The 2026 Construction Law Masterclass: A Practical Blueprint for Navigating Indonesian Construction Law

Construction law plays an important role in ensuring that every construction project runs smoothly, fairly, and in accordance with the law. By understanding the basics of construction law, even non-legal professionals can better manage risks and avoid costly disputes in construction projects.

Legal Framework

The primary legislation governing the construction sector in Indonesia is Law No. 2 of 2017 on Construction Services, as lastly amended by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law (“Construction Law”) and its implementing regulation, Government Regulation No. 22 of 2020 on Implementing Regulation of Construction Law as amended by Government Regulation No. 14 of 2021 (“GR on Construction”).

In addition to the foregoing, several other implementing regulations and sector-specific regulations may apply to particular aspects of construction activities, which will be discussed in the relevant sections below.

Parties Involved in Construction Services

Service User/Employer

Construction Law defines service users as the owner or employer who uses construction services (hereinafter referred to as the “Employer”). Further, the scope of the Employer includes: the government; business entities; and individuals with business objectives.

Service Provider/Contractor

Construction Law defines service providers as providers of construction services (hereinafter referred to as “Contractor”). The scope of the Contractor includes individuals or entities. Furthermore, the term “entity” in said provision refers to a group of persons and/or capital that constitutes an entity, whether engaged in business or not, including limited liability companies, limited partnerships, other corporation, state-owned enterprises or regional government-owned enterprises in any name and form, firms, partnerships, cooperatives, pension funds, associations, foundations, mass organizations, socio-political organizations, or other organizations, institutions and other forms of entities, including investment contracts, collectives, and permanent establishment.

Sub-Service Provider/Sub-Contractor

Construction Law defines a sub-service provider as a provider of construction services to a Contractor (hereinafter referred to as “Subcontractor”). A Subcontractor receives a transfer of part of the work from the main Contractor. The relationship between the Contractor and the Subcontractor is contractual in nature pursuant to a subcontract agreement and is separate from the main contract between the Contractor and the Employer.

Type of Construction Services

Construction Law and GR on Construction categorize construction service business activities into three (3) types, as follows:

Construction Consulting Services

Construction Law defines construction consultancy services as services comprising all or part of activities that include assessment, planning, design, supervision, and management of the implementation of construction works for a building. Furthermore, GR on Construction stipulates that construction consultancy services may not undertake the scope of business activities falling under construction works or integrated construction works, as further explained below.

Construction consultancy services are divided into two (2) categories, namely general construction consultancy services (“General Construction Consultancy Services”) and specialist construction consultancy services (“Specialist Construction Consultancy Services”).

GR on Construction classifies General Construction Consultancy Services into the following business classifications:

1. architecture;
2. engineering;
3. integrated engineering; and
4. landscape architecture and regional planning.

Meanwhile, the business classifications for Specialist Construction Consultancy Services consist of:

1. scientific and technical consultancy; and
2. technical testing and analysis.

GR on Construction further provides that the business service scope of General Construction Consultancy Services includes:

1. assessment;
2. planning;
3. design;
4. supervision; and/or
5. construction management.

The business service scope of Specialist Construction Consultancy Services includes:

1. surveys;
2. technical testing; and/or
3. analysis.

Construction Work

Construction Law defines construction works as all or part of activities that include the construction, operation, maintenance, demolition, and reconstruction of a building.

Construction works business activities may not undertake the scope of business activities falling under construction consultancy services or integrated construction works, which will be explained in this section.

Construction works are divided into two (2) categories, namely general construction works (“General Construction Works”) and specialist construction works (“Specialist Construction Works”).

GR on Construction classifies General Construction Works into the following business classifications:

1. building; and
2. civil building.

Meanwhile, the business classifications for Specialist Construction Works consist of:

1. installation works;
2. special construction works;
3. prefabricated construction;
4. building finishing works;
5. equipment rental; and
6. preparation.

GR on Construction further provides that the business service scope of General Construction Works includes:

1. construction;
2. maintenance;
3. demolition; and/or
4. reconstruction.

The business service scope of Specialist Construction Works covers specific parts of a construction building or other physical structures.

Integrated Construction Work

Integrated construction works constitute a combination of construction works and construction consultancy services, as explained above. Integrated construction works business activities may undertake the scope of business activities categorized under construction works (See sub-section B above). GR on Construction does not classify integrated construction works based on their nature (i.e., general or specialist), but only regulates their business classification and scope of services.

The classification of integrated construction works consists of:

1. building; and
2. civil building.

The business service scope of integrated construction works includes:

1. design and build; and
2. engineering, procurement, and construction.

Licensing

National Construction Service Business Entity (BUJKN)

The definition of National Construction Services Company (“Badan Usaha Jasa Konstruksi Nasional/BUJKN”) is regulated under various laws and regulations governing the construction services sector in Indonesia. In particular, the definition is provided under the Appendix I Section A.2 letter g of Minister of Public Works Regulation Number 6 of 2025 on Standards for Business Activities and/or Product/Service Standards, Supervision Implementation, and the Imposition of Sanctions in the Administration of Risk-Based Business Licensing in the Public Works Sector (“MoPW Reg. on Construction Business Licensing”) jo. Decree of the Director General of Construction Development of the Ministry of Public Works Number 37/KPTS/DK/2025 on the Establishment of Certification Scheme Standards for Construction Services Business Entities.

Referring to these provisions, a BUJKN is essentially defined as a business entity, whether incorporated as a legal entity or not, whose business activities are in the construction services sector, which entire capital or shares originate from domestic investment. Such ownership, are whether be held by the Government of Indonesia, Regional Governments, State-Owned Enterprises, Regional-Owned Enterprises, Domestic Investment Companies, and/or Indonesian citizens.

The Construction Law has, in essence stipulated that every construction services business actor, whether an individual or a business entity, is required to obtain a business licensing. The implementation of such licensing requirements is further governed under Government Regulation Number 28 of 2025 on the Administration of Risk-Based Business Licensing (“GR on Business Licensing”).

Under GR on Business Licensing, construction services fall within the scope of sectors subject to risk-based business licensing. Accordingly, pursuant to Article 4 of GR on Business Licensing, every BUJKN must obtain business licensing, which will only be obtained after fulfilling the prescribed basic requirements. Article 12 of GR on Business Licensing provides that such basic requirements include:

1. Spatial Utilization Conformity (Kesesuaian Kegiatan Pemanfaatan Ruang/KKPR);
2. Environmental Approval (Persetujuan Lingkungan/PL); and
3. Building Approval (Persetujuan Bangunan Gedung/PBG) and Functionality Certificate (Sertifikat Laik Fungsi/SLF).

