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Japan gov't accused of overspending via coronavirus subsidy subcontracting

The main building of the Ministry of Economy, Trade and Industry is seen in this file photo taken on Feb. 2, 2019. (Mainichi/Kazuo Motohashi)

TOKYO -- Claims of government overspending have erupted over the finding that operations of a Japanese government program to aid small- and medium-sized companies affected by the novel coronavirus pandemic were commissioned to a private entity for some 76.9 billion yen, and then further subcontracted to advertising giant Dentsu Inc. for around 74.9 billion yen.

The Ministry of Economy, Trade and Industry (METI) said the difference of around 2 billion yen was spent covering remittance fees for payments under the program, as well as to pay personnel expenses at the private entity and other costs. Opposition parties, however, are criticizing the subcontracting process, saying it inflated the cost of the work.

The government's Subsidy Program for Sustaining Businesses offers up to 2 million yen in subsidies to small, medium and other companies whose earnings for a given month have dropped by half compared with the previous year as a result of the novel coronavirus outbreak. METI envisaged that some 1.5 million business operators would apply for the subsidies. Public bidding was conducted to select a contractor to handle administrative work related to remittances and operate call centers and other such work. The Service Design Engineering Council, a private entity based in Tokyo's Chuo Ward, subsequently formed a contract with METI to handle the work for about 76.9 billion yen.

According to METI, the Service Design Engineering Council was formed in 2016 by Dentsu, major temporary staffing agency Pasona, and IT services firm Transcosmos Inc., and has undertaken 14 business projects for METI. Twenty-one employees on loan from the three firms and elsewhere work in the council, handling procedures connected with subsidy remittances and other related work.

In a hearing with opposition parties on June 1, METI gave an account of the difference of about 2 billion yen between the original and subcontracted amounts. It said about 1.56 billion yen went toward remittance fees, some 120 million yen was for personnel expenses, and the remainder went toward travel expenses and the cost of office supplies. Opposition parties argued that the cost of the work could have been lower if the work had been commissioned directly to Dentsu in the first place. METI explained that the Service Design Engineering Council had the ability to accomplish the work, and the contracting expenses were necessary.

Kazuhiro Haraguchi, Diet affairs chief of the opposition Democratic Party for the People (DPFP), argued to reporters in a news conference on June 1 that the administrative cost of the project was far too high, and indicated that his party was preparing to pursue the issue in the Diet's budget committee meetings.

Shu Watanabe of the DPFP, a chief opposition director in the House of Representatives Budget Committee, held talks the same day with his counterpart Tetsushi Sakamoto of the ruling Liberal Democratic Party, and asked that the representative director of the Service Design Engineering Council be summoned to a budget committee meeting as an unsworn witness. Sakamoto reportedly expressed his reluctance to accept the request.

The Mainichi Shimbun approached the council and Dentsu over the issue, but had not received a response as of June 1.

Kazumasa Oguro, a specialist in public economics at Hosei University, commented, "There are cases in which large projects are subcontracted out, and one cannot categorically say there was a problem. But METI probably needs to carefully explain whether the difference of some 2 billion yen was reasonable."

(Japanese original by Takashi Yamashita, Business News Department, and Yusuke Mizuwaki, Political News Department)

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