │                             - task assignment
             (direction and supervision)                - work-procedure instructions
                          ↓                             - overtime / weekend-work orders
                      Engineer

6.1. What the Contractor Should Put in Place

• Identify the work in the contract and the purchase order. Not “system development support, one set”, but the target system, the scope of work, the project structure, the period and even the method of reporting. This is also where you decide whether it is outcome-based or performance-proportional (time- or effort-based).
• Appoint a responsible manager (on-site lead) and give them authority. This is the person on the contractor side who acts as the point of contact with the client, issues instructions to the engineers and manages progress and quality. As Question 4 in Volume 1 of the Q&A makes clear, there is no problem in principle with the responsible manager also doing hands-on work — but it is meaningless if they cannot actually manage, and an arrangement in which there is a single member on site who is also the responsible manager is judged to be disguised contracting, because requests from the client become direction and supervision of that individual as they stand. On single-person engagements, you need a design in which an in-house manager functions as the responsible manager (requests are received at company level; regular reporting and reviews are held internally).
• Manage attendance in-house. Start and finish times, leave and decisions about overtime are for the contractor company as the employer. Complying with the client’s building access control, or the client being aware of who is present for safety reasons, falls within “mere awareness” — but any conversation about wanting someone to work late, or to come in early tomorrow, must be routed through the contractor’s own company.
• Keep records of work performed. Record what was requested, what was done and how it was completed, as monthly or weekly reports and completion reports. This is both a safeguard against disguised contracting and a record that the duty of due care was discharged.

6.2. What the Client Should Put in Place

• Send requests to the point of contact (the responsible manager). New work requests, changes of priority and demands for rework go to the contractor company’s point of contact, not to individual engineers. Making requests or complaints about deliverables to the company is a legitimate act of ordering, as Question 2 in Volume 1 of the Q&A makes clear.
• Do not name individuals. “Please put Mr A on this” or “Please take Ms B off this” is interference in the contractor’s staffing decisions and is not recognised as proper contracting or quasi-mandate work (Volume 3, Q7). Confirm technical capability using skill sheets or similar that do not identify individuals.
• Decide in advance what meetings are for. Position regular meetings as a forum for conveying requirements and specifications, sharing progress and discussing issues — not as a forum for assigning tasks to individuals. There is no problem in itself with everyone from both sides attending meetings or chat channels (Volume 3, Q6), but once direct instructions from the client to engineers start flowing through them, it becomes disguised contracting.
• Distinguish “being aware” from “managing”. Being aware of progress and quality, and demanding correction from the company if things do not match the contract, is a client’s plain right. But once, as a means to that end, you start intervening in how engineers spend their time or in their working procedures, that is management — that is, direction and supervision.

6.3. What to Share With the People on the Ground

Disguised contracting usually starts not with the people handling contracts but with good intentions on the ground. Someone on the client side asks the engineer sitting at the next desk “could you do this one too”, and the engineer, meaning no harm, takes it on. Such requests may look like an extension of small talk, but they are not “everyday conversation unrelated to the work” — they are requests for work, and they should properly go through the point of contact. Stack enough of them up and they become the substance of direction and supervision by the client. Sharing the route for requests (who to ask, who to accept from) with the people on the ground on both sides at the outset is, in the end, what works best.

7. Agile Development and Disguised Contracting — “Collaboration Between Equals” Is Fine

“If close conversation between client and contractor makes it disguised contracting, doesn’t that make agile development impossible?” The Ministry of Health, Labour and Welfare answers that question head-on in Volume 3 of the Q&A (published in 2021). In May 2026, Q8 was added, making it explicit that this thinking also applies to system development other than agile-style development.

The key points are as follows.

• Close cooperation, information sharing, technical advice and proposals are fine. If the development participants on the client side and the contractor side share information with each other as a single team as needed, collaborate on an equal footing, and the contractor’s developers are recognised as making their own autonomous judgments as they proceed, it is not disguised contracting (Q2 and Q5).
• A product owner explaining the backlog is also fine. There is no problem in itself with the development lead on the client side explaining the content of the product backlog in detail to the contractor’s developers directly, and providing the information needed for development (Q4).
• The line is still direction and supervision. If that explanation or discussion is in substance an instruction about how the work is to be performed or about working hours, it is disguised contracting (Q4 and Q5). If, when progress slips, it becomes necessary to instruct on the allocation of work, its order or its pace, that is for the contractor’s responsible manager to do; if the client side does it directly, it is judged to be disguised contracting even where a responsible manager has been appointed (Q3).
• Designing this in advance matters. The guidance recommends clarifying and agreeing in advance on both sides’ roles and authority and on how work will be run within the team, and sharing the understanding that agile development is something developers drive autonomously, through training for the people involved (Q2).

In other words, it is not that agile makes disguised contracting more likely: it becomes disguised contracting when the client is in fact moving the members around under the banner of an autonomous team. If you can genuinely operate Scrum’s “self-organising team” in substance, then agile development under a quasi-mandate is a way of working that the rules themselves anticipate.

8. Which Should You Choose: Contract for Work, Quasi-Mandate or Dispatch?

Finally, here is how to think about which contract is appropriate in the first place.