With regard to the fulfillment of business licensing for BUJKN, it can be understood that for BUJKN categorized as low-risk and medium-risk, the required business licenses consist of:

1. Business Identification Number (“Nomor Induk Berusaha/NIB”); and
2. Standard Certificate.

Subsequently, for business licensing for high-risk BUJKN, the required licenses consist of:

1. NIB; and
2. Permit.

The standard certificate referred to in the fulfillment of low and medium risk business in licensing, as previously regulated in Article 99 of Government Regulation Number 5 of 2021 on the Administration of Risk-Based Business Licensing (“GR No. 5/2021”), namely includes:

1. Business Entity Certificate (“Sertifikat Badan Usaha/SBU”) for construction;
2. Construction Work Competency Certificate (“Sertifikat Kompetensi Kerja/SKK”); and
3. License, namely BUJK certification institution licenses and construction services professional certification institution licenses.

Although GR No. 5/2021 has been revoked by GR on Business Licensing, the obligations regarding SBU, SKK, and licenses can also be seen in Article 435 of GR on Business Licensing jo. MoPW Reg. on Construction Business Licensing. A more detailed discussion of these licensing requirements, specifically under GR on Business Licensing, will be provided in the following section.

Foreign Construction Service Business Entity (BUJKA)

Referring to the provisions under Article 32 of the Construction Law jo. GR on Business Licensing jo. MoPW Reg. on Construction Business Licensing, a Foreign Construction Service Business Entity (“Badan Usaha Jasa Konstruksi Asing/BUJKA”) is essentially a business entity in the field of construction services that is domiciled in its country of origin or such foreign country and carries out its business activities in Indonesia, specifically through one of the following structures:

1. Construction Service Business Entity Representative Office (“Kantor Perwakilan Badan Usaha Jasa Konstruksi/KPBUJKA”); or
2. Foreign Investment Construction Services Business Entity (“Badan Usaha Jasa Konstruksi Penanaman Modal Asing/BUJK PMA”).

In principle, both KPBUJKA and BUJK PMA are required to comply with the general licensing and regulatory requirements applicable to BUJKN. However, as foreign affiliated entities, they are also subject to other additional and specific requirements. Accordingly, in addition to fulfilling the basic provisions and licensing requirements imposed on BUJKN under the relevant laws and regulations, both forms of BUJKA must also comply with further regulatory and licensing obligations as stipulated under the prevailing laws and regulations.

Representative Office

Referring to Article 189 paragraph (4) of GR on Business Licensing, a representative office is defined as an Indonesian citizen, a foreign citizen, or a business entity that is a representative of a foreign business entity. More specifically, under the provision in the MoPW Reg. on Construction Business Licensing, a KPBUJKA is defined as “an office established by a foreign business entity engaged in construction services as a representative in Indonesia.”

Through MoPW Reg. on Construction Business Licensing, the specific requirements that must be met by KPBUJKA are as follows:

1. The SBU must be for a large qualification;
2. Must be a Construction Service Business Entity (“Badan Usaha Jasa Konstruksi/BUJK”) with legal entity status in the origin country, as evidenced by a legalized deed of establishment and a construction services business licensing certificate with large qualification in the origin country or its equivalent, legalized; and
3. Must pay the business licensing administrative fee per type of business in accordance with the laws and regulations.

Business Entity Incorporated in Indonesia (PMA)

BUJK Foreign Investment (“BUJK PMA”) as defined under the MoPW Reg. on Construction Business Licensing, is an office established by a foreign business entity engaged in the sector of construction services as a representative in Indonesia.

For BUJK PMA, the specific requirements specified under the MoPW Reg. on Construction Business Licensing include, among others:

• To obtain SBU, BUJK PMA must meet the requirements for foreign capital structure and technical investment criteria;
• The foreign investor/foreign shareholder must be a BUJK with legal entity status in the country of origin, as evidenced by:

1. A legalized deed of establishment; and
2. A construction services business licensing certificate with large qualification in the country of origin or its equivalent.

• The domestic investor/domestic shareholder must be a BUJKN with large qualification, as evidenced by:

1. Business Licensing for construction services activities; and
2. SBU.

With regard to the fulfillment of the basic requirements for PMA to obtain SBU, reference may be made to the fundamental provisions which mainly regulated under the Presidential Regulation Number 10 of 2021 on the Investment Lines of Business, as lastly amended by the Presidential Regulation Number 49 of 2021 (“PR No. 49/2021”) and the Investment Coordinating Board (“Badan Koordinasi Penanaman Modal/BPKM”) Regulation Number 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities (“BPKM Reg. No. 3/2021”). Accordingly, BUJK PMA must comply with the investment requirements, including limitations on foreign share ownership and the minimum investment value.

Referring to the existing provisions, thus BUJK PMA may only carry out its business activities with an investment value exceeding IDR10,000,000,000 (ten billion Rupiah) excluding the value of land and buildings. In addition, it should also be noted regarding the limitation on foreign share ownership and the capital structure of BUJK PMA, as follows:

1. Non-ASEAN BUJKA may hold a maximum of 67% (sixty seven percent) of the total shares in the BUJK PMA applying for certification.
2. ASEAN BUJKA may hold a maximum of 70% (seventy percent) of the total shares in the BUJKA applying for certification.

Business Licensing

Construction services business licensing under GR on Business Licensing

1. As previously mentioned, the requirements for fulfilling a business licensing for all business SBU for construction business entities;
2. SKK Construction for individual construction service providers;
3. License for construction services business certification bodies for business certification institutions; or
4. License for construction services professional certification for professional certification institutions.

Business Entity Certificate

Before the enactment of both GR No. 5/2021 and GR on Business Licensing, along with their implementing regulations, the Construction Law had in fact already regulated, through Article 30, that every business entity engaged in construction services is required to possess an SBU. Article 1 number 12 of the MoPW Reg. on Construction Business Licensing stipulates that SBU is:

“… evidence of recognition of the classification and qualification of a BUJK’s capabilities, including the equivalency of foreign BUJK capabilities.”

Referring to these provisions, SBU is used to demonstrate proof of the capability of a BUJK with respect to the classification of construction work sectors undertaken, as well as the level of business qualification capability, whether small, medium, or large. In addition, SBU is also used as proof of the capability of a BUJKA, which must meet the requirements as a business entity with a large qualification.

Sanctions for licensing non-compliance

Holders of business licenses for construction services who violate the provisions of the business license will be subject to administrative sanctions. Whereas such sanctions may be imposed cumulatively or progressively.

The sanctions referred to may consists of:

1. Written warning;
2. Imposition of administrative fines;
3. Temporary suspension of business activities;
4. Revocation of business licenses; and/or
5. Inclusion in a blacklist.

Further technical provisions concerning the imposition of sanctions are provided in Appendix IV of the MoPW Reg. on Construction Business Licensing.

