Indonesia’s New Provisions for the Construction Sector Under Omnibus Law
Government Regulation 14 of 2021 (GR 14/2021) revises several provisions of Indonesia’s Construction Law of 2007.
These changes include simplifying the business licensing process, the obligation of technology transfer by qualified foreign construction workers, and the requirements for employers and contractors to meet the new security, safety, and health and sustainability standards set under GR 14/2021.
According to a report by Fitch Solutions, Indonesia’s construction sector is expected to grow 8.4 percent by 2022, and that recovery is highly dependent on the government’s infrastructure spending.In Indonesia’s 2022 budget, over 380 trillion rupiah (US$26 billion) is allocated for infrastructure, which will include the construction of six new airports, over 6,000km of rail tracks, expanding the gas network for houses, and over 100,000 hectares of the irrigation network, among others.
What are the changes under GR 14/2021?
Construction business and worker registration
Construction businesses in Indonesia must now register their project experience with the central government through the Construction Services Development Agency (Lembaga Pengembangan Jasa Konstruksi – LPJK).
The LPJK is responsible for the accreditation and registration of construction service providers.
The information provided to the LPJK must include:
- The project name;
- The name of the employer;
- Annual performance of the contractor;
- The value of the project;
- The duration and year of the undertaken project;
- The name and portion of the capital distribution under a joint operation (if conducted); and
- The minutes of the handover of the project.
Further, every local construction worker must also register their professional experience with the LPJK, which includes:
- The name of the employer;
- The duration and year of the work; and
- The type of service provided.
The classification of construction workers
GR 14/2021 classifies construction workers based on the scientific field related to construction services. These include:
- Civil works;
- Mechanical works;
- Environmental governance;
- Urban and regional planning;
- Technical engineering;
- Management implementation; or
- Interior design, and landscape architecture.
Compliance requirements for hiring foreign construction workers Indonesia
According to GR 14/2021, foreign construction workers are those with ‘expert qualifications’ and there are only certain positions they can occupy as regulated under Indonesia’s manpower laws. The worker must go through a competency test followed by registration under the Ministry of Public Works and Public Housing and the LPJK.
Employers of foreign construction workers are required to have a foreign worker recruitment plan, as regulated under the manpower laws.
Foreign construction workers are obligated to carry out the transfer of knowledge to Indonesian workers. The transfer can be conducted by:
- The preparation of a profile for the use, development, and utilization of the technology in Indonesian and English;
- Providing management and skills training for Indonesian understudies at least once for each project; and
- Facilitating Indonesian workers to obtain training, practical work, and/or possible academic research in the projects the business is undertaking.
A clause on technology transfer must be included in the foreign worker’s employment contract.
Construction companies are now only required to obtain a business identification number and a construction company certificate (Sertifikat Badan Usaha – “SBU”) to operate.The SBU is issued by the Service Business Entity Certification Agency (Lembaga Sertifikasi Badan Usaha Jasa Konstruksi – LSBU), which is an agency that carries out certification activities of businesses and is licensed by the LPJK.
Provisions for joint operations by contractors
A construction company can conduct a joint operation on the condition that the joint operation is between:
- A contractor that is qualified as a ‘large-scale contractor’ and another contractor also qualified as a large-scale contractor;
- A contractor qualified as a ‘medium-scale contractor’ and another contractor also qualified as a medium-scale contractor;
- A contractor that is qualified as a large-scale contractor and a contractor qualified as a medium-scale contractor;
- A contractor qualified as a ‘medium-scale contractor’ and a contractor also qualified as a ‘small-scale contractor’; or
- A contractor qualified as a small-scale contractor and a contractor also qualified as a small-scale contractor.
The joint operation must clearly state the rights, responsibilities, and obligations in a written agreement between the cooperating businesses.
Further, one of the members of the joint operation must be appointed as the ‘lead firm’. As the leader of the joint operation, the company must fulfill the following requirements:
- Must hold majority capital, up to 70 percent; and
- Its qualification level must be the same or higher than that of the other member(s) of the joint operation.
Is there a maximum number of members in a joint operation?
The maximum number of members in a joint operation is:
- Up to three companies in one joint operation, undertaking a project that is not complex in nature; or
- Up to five companies in one joint operation, undertaking a project that is complex in nature.
What entities may not undertake a joint operation?
A contractor qualified as a large-scale contractor may not undertake a joint operation with a small-scale contractor.
GR 14/2021 sets out the basic principles for sustainable construction:
- Be economically feasible and can improve community welfare;
- The mitigation of health and safety, climate change, and natural disaster risks;
- The use of recycled resources;
- The reduction of waste generation, both physical and non-physical;
- Maintain environmental conservation through conservation efforts; and
- Reduce social disparities.
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