According to Law Number 18 of 1999 on Construction Services, construction services is consultancy services of construction work planning, services of construction work performance, and services of construction work supervision. Construction has a very important role in achieving various aims in order to support the objectives of national development. The construction services are carried out by the construction services provider, in the form of individuals or business entities, whereas such business entities are divided into 2 (two) classifications, that is, (i) national business entities; and (ii) foreign business entities. In order to perform the construction services, there are some requirements in order to obtain the business license of construction services that must be fulfilled by the business entities as the construction services provider (the “License“).
There are some regulations that are related to the License for construction services provider in the form of national business entities (the “Business Entities“), such as:
Law Number 18 of 1999 on Construction Services;
Government Regulation Number 28 of 2000 on Business and Society of Construction Services Role (“PP 28/2000“) jo. Government Regulation Number 4 of 2010 on Amendment of PP 28/2000 (“PP 28/2000 jo. PP 4/2010“); and
Decree of Minister of Habitation and Regional Infrastructure Number 369/KPTS/M/2001 on Guidelines of Licensing for National Construction Service Business (“Kepmen 369/2001“).
Construction services is consultancy services of construction work planning, services of construction work performance, and services of construction work supervision. The parties in a construction work consist of service user and service provider. Construction services are carried out by the construction services provider, in the form of individuals or business entities. Construction services that carried out by individuals as the service provider can only perform the low risk construction work, with simple technology, and low cost. Meanwhile, the high risk construction work and/or high technology and/or high cost can only be performed by limited liability companies or the equivalent foreign corporations.
LICENSE FOR CONSTRUCTION SERVICES PROVIDER
Construction services provider in the form of business entities shall (i) comply with the provisions of business license in the field of construction services; (ii) possess certificate, classification, and qualification of a construction service company. A classification and qualification standard of proficiency is an acknowledgment of the proficiency level of every business entities both national and foreign in the field of construction services business. Such acknowledgment is obtained through a test(s) carried out by an institution assigned to perform it. The process of obtaining such acknowledgment is through a registration activity comprising classification, qualification, and certification. Therefore, only certified business entities that are permitted to work in the field of construction services business.
The business license of construction services has been further stipulated in Article 14 of Government Regulation Number 28 of 2000 on Business and Society of Construction Services Role (“PP 28/2000”) jo. Government Regulation Number 4 of 2010 on Amendment of PP 28/2000 and Decree of Minister of Settlement and Regional Infrastructure Number 369/KPTS/M/2001 on Guidelines of Licensing for National Construction Service Business.
Each Business Entities shall have the business License issued by the Regional Government where the Business Entities are located. The License shall be obtained by the Business Entities in order to perform or conduct the construction services in all regions of Republic of Indonesia. The License which has been given to the Business Entities is valid for 3 (three) years and can be extended. According to Article 14 of PP 28/2000 jo. PP 4/2010, the License will be given to the Business Entities, which have fulfilled the requirements, such as:
Have the registration certificate of business entities issued by the Certification Unit of Business Entities (the “Unit“) which is formed by the Agency of Construction Services Development (the “Agency“)
The registration means an activity in order to determine the competent of skill and expertise of the profession of the individuals or business entities; an activity in order to determine the business license in accordance with the classifications and qualifications which are embodied in the certificate issued by the Unit.
Completed the requirements provided by other prevailing laws and regulations related to the business activity. The specific requirements in obtaining the License for the Business Entities are set out in Kepmen 369/2001. In order to obtain the License, the national business entities shall apply through certain form as stipulated in the attachment of Kepmen 369/2001 to the Regional Government, that is, Regent/Mayor or appointed Officer. The application shall be enclosed with:
copy of the business entities certificate that has been registered by the Unit;
copy of the receipt of the application administration fee payment;
other administration requirements that is regulated by the Regional Government in accordance with the prevailing laws and regulations; and
each License will be given code number in accordance with the guidance of numbering of License as stipulated in the attachment of Kepmen 369/2001.
Other technical matters in relation to the granting of License are further stipulated by the Regional Government. In relation to the violation of License, the Regional Government Regulation shall stipulate the administration sanction in accordance with Article 35 Paragraph 1 of PP 29/2000 jo. PP 4/2010, such as (i) written warning, (ii) suspension of business and/or profession license, (iii) revocation of business and/or profession license.
CONSTRUCTION WORK BINDING
Binding in construction services work relationship is established based on the healthy competition principle in the selection of service provider through public or limited tender, and in certain conditions, the selection of service provider may be carried out through direct selection or direct appointment. The selection of service provider shall consider the conformity of field business, the balance between capability and workload, and performance of the service provider. Business entities owned by the same person or a group or in the same management are not entitled to join the tender for one construction simultaneously. The procedure of service provider selection has been further stipulated in Government Regulation Number 29 of 2000 on Construction Services Performance (“PP 29/2000“) jo Government Regulation Number 59 of 2010 on Amendment of PP 29/2000 (“PP 59/2010“).
CONSTRUCTION WORK CONTRACT
The regulation of work relationship between the service user and the service provider shall be set forth in a construction work contract. A construction work contract is made in Bahasa Indonesia and with regards to construction work contract with foreign parties, it could be made in Bahasa Indonesia and English.