Manpower Licensing

Work Competency Certification

SKK is one of the business licensing requirements for every construction service providers. Subsequently, the components of SKK include:

1. Application;
2. Verification and validation;
3. Work competency certification fees;
4. Implementation of competency tests; and
5. Issuance of the construction SKK.

In addition, SKK Constructions also serves as formal evidence of the status of a Construction Worker (Tenaga Kerja Konstruksi/TKK”). As specified under the MoPW Reg. on Construction Business Licensing, SKK acts as proof of recognition of the competence of construction workers. Further, the law itself defines TKK as any person who has the skills, knowledge, and experience in carrying out construction work.

Foreign Construction Worker

Foreign construction workers who may provide construction services are only permitted at expert qualifications with certain positions that can be held as regulated in the laws and regulations concerning manpower. In this regard, foreign workers are prohibited from holding positions that deal with personnel/human resource matters.

Selection and Appointment of Construction Service Providers/Contractors (State-Funded Project)

Selection Method

Prior to the amendment of the Construction Law, the selection method for Contractors for state-funded projects was regulated under Article 42. Following the amendment, Article 42 was repealed on the grounds that the procurement system was sufficiently regulated by Presidential Regulations (in this case, Presidential Regulation No. 16/2018 on Government Procurement of Goods/Services, as last amended by Presidential Regulation No. 46/2025 (“PR No. 46/2025”)) for the procurement of government construction services, while for non-government procurement, it is carried out under a proper and well-established business system.

Despite the removal of said provisions in the Construction Law, the selection method for Contractors is governed under the GR on Construction, which is basically in line with the provisions outlined in PR No. 46/2025.

The selection method for Contractors consists of:

E-purchasing;

Applicable only to procuring construction work already listed in the e-catalogue managed by the Government Goods/Services Procurement Policy Agency (“LKPP”).

Direct procurement;

Applicable for procuring construction work with a maximum value of IDR 400 (four hundred) million.

Direct appointment;

Applicable under certain circumstances, such as, among others, for:

1. Implementation of government priority programs, government aid, and/or presidential aid based on presidential directives;
2. Confidential work related to national interests;
3. infrastructure, facilities, and public utilities in residential areas for low-income communities carried out by the relevant developers;
4. construction work that constitutes a single construction system and a single responsibility for the risk of building failure that cannot be planned/calculated beforehand;
5. construction work that can only be provided by one (1) capable business entity;
6. construction work that has failed after a re-tender;
7. selection of a Contractor to continue construction work in the event of contract termination; and
8. repeat orders for the same construction work.

Quick tender;

Applicable for selecting a Contractor through the supplier performance information system with clearly defined specifications and volumes, or for the government procurement related to spare parts or components of an existing system.

And Tender

Tender should be used if none of the above procedures are applicable in selecting a Contractor.

Procurement using direct procurement, direct appointment, quick tender, and tender methods is carried out through an electronic procurement system application managed by LKPP.

Appointment Mechanism

The determination of the winning Contractor in the selection process shall be carried out through an evaluation process consisting of:

• qualification evaluation;

evaluates the competence, business capabilities, and fulfillment of requirements as a Contractor.

• administrative evaluation;

evaluates the completeness and validity of the administrative requirements specified in the selection documents.

• technical evaluation;

evaluates the fulfillment of technical requirements specified in the selection documents.

• And price evaluation.

evaluates the fairness of the bid price offered by the Contractor.

Furthermore, the selection document standards for construction service procurement are regulated in Appendix V of LKPP Regulation No. 12 of 2021 concerning Guidelines for the Implementation of Government Goods/Services Procurement through Providers as amended by LKPP Regulation No. 4 of 2024 (“LKPP Reg. No. 12/2021”), which generally establishes standard formats for:

1. The determination of qualification requirements for business actors;
2. The format of letters of appointment for goods/services providers and work orders;
3. Work reference frameworks (kerangka acuan kerja); up to
4. The format of bid documents (including bid letters and documents containing technical and cost proposals).

Furthermore, Appendix V of LKPP Reg. No. 12/2021 provides selection documents for various types of construction service procurement based on the selection methods described above.

Selection and Appointment Method for Non-State Fund Project

Construction Law and GR on Construction do not specifically regulate the selection and appointment methods for construction projects fully financed by private funds. However, such procurements are typically conducted based on the internal guidelines of the Employer. Accordingly, and as stated above, the government stated that procurements conducted by non-governmental entities are carried out under a proper and well-established business system.

In addition, procurement, whether conducted by the government or by private entities, must comply with competition law, specifically Article 22 of Law No. 5 of 1999 on the Prohibition of Monopoly Practices and Unfair Business Competition (“Competition Law”), which stipulates that business actors are prohibited from conspiring with other business actors and/or parties related to other business actors to arrange and/or determine the winner of a tender, thereby potentially resulting in unfair business competition. This is further emphasized in Regulation of the Head of the Business Competition Supervisory Commission No. 3 of 2023 on Guidelines for the Prohibition of Collusion in Tenders (“KPPU Reg. On Tenders Collusion”), which clarifies that the provisions of Article 22 of the Competition Law apply not only to procurements conducted by the government, but also to procurements carried out by state-owned enterprises and private companies. Violations of Article 22 of the Competition Law are subject to administrative sanctions in the form of:

1. orders for the business actor to cease activities proven to cause unfair business competition;
2. the determination of compensation payments; and/or
3. the imposition of fines of at least IDR 1,000,000,000 (one billion Rupiah).

Furthermore, KPPU Reg. On Tenders Collusion also elaborates on the various forms of bid rigging/collusion in tenders, provides illustrative case examples, and sets out evidentiary guidelines for proving bid-rigging cases.

Construction Contract

Requirements on Construction Contract

General Contract’s Requirement Under Indonesian Civil Code

Article 1320 of the Indonesian Civil Code (“ICC”) provides the general conditions under which a contract is valid. Such conditions concern the subject and the object of the contract. It must comply with 4 (four) conditions, namely:

1. consent between those who bind themselves (the parties);
2. legal capacity of the respective parties;
3. a certain (specific) subject matter; and
4. a lawful cause.

When the conditions mentioned above are fulfilled, a contract is complete and valid. The first two conditions are subjective conditions of the agreement, while the last two conditions are objective conditions.

If the objective conditions are not met, the agreement is null and void. This means that the agreement is deemed to have never been made. If the subjective conditions are not met, either party to the agreement has the right to have the agreement cancelled. Therefore, the agreement that has been made remains binding on the parties, as long as it is not cancelled (by the judge) at the request of the party entitled to request the cancellation of the agreement. The party that may request the cancellation of the agreement is the party who is legally incapable or the party who did not give their consent freely and voluntarily.

