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Construction Services Under The Government Regulation of 2020

By June 10, 2020 No Comments

On 23 April 2020, the central government has enacted the Government Regulation No. 22 of 2020 on the Implementing Regulation of Law No. 2 of 2017 on Construction Services (“GR No. 22/2020”), which gives clearer provisions on, among others (i) construction resources supply chain (ii) direct appointment provisions , (iii) aspect of public interest, and (iv) construction services agreement.

From the side of legal usefulness, GR No. 22/2020 is awaited by the society since the previous regulation needs to be replaced to conform with the Law No. 2 of 2017 on Construction Services (“Law No. 2/2017”) as the new construction services law.

Construction Resources Supply Chain

Law No. 2/2017 stipulates the construction resources supply chain as the activity of production and distribution of materials, equipment, and technology used in the implementation of construction services. GR No. 22/2020 further emphasizes that the use of construction resources prioritizes domestic products, superior and environmentally friendly, which consists of material, equipment, technology and human resources. Construction resources must fulfill the standard of security, safety and sustainability.

Material and equipment resources must pass the standard test and optimize the use of domestic products. Technology resources must be supported by the development of domestic technology. While, human resources must meet work competency standards, which consist of operator, technician or analyst, and expert. Certificate of work competency is valid for five years and can be extended.

Direct Appointment

Law No. 2/2017 gives the opportunity for direct appointment in selection of service provider that uses state’s financial resources in the event of “certain condition”. Unfortunately, Law No. 22/2017 does not regulate the details of certain conditions. Law No. 2/2017 mandates a government regulation to further regulate regarding “certain conditions”.

Certain condition, under the GR No. 22/2020, covers among others (i) construction work that is confidential for the benefit of the state, (ii) government assignment to the state/local-owned enterprises, subsidiary, and/or its affiliated party, (iii) emergency handling, (iv) construction work which can only be provided by one capable business actor, and (v) specific work and can only be performed by the patent holder or other party who has received the permission from the patent holder, or the party that becomes the tender to obtain permission from the government.

While, for construction consultancy services, the “certain conditions” covers among other (i) repeat order for the same construction consultancy service provider, (ii) construction consultancy services which, after being reselected, have failed, (iii) government assignment to state/local-owned enterprises, subsidiary, and/or its affiliated party, (iv) construction consultancy services which can only be provided by one capable business actor, (v) construction consultancy services which can only be done by one copyright holder registered or a party that has obtained permission from a copyright holder, (vi) secret consultancy construction services for the benefit of the state, and (vii) advanced construction consultancy services which constitute a unity of the construction system and a unity of responsibility for the risk of failure of the building which as a whole cannot be separated from work that has been carried out previously.

Public Interest

Law No. 2/2017 does not strictly regulate whether the appointment of service provider for public interest construction must be in accordance with the prevailing procedure or not. Law No. 2/2017 only prohibits the service user who use the affiliated service provider for public interest construction without tender, selection or procurement process. UU No. 2/2017 also does not classify the type of construction which is classified as “public interest”.

GR No. 22/2020 provides for the limitation of the “public interest” which has an impact on the interest of the nation and state, and/or the interest of society, in the form of among others (i) national and security defense, (ii) public road, toll road, tunnel, railway, train station and train operation facilities, (iii) reservoir, dam and irrigation, (iv) port, airport and terminal, (v) oil, gas and geothermal infrastructure, (vi) electricity generation and transmission, (vii) central/local government office, and (viii) public market.

Construction Services Agreement

The parties have the freedom to determine the form of the construction services agreement, which is determined based on (i) implementation system, (ii) payment system, and (iii) work results calculating system.

In determining the implementation system, the service user must consider (i) the service user capacity, (ii) the availability of service provider, and (iii) the supply chain. The implementation system itself includes (i) design-offering-build, (ii) design-build, (iii) engineering-procurement-implementation, (iv) construction management with risk, (v) construction management as a service user agent, and (vi) partnership/cooperation.

Payment system is conducted by down payment, progress, milestone, or installment, or turn-key. The clause in construction services agreement related to the payment must consist (i) terms of payment, (ii) compensation of late payment, (iii) guarantee, and (iv) document of proof of ability to pay.

Whereas, calculation system consists of (i) lumpsum, (ii) unit price, (iii) combined lumpsum and unit price, (iv) value presentation, (v) reimbursable cost, and (vi) target cost.

Construction services agreement contains at least:

  1. Agreement, containing (i) a description of the parties, (ii) considerations, (iii) scope of work, (iv) subject matter in the form of price and duration of contract implementation, and (v) a list of binding documents along with its hierarchical order.
  2. Special conditions of the contract, containing (i) work information data, and (ii) the terms of the changes permitted by the general conditions of the contract based on the specific characteristics of the work.
  3. General terms of the contract, containing (i) general provisions governing the engagement based on the delivery system, (ii) the scope of work, (iii) the method of payment, and (iv) the calculation of the results of the work.
  4. Service user documents (as part of the selection document which forms the basis for bidding), contains the scope of duties and requirements, including (i) job specification requirements, (ii) drawings, (iii) list of outputs/quantities, and (iv) price.
  5. The proposal or offer, which is prepared by the service provider based on the selection documents, contains (i) methods, (ii) bid price, (iii) time schedule, and (iv) resources.
  6. Minutes, containing agreements that occur between service user and service provider during the evaluation process of proposals or offers by service user in the form of clarification on matters that raise doubts.
  7. Statement letter of service user, which states acceptance or approval of proposals or offers from service providers.
  8. Statement letter of service provider, which states the ability to carry out the work.

 

Adrian Fernando