As a minimum, a construction contract shall consist of description on (i) the parties; (ii) work description; (iii) liability and/or maintenance period; (iv) experts; (v) rights and obligations; (vi) terms of payment; (vii) event of default; (viii) dispute settlement; (ix) termination of the construction work contract; (x) force majeure; (xi) construction failure; (xii) workers’ protection; (xiii) environmental aspect. In relation to construction work contract on planning works, it shall contain provision of the intellectual property rights.
The description of work comprises scope of work, work value, and the performance time limit. The scope of work comprises (a) work volume, is the amount of work to be performed; (b) administrative requirement, is a procedure that had to be complied with by the parties in conducting interaction; (c) technical requirement, is the technical provisions that had to be complied with by the service provider; (d) liability or guarantee, is a form of protection, among others for work performance, receipt of the down payment, accidents of workers and the society; (e) report of the result of construction work, is the result of work progress set forth in a written document.
Value of work, is the amount of costs to be received by the service provider of the performance of the entire work scope. The performance time limit is the period of time to complete the entire work scope including the maintenance period.
CONSTRUCTION SERVICES SOCIETY
The society has roles in the performance of construction work, such as (i) supervising, to realize the orderly performance of construction work; (ii) receive a reasonable compensation for losses that occurred directly due to the performance of such construction work; (iii) maintain order and comply with the prevailing provisions in the aspects of construction work performance; (iv) participate in preventing any construction work that endangering the public interest.
The construction services society is a part of the society having its interests and/or activities related to construction services business and work. The construction services society is carried out through a construction services forum, performed by an independent and self reliant institution. Such forum has and upholds their code of professional ethics. The role of the construction services society has been further stipulated in PP 4/2010.
The government also has a role in the performance of construction work, that is conducting the development of construction services. Such development is carried out in the form of regulating, empowering, and supervising. The regulating function is carried out by issuing laws and regulations and technical standards. Meanwhile, the empowering function is performed on construction services business and on the society in order to develop its conscience of rights, obligations, and its roles in the performance of construction services. Furthermore, the supervising function is performed on the performance of construction work in order to ensure the realization of orderly construction services in accordance with the prevailing laws and regulations. The performance of the development may be carried out together with the construction services society. Such development has been further stipulated in Government Regulation Number 30 of 2000 on Performance of Construction Services Development.
There is a possibility that the society suffers losses due to the performance of construction work. Therefore, the society has a right to file a class action. A right to file a class action means a right of a small group of the society to act on behalf the society in large numbers that has suffered losses, based on the same issues, legal factors, and conditions due to the losses or disruption as the result of the construction work performance.
The administrative sanctions may be imposed for the violation of Construction Services Law, in the form of (i) written warning; (ii) temporary termination of construction work; (iii) restriction of business activities and/or profession; (iv) temporary prohibition on the use of the construction work result (limited to the services user); (v) suspension of business and/or profession license; (vi) revocation of business and/or profession license. In addition to the administrative sanctions, the performer of the construction work may be subject to a sentence of a maximum 5 (five) years imprisonment or subject to a fine sanction in a maximum of 10% (ten percent) of the contract value.
FOREIGN CONSTRUCTION REPRESENTATIVE OFFICE
According to the Regulation issued by State Minister for Public Works Number 28/PRT/M/2006 Year 2006 (“Minister Regulation“), it is allowed for the representative of foreign construction legal entities (“Foreign Entities“) to conduct their business in Indonesia after fulfilling some requirements. Foreign entities mean the representative from construction legal entities that conduct its business in Indonesia which will be responsible for all actions taken by construction legal entities.
Article 2 of Minister Regulation states that before the Foreign Entities conduct their business in Indonesia, it is required to obtain the License for the Representative of Foreign Construction Legal Entities in Indonesia (Izin Perwakilan Badan Usaha Jasa Konstruksi Asing) (“License“). Moreover, the License can be obtained after the Foreign Entities receive the classification and qualification in the form of certificate. After the Foreign Entities receive the License, those entities are able to provide their services and able to make an agreement with the third parties, which the agreement must be signed on behalf of the holding company. Moreover, the Foreign Entities are allowed to handle the high risk and/or high technology and/or high cost construction projects through joint operation.
Based on Article 6 paragraph 2, the application for License must be fulfilled together with the Foreign Entities’ information such as:
description for type of business;
copy of certification for Foreign Entities issued by authorized body and legalized by the company’s embassy in Indonesia;
statement letter from Indonesian Embassy from the holding company’s country; and
Moreover, the Foreign Entities is obliged to pay the administration fee in the amount of US$ 5,000 (five thousand United States dollars) for type of business as the consultant and US$ 10,000 (ten thousand United States dollars) for type of business as the contractor.
After the Foreign Entities receive their License, the Foreign Entities has the following obligations:
comply with all regulation in Indonesia and provide annual report with regards to the implementation of the projects within a year;
make sure the transfer of knowledge to local entities is obtained;
submit the information of their partners and or the sub-contractors;
submit the experts’ name who work in the construction’s site.
According to Article 11, the license which is given to the Foreign Entities will be expired within 3 (three) years, therefore the license must be extended by the Foreign Entities. In the event the Foreign Entities does not extend their license 90 (ninety) days after the expiration, the License cannot be extended.
The sanctions for the violation of the provisions of the Minister Regulation, the Foreign Entities can be imposed with administrative sanctions. The administrative sanctions for the violation of the Minister Regulation are in the forms of:
written warning which can be divided into 2, first warning and second warning;
suspension of License;
revocation of License.