In addition to the requirements for validity, the ICC also regulates the principles of an agreement, including:

1. the principle of consensus as regulated under Article 1320 paragraph (1) and Article 1338 of the ICC;
2. the principle of freedom of contract and the principle of pacta sunt servanda, which are implicitly regulated in Article 1338 paragraph (1) of the ICC. The application of the principle of freedom of contract is subject to certain limitations whereby an agreement must not contravene any laws or regulations, public order, or morality;
3. the principle of good faith as regulated under Article 1338 paragraph (3) of the ICC; and
4. the principle of privity of contract as regulated under Articles 1315 and 1340 of the ICC.

Further discussions on Indonesia contract law available at: https://blog.lekslawyer.com/understanding-indonesia-contract-law/

Construction Contract’s Standard Form

Construction Law does not regulate the standard form of construction contract. As stated previously, Indonesian contract law recognises the freedom of contract principle, which is stipulated under Article 1338 of ICC, where the parties to a contract are free to include any provisions they wish, subject only to mandatory provisions of Indonesian law. Nevertheless, Construction Law and GR on Construction provide provisions that must be included in the construction contract, which will be explained below.

Construction Law obliges the contract to be made in writing and must comply with the prevailing laws of Indonesia. Further, Construction Law stipulates that construction contract must be drawn up in the Indonesian language. If the construction contract is entered into by a foreign party, it must be made in Indonesian and English language, where the Indonesian version shall be the prevailing language in the event of discrepancies.

Furthermore, Article 76 GR on Construction provides that a construction contract must consist of:

• a letter of agreement, consisting of:

1. description of the parties;
2. consideration;
3. scope of work;
4. subject matters, such as the contract price, contract period; and
5. list of binding documents along with their hierarchical order;

• particular conditions of the contract (e.g., disbursement of guarantees, down payment, payment of work performance);
• general conditions of the contract (e.g., general provision, the rights and obligations of the parties, dispute resolution);
• Employer documents which are part of the tender documents as the basis for Contractors to prepare an offer, which contains the scope of work, specifications, drawings, bills of quantity and price;
• proposal or bid, prepared by the Contractor based on the tender documents containing method, bid price, schedule, and resources;
• minutes on an agreement/clarification between Employer and Contractor;
• a letter of acceptance from the Employer; and
• a letter of undertaking commitment from Contractor.

Article 1339 of ICC stipulates that a contract not only binds matters explicitly stated in the contract, but also all things according to the nature of the contract are obligated based on appropriateness, customs, or law. Thus, a construction contract, despite the freedom of the parties to set out its terms and conditions, will also have to comply with the statutory requirements and not disregard appropriateness and the best practice in the construction industry.

Construction Contract for State-Funds Project

Construction contracts financed by state funds must use standardized documents. Furthermore, such standardized documents are regulated in Appendix II of LKPP Reg. No. 12/2021. Appendix II of LKPP Reg. No. 12/2021 sets out the forms of construction contracts, the determination of which is adjusted based on the contract value, the type of goods/services, the Contractor selection method, and/or the level of work risk, among others:

1. a work order;
2. an agreement; and
3. a purchase order.

Furthermore, the regulation also sets out the format and contents of construction contracts, ranging from:

1. the opening section;
2. the content/substantive provisions; and
3. the closing section.

Nevertheless, if the project does not involve state finance, then the contract can be drawn up based on an agreement of the parties.

FIDIC Contract Usage in Indonesia

The FIDIC (The International Federation of Consulting Engineers) contract forms are well-known and are many times used in Indonesia, especially for projects involving foreign aid and/or a foreign party. Further, in 2008, the Minister of Public Works informed that a standard FIDIC contract had been made in Indonesian language to increase the use of FIDIC contracts in Indonesia, to create a fair and balanced contract between the Employer and the Contractor. Nevertheless, adjustments may be necessary to ensure that the contract complies with the minimum requirements under the Construction Law and GR on Construction, and also complies with other prevailing Indonesian laws.

Common Risks in Construction Contracts

Construction projects typically involve multiple parties, long timelines, and high transaction value. These characteristics make construction contracts highly exposed to legal and contractual risks. The following section will explain the common risks that may arise from financial, regulatory and compliance, and contract implementation aspects.

Financial Risks

• Delay Damages

Delay damages may be imposed when a Contractor fails to complete the works or achieve agreed milestones within the contractual timeframe. Risks arise when the contract does not clearly regulate the daily penalty rate, the maximum cap of delay damages, or exceptions where delays are not caused by the Contractor. Unclear or disproportionate delay damages clauses often lead to disputes.

• Termination Cost

In the event of contract termination, various financial obligations may arise, such as payment for already-completed works, reasonable demobilization costs, and compensation in cases of termination for convenience. The absence of clear provisions on termination consequences may result in uncertainty and disputes between the parties.

• Bank Guarantee Liquidation

Construction contracts commonly require performance security or advance payment guarantees. Financial risk arises when bank guarantee clauses are ambiguous or bank guarantee cannot be enforced because it has expired or because the claim submission procedure does not comply with the terms and conditions stipulated in the bank guarantee itself. This risk can be mitigated by ensuring that the bank guarantee clause is drafted clearly and consistently, and that its terms are aligned with the relevant provisions in the construction contract.

Regulatory and Compliance Risks

Risks under the regulatory and compliance aspects arise from non-compliance with applicable laws and regulations, as well as from unclear or poorly drafted contractual provisions. Contractual provisions that violate laws and regulations may be deemed null and void and have no legal effect.

• Unenforceable Contract Terms

According to Article 1337 of ICC, when the terms are considered as violating the law, ethics, and public policy, as well as appropriateness as set forth in Article 1339 of ICC, then such provision or terms can be considered or declared to be unenforceable.

• Unilateral Termination

Contractual provisions allowing one party to terminate the contract unilaterally (termination for convenience) may create legal risk if they are not clearly justified and proportionately regulated. Such clauses may violate the principles of balance under Indonesia law, especially when exercised without substantive grounds. Based on existing jurisprudence, namely in Decision No. 24/Pdt/2017/PT. DKI and Supreme Court Decision No. 600 K/Pdt/2018, the judge was of the opinion that the inclusion of a clause allowing one of the parties to terminate the agreement unilaterally violated the principle of balance, so that the clause was declared invalid and had no legal force.

• Intellectual Property Rights

Construction projects often involve designs, software, and technical documents that contain intellectual property rights. Unclear contractual provisions regarding ownership, licensing, and rights of use of such intellectual property may give rise to disputes. Therefore, the contract should expressly regulate the transfer, use, and protection of intellectual property rights related to the projects, including clarity on whether the Employer retains the right to continue using the design in the event of contract termination.

