COLUMN ONE : Stacking the Bids in Japan : Japanese construction work is parceled out by a murky system long on collusion and short on true competitiveness. But foreign pressure, and a string of bribery scandals, may force reforms.

For three days, the 10 men representing the titans of Japan’s construction industry met at an elegant restaurant and politely discussed how to carve up the latest public works project.

On Day 1, three men bowed out. On Day 2, five others were persuaded to give up. On Day 3, the remaining two candidates faced off. Now, finally, the polite masks came off.

“I don’t mean to insult you, but this project is too big for your company,” one said to the other.

“You think you’re big? Please explain,” the other snapped.

Deadlocked, they turned to what the Japanese call the “Voice of Heaven,” a construction bureaucrat who would make the choice.

The voice spoke.

The firm, call it “Company H,” having bribed a politician to pressure the official, got the nod, according to the teller of this story, Kyuichi Kiyooka, a former top executive with Toda Construction. That settled, the Japanese government opened the official--and entirely ceremonial--bidding for the Tokyo project.

This practice is called dango , a word translated into English as “bid-rigging” but which literally means to meet and confer.

For much of the last century, the word carried a benevolent meaning--to take turns at the trough so no one would starve, to subordinate personal interests for the good of the group.

Rice merchants are said to have begun the practice more than a century ago, taking turns supplying the reigning feudal lord.

But now the system is coming under unprecedented attack from Tokyo prosecutors, the Japanese media and American trade negotiators.

The United States, which is demanding greater access to one of the world’s most lucrative construction markets, announced what officials termed a breakthrough in the trade dispute this week.

Still, measured against different international standards, dango appears a corrupt, exclusionary practice in which deals are fixed, official proceedings are shams and deciding factors have less to do with price or quality than political connections or personal ties.

“The Japanese system, based on the ideal of harmony, is designed to produce an evenhanded distribution of work,” said Kunio Maeda, a Fuji University economics professor who worked in the construction industry for more than two decades. “But the U.S. system, based on the rules of fair competition, is designed to create fair opportunity.”

Now, however, as more outsiders clamor for entry into a market expected to handle $1 trillion in new public investment over the next decade, and as a string of scandals provides clear evidence of what many have long suspected, the dons of dango are on the run.

A sweeping investigation by an all-star prosecuting team is uncovering one dango and bribery scheme after another.

Since June alone, Tokyo prosecutors have hauled into jail two governors, two mayors and executives of Japan’s largest construction firms: Kajima, Shimizu, Taisei, Hazama.

Prosecutors are said to be pursuing cases in 20 prefectures (provinces), many of the trails established by a windfall of documents seized in fallen political kingpin Shin Kanemaru’s tax evasion case earlier this year.

The Japanese media have taken up the crusade with relentless coverage.

In one piece of dramatic footage, more than 120 prosecutors marched into the head offices of Kajima Corp. last week in a raid of almost military precision.

At the same time, American negotiators are pressing Japan to fundamentally reform the murky, arbitrary and secretive bidding practices that encourage dango.

This week, in what U.S. Trade Representative Mickey Kantor hailed as a historic step, Japanese Prime Minister Morihiro Hosokawa pledged to introduce an open bidding system, clear and objective ranking criteria and stronger antitrust enforcement. The spate of scandals has helped Americans press their case.

“It’s difficult for Japan to argue their system is open and decisions are made on good economic determinations when the papers are full of confessions describing how they do dango ,” one U.S. official said.

Despite the activity and a new coalition government less beholden to the industry than the former ruling Liberal Democratic Party was, no one truly believes that the deeply entrenched system can be changed quickly--if at all. “Everyone knows it’s not a good system,” said Koichi Hori, senior vice president of Boston Consulting Group Inc. “But this is the way business has been conducted for the last 100 years, and it’s not easy to change.”

Political interests are one reason. Today, the dango system protects one of Japan’s largest and most influential constituencies: 515,000 contractors and 6 million construction workers, including the relatives of an estimated 30% of the Japanese Parliament.

