Construction Work Contract - Indonesia

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Background: Construction service is one of the activities in the field of economy, social and culture which has important role in the achievement of various objectives to support the realization of the national development goals. Therefore, the implementation of construction services needs to be regulated to carry out the orderly of the construction work.

Construction services are stipulated under the Law Number 18 of 1999 on Construction Services (“Law No. 18/1999”) and Government Regulation Number 29 of 2000 on Implementation of Construction Services (“PP No. 29/2000”) jo. Government Regulation Number 59 of 2010 on Amendment of PP No. 29/2000 (“PP No. 59/2010”).

In a construction work, there are 2 (two) parties that are involved , namely t
he service user and the service provider. The service user and service provider are bound in a working relation of construction services, provided that such working relation is set out in a construction work contract.
Construction Work Contract

Based on Article 1 of Law 18/1999, construction work contract is the overall document regulating legal relationship between the service user and the service provider to implement the construction work. Basically, the construction work contract is made separately according to the stages in the construction work, which consists of the construction work contract for the construction work planning, construction work performance, and construction work supervision.

Referring to Article 23 paragraph (6) of PP No. 29/200, the construction work contract is subject to the applicable law in Indonesia. The construction work contract is made in Indonesian language. In the event that the construction work contract with foreign parties, it could be made in Indonesia language and English language (dual language). According to PP No. 29/2000, construction work contract is divided by:

Forms of compensation, which consists of a lump sum, unit price, additional fee to the services, the combination of lump sum and unit price, or alliances;
Period of the construction work, which consists of a single year, or multi-year; and
Terms of payment for the works, in accordance with the progress of the work, or at regular intervals.

As a minimum, a construction work contract shall include description on:

The parties, clearly stipulating their identities;
Work description, clearly stipulating in detail of the work’s scope, work’s value, and performance period;
Coverage and/or maintenance period, stipulating the provision of the period of coverage and/or maintenance which is the responsibility of the service provider;
Experts, stipulating the provision of number, qualification, and classification of experts to perform the construction work;
Rights and obligations, which is stipulating the provision of the rights of the service user to receive the results of the construction work and its obligation to comply with the agreed provisions, and also the rights of the service provider to get information and compensation, and its obligations to perform the construction work;
Terms of payment, stipulating the provision of service user’s obligation in carrying out the payments for the results of construction work;
Default, stipulating the provisions of responsibilities in the event either party fails to carry out its obligations as agreed upon;
Dispute settlement, stipulating the provisions of the procedure of the settlement of dispute due to disagreements;
Termination of construction work contract, stipulating the provisions of the termination of construction work contract, caused by the inability of either party to perform its obligations;
Force majeure, stipulating the provisions of the circumstances arising beyond the intent or capability of the parties, which is inflicting losses to either party;
construction failure, stipulating the provisions of the obligations of the service provider and/or service user on the failure of a construction;
Workers protection, stipulating the provisions of the parties’ obligations in the safety, occupational well-being, and social security; and
Environmental aspect, stipulating the provisions of the parties’ obligations to comply with the applicable environmental law.

Construction work contract also shall contain provisions on intellectual property right, which includes:

Ownership of the planning result, based on the agreement, and fulfillment of the obligations of the copyright on the planning result that has been owned by its holders and patent rights that has been owned by its holders, in accordance with the laws on copyright and the laws on patent.

Construction work contract may also contain the parties’ agreement on incentives, provided that the incentives may be in monetary form or other forms. Incentive is the award that is given to the service provider for his achievements, among others, the ability to finish the works earlier compared to the agreed period, while maintaining the quality as required as set out in the construction work contract.

ABOUT THE AUTHOR: Isrilitha Pratami Puteri
Leks & Co are law offices specialized in the real estate law, filled by young, energetic, creative lawyers, providing premium legal services with competitive price plus 7 amazing added values, and delivering our services based on definite core values.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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