• Unclear Dispute Settlement Clauses

The absence of clear provisions on dispute resolution may delay the settlement of disputes, and one party wishes to resolve the matter through arbitration, requiring a further arbitration agreement to be reached. In addition, the failure to specify key matters such as the seat of arbitration or the number of arbitrators may also delay or create an issue in the arbitration process.

Contractual Performance Risks

• Delay in Project Completion

Delays in project completion may be caused by the Contractor, the Employer, or force majeure events. The contract should clearly regulate the Contractor’s liability and the imposition of delay damages for delays attributable to the Contractor. Conversely, where delays are caused by the Employer, the contract must ensure the Contractor’s entitlement to an extension of time and/or additional compensation. Furthermore, force majeure provisions should be expressly stipulated to ensure that events beyond the parties’ reasonable control are not deemed a default, while granting the Contractor a reasonable entitlement to an extension of time.

• Variation Orders

Variation orders are changes to the scope of work, specifications, or construction methods agreed under the construction contract. Changes to the scope of work are common in construction projects. Contractual risk arises when variation orders are implemented without prior written approval or without a clear agreement on additional costs and time extensions. This often leads to disputes over payment and project timelines.

• Lack of Proper Documentation

Construction contracts generally require instructions, approvals, variation orders, and claims to be submitted in writing and within specified time limits. Failure to comply with these requirements may result in the loss of contractual rights, even when the underlying event has actually occurred. In practice, many issues are discussed informally without proper written records. The resolution of the problems may have been implemented without followed by a proper documentation. Without documents such as formal notices, meeting minutes, or written approvals, it becomes difficult to prove the cause of delays, responsibility of the parties, or entitlement to additional time or costs, which often leads to disputes.

Further discussions on contractual risk in construction contracts are available at: https://blog.lekslawyer.com/contractual-risk-construction-contracts-indonesia/

Third Parties’ Rights

Generally, under a privity of contract principle as regulated under Article 1340 of ICC, a person who is not a party to a contract cannot be held liable or derive benefits from such contract. Nonetheless, Article 1318 of ICC in general stipulates that the other party is entitled to claim the benefit of a contractual right, provided that that party is the beneficiary or assignee.

Nevertheless, under Article 1614 of the ICC, a subcontractor may directly claim the Employer the sums that the Employer owes to the Contractor (which should have been paid to the subcontractor).

Other Takeaways

• Letter of Intent and Its Enforceability

In practice, the concept of letter of intent (“LOI”) is known in Indonesia, although there is no specific regulation on LOI under Indonesian Law. Generally, an LOI is not legally binding since it is only a written statement detailing the preliminary understanding of parties who plan to enter into a contract. But some provisions in the LOI may be agreed as binding.

Under the jurisprudence, several judges considered that the LOI was binding to the extent that it fulfilled the validity conditions of an agreement under Article 1320 of ICC.

As previously explained, an LOI is essentially a preliminary understanding between the parties before entering into an agreement, which is, in essence, of the same nature as a Memorandum of Understanding (“MOU”). A more detailed discussion of the validity of an MOU and its explanation is available at: https://blog.lekslawyer.com/understanding-indonesia-contract-law/.

• Economic Constraints as a Ground for a Force Majeure’s Claim

A Contractor may seek relief if unforeseen circumstances make the contract unduly expensive or hard to perform, which may be considered as force majeure. S. Soemadipradja says that reasons of economic constraints might be used as a basis for avoiding contractual obligations, such as clausula rebus sic stantibus. This term is, according to S. Soemadipradja, connected with the principle of good faith under the ICC.

In addition, that opinion is supported by jurisprudence of the Denpasar District Court Decision No. 20/Pdt.Sus-PHI/2021/PN Dps, which holds that force majeure related to changes in circumstances, hardship, or rebus sic stantibus serves as the reason for the defendant to be declared as not having committed any default. The judges essentially consider that the force majeure related to changes in circumstances have fundamentally changed the balance of an agreement and caused the value of its implementation to be very high for the party using it, or the value of implementing the agreement is drastically reduced for the receiving party, and the event only arises or is known to the injured party after the contract is concluded. Furthermore, the rule of force majeure is compulsory in nature, and therefore, it cannot be excluded by agreement.

• Implied Terms

Terms may be implied into a construction contract since, under Article 1339 of the ICC, an agreement shall bind the parties not only to that which is expressly stipulated therein, but also to that which, pursuant to the nature of the agreements, shall be imposed by propriety, customs, or the law. In addition, the interpretation of a term under a contract might also affect implied terms in a contract. The terms that might be implied are, for example, when the title of work is considered as having been transferred to the Employer, the obligation to abandon the site by the Contractor when the contract is terminated, etc.

• Substantial Performance

Munir Fuady explains that the doctrine of substantial performance is a doctrine which provides that if one party does not perform its obligation perfectly but has performed it substantially, the other party is still required to perform its obligation in full. However, if such party fails to perform its obligation substantially, it may be deemed to have committed a material breach of contract.

Furthermore, Munir Fuady explains that strict compliance is inappropriate in cases involving elements of loss to the counterparty. This means that where one party has undertaken certain actions or preparations such that termination of the contract would cause significant loss to that party and confer an undue advantage on the other, the doctrine of substantial performance should apply. For example, if a contract requires several conditions precedent and only one condition remains unfulfilled while the others have been satisfied, the unfulfilled condition should not be construed as a suspensive condition that prevents the contract from taking effect. Instead, it should be regarded as an administrative requirement that does not suspend the contract and may be fulfilled at a later time.

The doctrine of substantial performance is recognized in the construction sector and is supported by various international and national jurisprudence, as follows:

1. In Boon v Eyre (1779), it was held that as long the promisor has substantially performed the obligations under the contract, the promises would be bound to pay the contract price.
2. In Hoenig v Isaacs (1952), it was held that, in the end, the contract must be construed in alignment with the parties’ intended outcome. The secondary consideration would then be whether a breach has gone to the root of the contract, i.e., the ‘end-result’ has not been achieved. This is then decided on whether the subject matter of the contract is usable and has in fact, been used. The fact that it has been used proves the ‘end-result’ has been achieved, and as such, the breach did not go to the root of the contract. In this case, the wardrobe and the bookcase were usable and in fact used, as such the purpose of the contract had been fulfilled, and the user had derived the benefit that was the ‘end-result’ of the contract agreed between the parties
3. In Supreme Court Decision Number 2449 K/Pdt/2018, the dispute arose from a house sale and purchase transaction between the buyer (plaintiff) and the developer (defendant). After the handover, the buyer lodged a claim for default on the grounds of delayed completion, construction defects, and damage requiring repairs, and sought compensation. The District Court partially granted the claim, but the High Court overturned the decision. At the cassation level, the Supreme Court upheld the High Court’s ruling, considering that the house had been delivered in accordance with the agreement, had been possessed, occupied, and even modified (an additional building and fence had been built) by the buyer, while the complaints regarding defects were considered minor in nature and had been repaired by the developer. Therefore, the panel of judges concludes no default was proven. This decision implicitly reflects the application of the doctrine of substantial performance, namely that where the agreed ‘end-result’ has been achieved and the benefit of the contract has been derived, minor imperfections do not necessarily qualify as a default.

