New Construction Service Law In Indonesia

On 12 January 2017, the Government of the Republic of Indonesia enacted the Law No. 2 of 2017 concerning Construction Services (“Law No. 2/2017“) to replace the previous construction services law, namely Law No. 18 of 2009 concerning Construction Services (“Law No. 18/2009“).

As Law No. 2 of 2017 was set to replace the previous law, this law contains several matters which not being regulated in the Law No. 18/2009, namely:

1. Construction Services Business Division

According to the article 12 of Law No. 2/2017, there are 3 (three) types of Construction Services Business:

1. Construction Consultancy services;
2. Construction Work; and
3. Integrated Construction Work.

Moreover, as stated in the Article 12 Law No. 2/2017, the Construction Services Business may be in form of individual enterprises or legal entity enterprises or non-legal entity enterprises. However, there are requirements for the individual enterprises or firms can do the business in Construction Services, namely an obligation to obtain licenses to perform the business in Construction Services such as Individual Enterprises Registration, Business License and Certificate of Enterprises.

2. The Distribution of Responsibility and Authority between the Central Government and Regional Government in regard to Issue the Construction Services Business License

With regard to the Construction Business License licenses as being mentioned in point 1 above, the Law No. 2/2017 regulates new matter regarding the role of Central Government and Regional Government to issue the licenses for the party who perform the Construction Services business.

Based on Law No. 2/2017, the Central Government is responsible and authorize to issue the Construction Services Business Certificate to the firms performing the Construction Services business. Meanwhile, the Regional Government is responsible and authorize to issue the Individual Enterprises Registration and Business Licenses subject to the Regional Regulation.

3. Role of Foreign Construction Services Enterprises and Foreign Individual Construction Services Enterprises

Law No. 2/2017 provides rules regarding the role of Foreign Construction Services Enterprises and Foreign Individual Construction Services Enterprises in Construction Services Business in Indonesia. However, it requires them to establish a representative office in Indonesia and/or establish an Indonesia legal entity through a joint venture with National Construction Services.

It should be aware, that the provision under the Negative Investment List regulates the capital limitation allowed in order to the joint venture with the National Construction Services, namely:

1. For the construction services business using high technology and/or high risk and/or work value more than Rp 50,000,000,000.- (fifty billion rupiah), the maximum of foreign capital allowed is 67% (sixty seven) percent for the Construction Services business outside from ASEAN countries and maximum 70% for the Construction Services business from inside ASEAN countries. 
2. For the construction serves that using middle and/or low technology or have a middle risk and/or work value until Rp 50,000,000,000.- (fifty billion rupiah);

4. Building Failure

Law No. 2/2017 regulates regarding a Building Failure.

According to the Article 60 Law No. 2/2017, in the event that the Construction Services performance failed to meet the determined Standard, the Construction Services User and/or the Construction Services Provider will be responsible for a the failure of building.

To determined the cause and the responsible party for a Building Failure, the Building Failure shall be audited by the Expert appointed by the  Minister of Public Works and Housing (“PUPR“). The Expert appointed by the Minister of PUPR shall be the Expert holding a Certificate of Work Competencies and registered in the Ministry of PUPR.

Besides ruling for the handling of a Building Failure, Law No. 2/2017 also stipulates regarding:

1. Responsibility of the Construction Services Provider, where it is stated that the the Construction Services Provider shall responsible for the Building Failure in the specified period of design life plan. If the construction designed life planned more than 10 (ten) years, then the Construction Services Provider shall responsible for a Building Failure in maximum period of 10 (ten) years since the last date of Construction Services handover.
   
2. The Construction Services Provider and/or Construction Services User should pay the compensation in the event of the Building Failure.

5. Dispute Resolutions

Law No. 2/2017 provides new option for a dispute resolution of Construction Services business. Aside from the mediation, conciliation and arbitration, Law No. 2/2017 also inserting Dispute Board as the dispute resolution institution for the parties.

The Dispute Board is made based on all parties agreement and conducted according to the professionalism and impartial principle. Even though the Dispute Board is a dispute resolution institution constituted by the Parties, the decision Dispute Board is final and binding and a good faith from the parties is vital to execute the decision of the Dispute Board.

6. Elimination of Criminal Sanctions

Law No. 2/2017 is no longer regulates the criminal threat against violation of the provisions of Law no. 2/2017.

Law No. 2/2017 emphasizes administrative sanctions and civil aspects of inter-party disputes. In addition, to ensure the sustainability of the process of Construction Service accomplishment, Law No. 2/2017 also stipulates that in the event of alleged crime and / or violation by the Use of Services and/or the Service Provider, the legal proceeding process should not be interrupting or obstructing the Construction Services process. In the case of alleged crimes and/or violations causing the state loss, the legal proceeding may only be made on the basis of the results of examinations of the authorized State Institutions,

With the guarantee on the sustainability of the accomplishment of Construction Services based on Law no. 2/2017, it certainly bring certainty to the parties who conduct Construction Services business.