Among the political heavyweights connected to the industry through marriage or blood ties are: former Prime Ministers Noboru Takeshita, Yasuhiro Nakasone and Kakuei Tanaka; former political kingpin Kanemaru, and Ichiro Ozawa, the mastermind behind the Hosokawa government.

One of the biggest guessing games in town now is whether the bribery investigations will nab politicians of national prominence.

(On Friday, the Asahi newspaper reported that Kajima Corp. in recent years regularly delivered “presents” of 5 million yen ($46,296) and 10 million yen ($92,592) to Takeshita at New Year’s and the summer ancestor worship season.)

In Japan, the construction industry accounts for 18% of the nation’s output, provides the largest source of political funds next to banking and supplies the largest bloc of voters for the Liberal Democratic Party after farmers.

Not only do they hand over hundreds of millions in reported donations, they also dispatch workers to volunteer in political campaigns during election season. (Kiyooka also said each construction project routinely budgets between 1% and 2% of its total value in “sales expenses”--or bribery money.)

The web of incestuous interests is institutionalized in the “iron triangle” among industry, politicians and bureaucrats.

Industry is kept rolling in pork-barrel projects in exchange for cash contributions to politicians and cushy jobs for bureaucrats after they retire in a process known as amakudari , or descent from heaven.

The cozy arrangement has discouraged aggressive antitrust enforcement and stymied reform efforts. It has also distorted national building priorities.

While the Japanese public has relatively fewer sewers, paved roads and parks than residents of any other industrialized nation, tiny towns with powerful political benefactors reap a windfall of costly projects--such as one notorious $4.6-million tunnel to a northern Japanese village of fewer than 100 people. The village was part of the fiefdom of former Prime Minister Tanaka.

But dumping dango would not merely threaten established political interests. It would also wipe out thousands of smaller firms in the harsh winds of competition, industry officials argue.

Many Japanese seem willing to tolerate higher prices and greater inefficiencies for job security.

Those costs may be considerable. Dango is said to boost prices by 16% to 33%, raking in excess profits of anywhere from $48 billion to $99 billion--more than the entire revenue raised by the Japanese consumption tax, according to a 1990 study by UC San Diego scholar John McMillan.

But for men such as Koji Ueno, 48, the system has also kept him off the welfare rolls--a fate he increasingly worries about these days as the recession stubbornly lingers here. As he prepared tile to slap on the skeleton of an office building in central Tokyo, Ueno said he has trained for nothing else.

“I’ve been doing this for 20 years, so it would be really difficult for me to learn a new kind of job,” he said, speaking in thick Shizuoka prefecture dialect. “The older I get, the more I worry about finding work.”

Koji Hirata, 46, project manager for a major construction firm, said the bursting of the “bubble economy” a few years ago has sent revenues crashing by 30% to 50%.

How can there possibly be room for foreigners? he wondered. “You can almost say there’s close to no work,” he said.

Yet many foreigners argue that it is foul play for the Japanese to worry about their own jobs at home while advancing their interests overseas.

The issue has grown astronomically as a concern now, as the Japanese--in a switch from their past practice of tapping overseas markets--plan to spend hundreds of billions of dollars on domestic projects to spur economic growth.

America and Japan are at rough parity in the dollar value of public works contracts they give each other. But Japanese firms won $13 billion in total U.S. construction contracts--for public and private jobs--compared to $299 million that American firms won in the Japanese market in 1992.

Many Japanese firms have won Southern California contracts for everything from the Greater Los Angeles World Trade Center in Long Beach to reshaping the face of Little Tokyo in Los Angeles.

They have also won the lion’s share of jobs for Japanese facilities in the United States, in what some American executives charge is the export of dango . (Supporters, however, say Japanese contractors provide local jobs and access to cheap capital from Japanese banks.)

“By their overseas advance, they have invited the scrutiny of their internal operations. I tell them either open your markets or stay out of ours,” argued one Tokyo businessman, who said Japanese firms use the excess profits gained from dango at home to undercut bids abroad as a way to increase market share.

Most daunting, perhaps, is the industry’s inbred parochialism and the elaborate rituals of dango developed over decades.

Across Japan, construction turf is controlled by an estimated 1,200 dango organizations that regard people from other prefectures--let alone foreigners--as outsiders.