In conclusion, substantial performance has two main elements:

1. The end-result of the contract must be achieved. Whether such an end result has been achieved is measured by the usability and functional capability of the contractual object. The fact that the object can be used and has indeed been used demonstrates that the end-result has been achieved; and
2. The Employer has derived benefit from the Contractor’s performance, either by taking advantage of the work performed or by retaining the benefit of such work.

Building Failure

Meaning and Scope of Building Failure

Essentially, every construction services activity in conducting its business operations is required to comply with standards of safety, security, health, and sustainability. Failure to meet these standards may potentially result in building failures. Building failure as a condition of building collapse and/or building malfunction after final handover of construction services.

The scope of building failures, which includes:

1. Building collapse; and
2. Building malfunctioning.

A building collapse is a condition in which most or all the building components are damaged and cannot be operated. On the other hand, building malfunction is a condition where the building is not as planned and/or the building fails to comply with security, safety, health and sustainability aspects.

Assessment and Determination of Building Failure

It should be noted that any building failures are determined by expert assessors. As the process of assessing building failures is carried out through:

1. Reporting of building failure incidents;
2. Assignment of expert assessors;
3. Preparation of work agreements;
4. Implementation of the building failure assessment; and
5. Reporting of assessment results.

The assessment of building failures is conducted based on criteria that include structural and functional aspects. This assessment is carried out by:

1. Examination of the legality documents and/or permits of the building object;
2. Identification of building failure;
3. Investigation of building failure;
4. Analysis of the causes of building failure;
5. Assessment of the amount of compensation;
6. Determination of the party responsible for the building failure; and
7. Preparation and submission of the report.
8. Parties Entitled to Submit Reports and Reporting Mechanism to LPJK

Employers, building owners/persons responsible for the building, and/or other parties harmed because of a building failure may report the occurrence of a building failure. Such report must be made within three days after the occurrence of the building failure in question.

Decennial Liability

Under the Construction Law, the service provider (Contractor) is obliged to be responsible for building failures within the period specified according to the planned service life of the construction.

This decennial liability, however shall not exceed 10 (ten) years from the date of the final handover of the related construction services.

Furthermore, it should be noted that the provisions concerning decennial liability must be stipulated in the construction contract.”

Compensation Due to Building Failure

The mechanism of liability for building failure is principally governed by Article 63 of the Construction Law, which obliges the Contractor to repair or replace building failure caused by its fault. The Construction Law also stipulates the obligation to compensate for losses resulting from such building failure.

Going into more detail, Article 90 of GR on Construction provides further regulations regarding the mechanism for compensation for losses resulting from building failure. In addition to the obligation of both Employer and Contractor to provide compensation to any party who suffers losses as a result of building failure, it should also be noted that the determination of compensation is based on reports from the expert appraisers.

Nevertheless, it should also be understood that such provisions concerning compensation for losses arising from building failure do not eliminate the possibility for the relevant party to claim or seek compensation through civil means.

The Construction Law stipulates that failure to replace or repair a building failure may result in a written warning, the imposition of administrative fines, or even the revocation of a permits.

Dispute Resolution

Resolution of Construction Disputes

General

In Indonesia, construction disputes are generally resolved through: (i) court proceedings; or (ii) alternative dispute resolution, which includes mediation, conciliation, and arbitration. Alternatively, the parties may resort to a dispute adjudication board.

Statute of Limitations

Below are the statute of limitations for the exercise of rights under the construction matter that should be taken into consideration:

1. the time limit agreed by the parties under the agreement;
2. the general time limit for a claim, according to Article 1967 of ICC is 30 years; and
3. for a building failure claim, according to Article 65 paragraph (2) of Construction Law, the general time limit is 10 (ten) years from the date of final delivery of construction services.

There is a discussion about whether the time limit agreed upon by the parties in a contract regarding the lodging of a claim can override the statutory time limit for lodging a claim as provided for in Article 1967 of the ICC. Regarding this matter, J. Satrio explains that what cannot be waived in a contract are coercive provisions of law. The provisions of Article 1967 of the ICC may be considered as coercive legal provisions, therefore, it is not permissible to waive the application of the 30-year statute of limitations for lodging a claim, or to stipulate otherwise as agreed by the parties. Any waiver of the provisions of Article 1967 of the ICC may be deemed as unlawful.

There is a court decision in a case involving the annulment of an arbitration award that briefly addresses the application of the 30-year statute of limitations under Article 1967 of the Civil Code to override the claim notification deadline agreed upon by the parties in the contract. In that decision, the Arbitral Tribunal’s considerations were cited, which essentially stated that such a time limit conflicts with the statute of limitations provisions under Article 1967 of the Civil Code, a view also supported by the legal doctrine of an Indonesian legal expert.

Further discussion regarding the above-mentioned matters is available at: https://blog.lekslawyer.com/contractors-claim-under-fidic-contract-contractual-time-limit-v-statute-of-limitation/

Dispute Adjudication Board

The disputing parties may engage a dispute adjudication board (“DAB”) instead of mediation or conciliation. GR on Construction stipulates that a DAB gains competence once agreed on by the parties in the construction contract, and a tripartite agreement is prepared.

Pursuant to GR on Construction, for the construction contract funded by the state, if there are no objections within a period of 28 (twenty-eight) calendar days since the decision of the DAB is issued, such decision is final and binding upon both parties, while if there are objections from one or both parties, the parties may pursue other dispute resolution measures.

According to Minister of Public Works and Public Housing Regulation No. 11/2021 on Procedure and Technical Guideline on Construction Dispute Board (“MoPWH Reg. No. 11/2021”), outlines the dispute resolution mechanism applied by the DAB in the context of construction contracts carried out by the government as follows:

1. notice;
2. document review;
3. hearing;
4. site visit;
5. internal dispute board meeting; and/or
6. issuance of a formal decision.

Furthermore, MoPWH Reg. No. 11/2021 also stipulates the requirements and operational procedures of the dispute board.

Mediation and Conciliation

GR on Construction provides that mediation is a dispute resolution process involving a third party acting as an adviser to assist the parties. Furthermore, Article 6 of Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration and ADR Law”) stipulates that if amicable settlement fails to resolve the dispute, the parties may, by mutual agreement, appoint a mediator through an arbitration institution or an alternative dispute resolution institution.

