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Construction Companies in Indonesia: How to Prepare a Construction Agreement

How Construction Companies in Indonesia should Prepare a Construction Agreement

It is impossible for construction companies to enter a construction project or set up a construction company in Indonesia without a proper construction agreement enforced by the Indonesian Law. Not having a construction agreement before starting a construction project in place is a serious violation and parties involved may have to face severe sanctions.

Therefore, just like any significant economic transactions, it is crucial for parties entering into a construction project to have a written construction agreement that is recognised by authorities.

Items to be Included in a Construction Agreement

A construction agreement in Indonesia must be in both English and Indonesian languages and Indonesian is regarded as the ruling language.

Important items to be included in a construction agreement per Indonesian Construction Law are shown below:

  • Both parties’ detailed identities
  • The project scope including scope description, project value, and project duration
  • The coverage period including work and maintenance period
  • Both parties’ rights and obligations
  • The payment method and guarantee
  • The use of construction laborers and workers including hiring only certified construction employees
  • Default including the consequences when either one party fails to perform the contractual obligations
  • Contract termination and its obligations
  • Dispute resolution
  • Force majeure
  • Employee and worker protection including both parties’ obligations and regulatory provisions
  • Building failure including both parties’ obligations and regulatory provisions
  • Third party’s protection
  • Legal responsibilities and risk guarantees to other parties involved in the construction work implementation or building failure
  • Environmental protection requirements and both parties’ obligations

How to Start a Construction Company in Indonesia

Two options are available for foreigners to open a construction company in Indonesia. You can either establish a foreign limited liability company known as PT PMA or a foreign construction service representative office known as BUJKA.

Establishing a PT PMA

Many foreigners choose to open a PT PMA right from the start so that they can generate income as soon as possible. Below are the requirements for starting a PT PMA construction company in Indonesia:

1. Decide the type of construction services. You can choose to be a consultant, a contractor, or both (integrated construction service).

2. Select your business classification and sub-classification. If you wish to set up integrated construction services, you will need to obtain the Business Entity Certificate (Surat Buka Usaha – SBU). Classifications for integrated construction services can be described as such:

  • Transportation infrastructure
  • Manufacturing facilities
  • Water supply and sanitation works
  • Oil and gas facilities

3. Find a local partner. Since construction sectors in Indonesia are not fully open to foreign investors and thus you need to partner with an Indonesian national. A foreigner can own up to 67% shares of a PT PMA. Your local partner must have relevant and cumulative experience in the field.

4. Obtain the permit known as IUJK or Izin Usaha Jasa Konstruksi.

Establishing a BUJKA

Setting up a BUJKA is a fast and easy way for foreigners to get into the construction market scene in Indonesia. Also, a BUJKA of large foreign companies can only be involved in large-scale and high-technical construction projects.

1. Obtain an SBU

2. Acquire an IUJK

3. Join operation with a local company known as PT

How Cekindo can Assist with Both Agreement Drafting and Construction Company Establishment in Indonesia

If you are interested in pursuing the lucrative business opportunities of setting up construction companies in Indonesia, Cekindo is here to help.

We assist foreign individuals and companies with their business establishments and expansions into Indonesia. Our one-stop solution comprises company registration, agreement drafting, recruitment, business process outsourcing, and permit and visa application.

Let Cekindo tend to the administrative and legal side of things so that you can focus on building your business empire. To learn more about Cekindo’s services, contact us today. Fill in the form below.

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