
New Government Regulation No. 22 of 2020 on the Implementing Regulations of Law No. 2 of 2017 on Construction Services
On 21 April 2020, Government Regulation No. 22 of 2020 on the Implementing Regulation of Law No. 2 of 2017 on Construction Services (“GR 22/2020”) was issued and took effect on 23 April 2020. GR 22/2020 effectively revokes:
- Government Regulation No. 28 of 2000 on Construction Services Community’s Effort and Role (as amended);
- Government Regulation No. 29 of 2000 on the Implementation of Construction Services (as amended); and
- Government Regulation No. 30 of 2000 on the Implementation of Construction Services Supervisory.
In a brief observation, GR 22/2020 covers the subjects regulated under the previous government regulations (i.e. the implementing regulations of the previous construction services law) more generally and delegate the details to be regulated further by the relevant ministry, with worth noting provisions as follows:
I. Types of Construction Services
According to 2017 LPJK (National Construction Services Development Board) regulation, a construction implementation (pelaksana) service provider may not operate a construction consultancy (i.e. construction design and supervisory) services. This position is further clarified under Article 12 of GR 22/2020 and its elucidation which states that construction consultancy service provider may not also engage in construction implementation services and integrated construction services. Unless licensed as integrated construction service provider, a construction service provider may not provide related services outside its construction business type.
II. Construction Work Contract
General
- GR 22/2020 removes the technical details on contract content requirements from Government Regulation No. 29 of 2000 (as amended) – to be regulated further under the relevant ministryregulation – and focuses more on the umbrella terms of agreement and group of documents which are required to be present in a construction contract such as the contract document, tender documents (proposal and feedback between the project owner and construction service provider), minutes of agreement containing the discussion and clarification between the parties, and statement from both parties accepting the terms and conditions with the addition of general conditions and particulars of contract (similar to FIDIC in a broad sense).
- Consistent with previous regulation, construction work contract is required to be subject to Indonesian law.
- For state-funded projects, the construction work contract is required to use a standardized contract (the use of which will be regulated further under the relevant ministry regulation) while for private projects, the construction work contract may be tailored in accordance with the parties’ agreement.
Contract for Integrated Construction Work
There is a special requirement for construction work contract for integrated construction work (such as EPC contract) under GR 22/2020 which mandatorily requires the contract to be reviewed by a construction work contract expert prior to the contract being signed by the parties. In order to accommodate this in the contract, there may need to be additional joint representation and warranty from the parties that the contract has been reviewed by the required expert(s).
III. Building Failure
- The definition of Building Failure is simplified under GR 22/2020 which is a situation of a collapsed building and/or non-functioning of a building after a handover of construction services.
- According to GR 22/2020, construction service provider is liable of Building Failure within a set period of time pursuant to the planned construction life. However, if the planned construction life is more than 10 (ten) years, the construction service provider is liable for Building Failure for up to 10 (ten) years as of the final handover. For different arrangement, an expert assessor’s opinion is required to determine the liability allocation.
- Planned construction life as well as the liability period for Building Failure are required to be expressly set out in the construction work contract.
IV. Dispute Board
Under Law No. 2 of 2017 on Construction Services, a dispute board was (very) briefly introduced as an alternative dispute resolution mechanism in addition to mediation, conciliation, and arbitration. GR 22/2020 further regulates the mechanism of Dispute Board for dispute prevention as well as dispute resolution in a construction work contract dispute. From a brief overview, we note that the Dispute Board mechanism is similar to Dispute Adjudication Board (DAB) present in FIDIC contract. GR 22/2020 also stipulates that the decision of Dispute Board is final and binding in the event there is no objection from one or both of the parties within 28 (twenty-eight) calendar days. If there is any objection, the parties may proceed with mediation, conciliation, and arbitration.
For state-funded construction project, the technical procedure on Dispute Board mechanism will be further regulated under the relevant ministry regulation.
V. Foreign Construction Services Entity (BUJKA)
Several provisions worth noting for BUJKA:
- Article 37 (2) of GR 22/2020 singled out BUJKA to comply with the applicable laws and regulations should the project it handles is a state-funded project. Whether this implies that in a private project, a BUJKA may deviate from project-related regulations such as the form and substance of construction work contract governed under GR 22/2020, remains to be seen.
- Sanctions in the form of written warning and administrative fines (progressive up to temporary suspension and license revocation (as applicable)) will be imposed to BUJKA failing to satisfy the following:
- Forming a business entity with large qualification (fine of 20% of all contract value);
- Holding a BUJKA license (fine of 20% of all contract value);
- Forming a joint operation with a national construction business entity with large qualification having a business license in each of its construction service in Indonesia (fine of 20% of contract value);
- Employ more Indonesian manpower as highest management of the representative office (fine of 10% of contract value);
- Put an Indonesian citizen holding highest position in the representative office (fine of 10% of contract value);
- Prioritizing local construction material and technology (fine of 10% of contract value);
- Having high, current, efficient, environmental-friendly technology, with due observance to local culture (fine of 10% of contract value); and
- Processing technology transfer (fine of 10% of contract value).
In addition, failure to hold a valid SBU will result in temporary suspension and administrative fine of 20% of all contract value (progressive up to blacklisting).
Notes:
- Usually, in relation to sanctions, a regulation would expressly prescribe that a written warning would be served prior imposing administrative fines. However, for the above sanctions ((a) to (h)) applicable to BUJKA, GR 22/2020 is silent on the timeframe in between written warning and administrative fines; and
- It is not sufficiently clear at the moment which contract value would be imposed for (c) to (h) in the event there are more than one contracts applicable to the BUJKA.
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The above is a summary prepared by Solis Advisors – Attorneys and Consultants (“Solis”), an Indonesian based Law Firm. It is only intended to inform generally on the topics covered and should not in any way be treated as legal advice or relied upon when making investment or business decisions. If you have any questions/comments on the matter set out above, or other subject(s) you wish to inquire, please contact your usual Solis contact or email us at consult@solis.consulting.
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