Within 30 (thirty) days from the commencement of mediation, the parties are required to reach a written settlement agreement. Such settlement agreement is final and binding upon the parties and must be registered with the district court within 30 (thirty) days from the date of its signing. The parties are then required to implement the terms of the agreement within 30 (thirty) days after the registration. However, if the mediation process fails to reach a settlement, the parties may pursue other dispute resolution mechanisms as agreed.

The following are several models of mediation:

• Facilitative Mediation Model;

In this model, the mediator facilitates the negotiation process without providing settlement recommendations or expressing views on the potential outcome should the dispute proceed to trial. This approach is based on the assumption that the parties are capable of understanding their situation and working collaboratively to reach a resolution.

• Evaluative Mediation Model;

Under this model, the mediator expresses opinions regarding the strengths and weaknesses of each party’s position, the possible form of a reasonable settlement, and the potential outcomes if the dispute proceeds to trial. This approach assumes that the parties require guidance from the mediator, which is based on applicable law, industry practice, or relevant technical considerations, and is provided in light of the mediator’s training, experience, and objectivity. Evaluative mediation has also become increasingly popular in resolving construction disputes, as the mediator’s assessment of each party’s position often helps encourage the parties to reach a settlement.

• Settlement Mediation Model;

This model is often used in conjunction with facilitative or evaluative mediation and aims to ensure that the parties reach an agreement on all disputed issues. It generally employs incremental bargaining techniques with greater mediator involvement to encourage settlement. Mediators in this model are often selected for their technical or legal expertise, which helps assure the parties that the mediator understands the nature of the dispute.

• And Expert Advisory Mediation Model;

This model resembles evaluative mediation, involving a high level of mediator intervention and a predominantly positional bargaining approach. In this model, the mediator provides opinions on the merits of the case, appropriate settlement terms, and the likely outcomes if the dispute were to proceed to arbitration or litigation, thereby potentially accelerating the mediation process. While this model may be useful for complex construction disputes, it tends to adopt a more adversarial approach, placing greater emphasis on the mediator’s opinion rather than encouraging the parties to understand each other’s perspectives and collaboratively reach a mutually beneficial settlement.

In conciliation, the conciliator may provide opinions or recommendations to the parties regarding the disputed issues, although such opinions are not binding. This is consistent with the definition of conciliation under GR No. 14 of 2021, which describes it as a dispute resolution process involving a third party (conciliator) who intervenes actively.

Med-Arb and Arb-Med Model

Med-Arb and Arb-Med are two hybrid dispute resolution mechanisms that combine mediation and arbitration within a single procedural framework. Both mechanisms are designed to increase the likelihood of an amicable settlement while still providing an adjudicative mechanism in the event that a settlement cannot be reached.

Med-Arb

Med-Arb is a dispute resolution process that combines mediation and arbitration. Initially, the parties try to reach a settlement through mediation. If there are issues that are not resolved through mediation, an arbitrator or tribunal (the same person or tribunal who acted as mediator) makes a decision for the parties.

Aryoputro Nugroho explains that each Med-Arb resolution process is different and may involve different options, including:

1. appointing the same person as mediator and arbitrator;
2. appointing two different parties as mediator and arbitrator, which may be more costly but has the advantage of separating the functions of mediator and arbitrator; or
3. the opt-out model which has developed in Australia, where the appointed party acts as mediator and then as arbitrator, unless one of the parties objects on the grounds of bias or lack of objectivity. In this model, the mediator who serves as both mediator and arbitrator has the right to opt-out.

In general, the Indonesian National Arbitration Board (“BANI”) does not adopt the Med-Arb model within its procedural framework. Nevertheless, the provision of Article 19 of the BANI Arbitration Rules and Procedures 2025 (“BANI Rules”) in principle enable the application of such mechanism if agreed upon by the parties. That provision provides that the arbitral tribunal must first encourage the parties to seek an amicable settlement, either with the assistance of a third party (mediator/conciliator) or with the arbitral tribunal itself acting as mediator. Furthermore, if a settlement is reached during the mediation, the arbitral tribunal will render a consent award incorporating the settlement agreement in writing, which is legally binding upon the parties. However, if no settlement is reached, the arbitral tribunal will proceed with the arbitration proceedings.

Arb-Med

The Arb-Med mechanism discussed in this section follows the sequence of Arbitration–Mediation–Ruling. It begins with an arbitration process in which the arbitrator first examines the case and places the decision in a sealed envelope. Thereafter, the arbitrator shifts roles and acts as a mediator to facilitate the parties in reaching a settlement through mediation. During the mediation process, the sealed envelope is prominently displayed as a reminder that if the parties fail to reach an agreement, the binding arbitral decision will be enforced.

If the mediation fails to produce a settlement, the mediator reverts to his or her role as arbitrator and announces the arbitral award, which is binding upon the parties. Conversely, if the parties reach a settlement during mediation, the proceedings will not proceed to the stage of delivering the arbitral award, and the sealed envelope will be destroyed without the parties ever knowing the decision contained within it.

As opposed to the Med-Arb model, which has been explicitly regulated, BANI Rules do not provide specific provisions on the application of the Arb-Med model as described above.

Arbitration

Arbitration Clause and Proceeding

• Arbitration clause

According to Arbitration and ADR Law, dispute resolution through an arbitration is based on an arbitration agreement. The arbitration agreement waives the jurisdiction of the court to try the dispute.

Furthermore, where the parties intend to use BANI as the arbitration forum, BANI provides (not mandatory) standard arbitration clauses for inclusion in their agreements, as follows:

“All disputes arising out of the contract shall be settled by Badan Arbitrase Nasional Indonesia (BANI) under BANI Arbitration Rules whose awards shall be final and binding upon the parties”.

• Mechanism and time frame of the arbitration proceeding

According to Arbitration and ADR Law, the arbitration proceeding should be completed no later than 180 (one hundred and eighty) days since the arbitral tribunal is formed, in private, and using the Indonesian language unless agreed otherwise. The mechanism of an arbitration proceeding will involve:

1. submission of claim;
2. submission of answer by the respondent within 14 (fourteen) days since a copy of the claim was received;
3. attempt of amicable settlement by the tribunal. Should the settlement is reached, the tribunal draws up a deed of settlement which is final and binding, and if the amicable attempt is unsuccessful, the proceeding will continue;
4. both parties are given the last opportunity to explain each standpoint in writing and present evidence which is deemed necessary to support their standpoints within a period determined by the tribunal;
5. examination of witnesses and experts before the tribunal are conducted based on the civil procedural law;
6. rendering the final and binding award;
7. within a maximum period of 30 (thirty) days after the decision is rendered, the arbitration award shall be submitted and registered by the arbitrator or his/her proxy to the district court. If this point is not fulfilled, the arbitration award cannot be enforced; and
8. if the parties do not voluntarily enforce the arbitration award, it shall be enforced based on an order from the head of the district court, upon request from one of the disputing parties.