Members bond through schools or golf clubs; their clubbiness presents a formidable barrier that stymies even Americans fluent in Japanese.

Tatsuya Suwa, owner of a small firm that installs electricity and plumbing, figures that he has engaged in 3,000 dango sessions over 30 years in the business.

He initially tried to land contracts on his own but found it impossible without the dango group backing, so he eventually caved in.

He has written a book titled “Dango Is a Necessary Evil.”

Suwa said many dango groups control project awards through an elaborate system that awards points to members who bow out and subtracts them from those who win. The points are based on a project’s value, desirability and the number of dango group members.

Those members who have amassed the most points usually get first crack at claiming a new project, he said.

The point system replaced a cruder method of keeping everyone happy--kickbacks--that was phased out a few decades ago under heat from Japanese prosecutors, he said.

In cases of deadlock, members use the “Voice of Heaven,” draw lots or play jan-ken-pon (the rock-scissors-paper game).

The idea is group survival, and members who assert their own interests too forcefully are quickly put in place.

In one session, a relatively new member blurted out that it was his firm’s turn because it had withdrawn three times and was hurting for business.

He was roundly chastised.

“Don’t be so arrogant,” he was told by the dango leader, Kiyooka recalled. “Nobody wants to withdraw, but you do it for the whole industry.”

Still, the dango discipline is breaking down in some areas.

The current scandal in northern Japan’s Tohoku area reportedly occurred because the Sendai mayor, Toru Ishii, detested the local dango don, Kajima Corp. executive Kazumi Suzuki.

Ishii allegedly bypassed him by directly inviting bribes from individual firms. He is charged with taking a total of $1.2 million from six firms--including $93,000 from Kajima, which was trying to mend the relationship after a sharp reduction in project awards.

How foreigners can possibly hope to penetrate this arcane system is a question no one seems able to answer.

Some say it is impossible.

“Americans don’t understand this complicated system,” said Hori, the consultant. “The U.S. government says, ‘Why don’t you open your bidding?’ And here come American companies trying to do business.

“But they’re not paying the ante, and if you don’t pay the ante you can’t be involved in the game 100%,” he said. “So they are just given a little portion of the market because they are Americans, and Americans are noisy.”

Indeed, the Japanese have set up what amounts to an affirmative action program for U.S. contractors, giving them access to 34 major public projects.

First established in 1988 and expanded since then, it was billed as a major achievement from eight years of construction negotiations, including threat of sanctions by the Reagan, Bush and Clinton administrations.

But, in fact, many American firms say they have made few real gains, and some believe that they are treated as window dressing.

After winning a piece of the contract for the Kansai International Airport, for instance, Turner Construction Co. says it was bluntly told by its partner, Obayashi Corp., that it needed no services or technical experts.

The Japanese firm requested instead a pair of young Americans who would settle for low wages and give an American look to the project, a Turner official said.

“All U.S. firms fight the industry feeling of ‘OK, just put your name here and stick an American flag on the project and don’t bother us,’ ” one U.S. businessman said.

That kind of track record has led the Clinton Administration to abandon the piecemeal approach and press for fundamental reforms.

For their part, Japan’s contractors do not appear particularly worried about an American onslaught.

Over fried rice in a Tokyo snack bar recently, three construction executives echoed breezy confidence: Japanese technology is tops, the reams of required paperwork are all but unintelligible to outsiders, and the labor market is controlled by local “bosses” who will not supply workers to just anyone.

“It’s like the beef issue,” one executive asserted. “American beef is coming into the market, but to be honest it tastes awful. Japanese consumers want quality, and they’re willing to pay even twice as much for it.”

Not all Japanese are reluctant to open the market, of course. Hirata, who worked with Americans on an apartment complex in Yokohama, said he would welcome more opportunities to learn new techniques from them.

Maeda, the professor, said American involvement would help streamline a bloated industry.

“Japan itself can’t survive anymore in the 21st Century unless we build a competitive industry,” Maeda said. “We have to start breaking through hidden barriers.”

Chiaki Kitada of The Times’ Tokyo Bureau contributed to this report.