The important thing is not to choose on the basis of “we want to direct and supervise but avoid the costs and obligations, so let’s call it a quasi-mandate”. That is not choosing a contract; that is the entrance to disguised contracting. If as a client you genuinely need direct control, the right order of business is to switch to a dispatch contract, or to consider whether the need can be met through the contractor’s own structure (operating via a responsible manager).

Summary

• Whether something is disguised contracting is judged not on the name of the contract but on the substance — whether the client directs and supervises the contractor’s workers directly. A quasi-mandate contract can be disguised contracting too
• Contracts for work and quasi-mandate contracts create no relationship of direction and supervision between the client and the engineers; the only form that permits direct direction and supervision is worker dispatch
• The criteria are in Notification No. 37. All of them must be satisfied: the contractor itself managing work performance, working hours and staffing (independence in labour management), and independent handling through its own funding, responsibility and specialist skills (independence in business operation)
• Everyday conversation, explanation of specifications, requests addressed to the company and technical discussion between equals are all fine. Assigning tasks to individuals, giving direct instructions on working procedures, directly ordering overtime, and naming or demanding the replacement of members are signs of disguised contracting
• Being on site, or being seated among the client’s staff, is not disguised contracting in itself. What is dangerous is a structure — such as a single person on site who is also the responsible manager — in which a request translates directly into direction and supervision of an individual
• Agile development is not disguised contracting provided that collaboration between equals and autonomous judgment by the contractor’s members genuinely hold in practice. This thinking applies to non-agile development too
• The risks of disguised contracting go beyond administrative guidance and criminal penalties: under the deemed employment-offer rule, the client may be deemed to have offered the engineer an employment contract
• If in doubt, you can consult your Prefectural Labour Bureau. There is also a mechanism under which the Labour Bureau gives advice on whether the deemed employment-offer rule applies (Article 40-8 of the Worker Dispatching Act)

If You Are Considering How to Structure Contract Development or Technical Support

If you want to commission development from outside engineers, or you are wondering whether your current on-site or support arrangement can continue as it is, the first two things to sort out are “what do we want to commission (a finished product, a body of work, or labour?)” and “who directs and supervises?”. Once those are settled, whether to structure it as a contract for work, a quasi-mandate or dispatch — and how to design the project structure and point of contact — follows naturally.

KomuraSoft LLC takes on contract development and technical support centred on Windows applications, under either a contract for work or a quasi-mandate. We work on the basis of contracts with a clearly defined scope of work and deliverables, and a way of running the engagement through a point of contact and regular reporting. You are welcome to talk to us even at the stage of “we don’t know how to carve this up in order to commission it”.

Used properly, a quasi-mandate is a contract form very well suited to development where requirements are not fully settled and to continuous improvement. Start by bringing the form of the contract and the working arrangements on the ground into line, and building a structure in which client and contractor can collaborate with confidence on both sides.

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Frequently Asked Questions

Common questions about the topic of this article.

Are SES and a quasi-mandate contract the same thing?

SES (systems engineering service) is not a legal term. It is industry shorthand for a transaction in which an engineer's technical capability is supplied as a service. In contractual terms it is usually structured as a quasi-mandate contract, but whether you call it SES or a quasi-mandate has no bearing on whether the arrangement is lawful. What is judged is the substance: whether the client is directing and supervising the contractor's engineers directly.

Is it a problem to work on site at the client's office under a quasi-mandate contract?

Being on site is not in itself a problem. The Ministry of Health, Labour and Welfare's Q&A on Points of Interpretation states that the mere fact that the client's workers and the contractor's workers are working side by side in the same place does not make the arrangement disguised contracting. What matters is not location but direction and supervision. Even when working on site, the arrangement is proper if the contractor's own company issues the work instructions, manages working hours and decides staffing; conversely, even remotely, it can amount to disguised contracting if the client directs and supervises engineers directly.

May the client ask the contractor's engineers questions or make requests directly?

Everyday conversation, explaining specifications and requirements, providing information, and technical discussion, advice and proposals between equals do not in themselves amount to disguised contracting. On the other hand, if the client tells the contractor's engineers directly how or in what order to do the work, assigns tasks to individuals, or orders overtime or weekend working, that is treated as direction and supervision and judged to be disguised contracting. As a rule, new requests and work instructions should be routed through the contractor's responsible manager (the single point of contact).

What happens if an arrangement is judged to be disguised contracting?

It becomes subject to guidance and corrective action from the Labour Bureau as a violation of the Worker Dispatching Act, and if it amounts to unlicensed worker dispatch or to a labour supply business it can also attract criminal penalties. On top of that, under the deemed employment-offer rule, if disguised contracting was carried out for the purpose of evading the Worker Dispatching Act and related legislation, the client is deemed to have offered that engineer an employment contract; if the engineer accepts within one year, an employment contract with the client comes into existence. This is a serious risk for the client side and the contractor side alike.

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Go Komura

Representative of KomuraSoft LLC

Focused on Windows software development, technical consulting, and investigations into failures that are difficult to reproduce.