• Choice of laws, seat, arbitrator, and language

GR on Construction obliges that construction contracts executed in Indonesia to be governed by Indonesian law. Nevertheless, the parties are free to choose the law of the arbitration agreement, seat of arbitration, arbitral rules, arbitrators and the language of the arbitration since there is no restriction under Construction Law. Regarding the language of the contract, the Construction Law stipulates that if the construction contract is executed with a foreign party, it shall be made in the Indonesian language and English, with Indonesian being the prevailing language.

• Multi-party disputes involving Contractors and Subcontractors

Since construction contract is interconnected, disputes between Employer and Contractor may have impacted or have connection with disputes between Contractor and its subcontractors. When each has separate arbitration agreement, it may sometimes hard to resolve the issues or disputes among the parties altogether. But this setback should now be resolved with the ability of the arbitral institution to deal with disputes involving many parties and many different agreements as long as they are connected and have chosen a certain institution or a certain institutional rules as its choice of forum.

• Interim award

Arbitration and ADR Law stipulates that upon the request from one of the parties, the arbitrator or arbitral tribunal may render a provisional award or interlocutory award. Therefore, such party can obtain an interim award if it expressly requests the interim award in its claim or in its request for arbitration. Furthermore, the term for the implementation of the provisional decision or interim decision is not counted in the specified term of the arbitration process of 180 (one hundred and eighty) days as described above.

• Parallel Proceeding on a Construction Dispute

Where it has been agreed that the dispute will be resolved by arbitration, neither party will be able to bring a parallel proceeding, since the court has no jurisdiction to examine the dispute between the parties where there is an arbitration agreement. Moreover, the court is also obliged to reject any dispute resolution submission that includes an arbitration agreement therein.

• Setting Aside of the Arbitral Award

Any party may apply for setting aside the arbitration award if the award allegedly contains the following elements:

1. letters or documents submitted in the proceeding which are admitted to be false or declared as false;
2. there is a decisive document found concealed by the opposing party; or
3. the award was rendered based on deceit by one of the parties in the proceeding.

The application must be submitted in writing no later than 30 (thirty) days from the submission and registration of the award at the district court.

There have been many variations on the grounds for a setting aside of an arbitral award. You may read in more detail by following this link: https://blog.lekslawyer.com/category/articles/arbitration/.

Further discussion on arbitration in construction matters is available at:

1. https://blog.lekslawyer.com/construction-and-engineering-law-indonesia/.
2. https://blog.lekslawyer.com/construction-arbitration-indonesia-2025/.

International Arbitration and Its Enforceability

• Requirements to enforce international arbitration awards in Indonesia

Arbitration and ADR Law defines an international arbitration award as an award rendered by an arbitration institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or an award rendered by an arbitration institution or individual arbitrator that is recognized under the laws of the Republic of Indonesia as an international arbitration award. The discussion of international arbitration awards is important since the disputing parties, if agreed, may use an international arbitration institution as a forum for dispute resolution.

In order to be enforced in Indonesia, an international arbitral award must first be registered to the Central Jakarta District Court. After being registered, the award can be applied for exequatur and then can be executed.

At the registration stage, the documents required to register an international arbitration award are as follows:

1. an original or authentic copy of the international arbitration award (subject to authentication of foreign document provisions) and a sworn translation in the Indonesian language;
2. an original or authentic copy of the arbitration agreement (subject to authentication of foreign document provisions) and a sworn translation in the Indonesian language; and
3. an official statement from the Indonesian diplomatic representatives in the country where the international arbitration award is rendered, certifying that the issuing country is a party to bilateral and multilateral agreements on the recognition and enforcement of international arbitration awards with Indonesia.

The party registering an international arbitral award should be the arbitrator. The arbitrator, however, may be represented by his/her attorney, and if the arbitrator is appointed by an arbitration institution, the authority to register the decision lies with the institution concerned.

Furthermore, in the execution stage, in the event that a party does not implement the international arbitration award voluntarily, one of the parties submits a request to the Head of the Central Jakarta District Court to obtain an exequatur.

• Exequatur & enforcement order for arbitration award

International arbitral award

Before granting an exequatur for an international arbitration award, the Head of the Central Jakarta District Court must consider the following matters:

1. The international arbitration award must have been rendered by an arbitrator or arbitral tribunal in a country that is bound with Indonesia by a treaty, either bilateral or multilateral, concerning the recognition and enforcement of international arbitral awards;
2. The award must be limited to matters which, under Indonesian law, fall within the scope of commercial law, including trade, banking, finance, investment, industry, and intellectual property rights; and
3. The award may only be enforced in Indonesia insofar as it does not contravene public order.

National arbitration award

As previously explained, a national arbitration award may be subject to an application for enforcement to the Head of the relevant District Court if the award is not voluntarily complied with. Furthermore, before issuing an enforcement order for such national arbitration award, the Head of the District Court must consider the following:

1. The existence of an arbitration agreement between the parties;
2. The dispute decided in the arbitration award concerns matters in the field of commerce; and
3. The award does not violate morality and public order.

• Other takeaways

In the previous discussion, it was found that there are documents that must comply with the provisions of foreign document authentication. Generally, the authentication of foreign documents can be done by means of legalization or apostille, depending on the country where the document in question was issued. If the country where the foreign document was issued is a member country of the Apostille Convention, then the procedure that needs to be taken is only an apostille and does not require legalization.

Further discussions on the enforcement of international arbitration awards in Indonesia are available at: https://blog.lekslawyer.com/enforcing-international-arbitration-award-in-indonesia/

Emergency Arbitration for Construction Disputes

Emergency arbitration is a newly-established legal procedure under the BANI Rules, which allows a party in a dispute to seek an urgent interim relief before a full arbitral tribunal is formally constituted. One of the key features of emergency arbitration is speed. It provides a fast-track procedure to obtain interim measures before the main arbitration begins. Specifically, under the BANI Rules, the length of the emergency arbitration proceeding is 14 (fourteen) days since the appointment of the emergency arbitrator, subject to extension for 7 (seven) more days.

The fast-track procedure would be especially useful when immediate action is needed to preserve rights, assets, or evidence, to avoid greater losses, to secure evidence, or even to stop a party from transferring or hiding assets, and waiting for the full arbitral tribunal constituted would cause irreparable damage to a party, which could be essential for construction disputes.

Further discussions on the emergency arbitration is available at: https://blog.lekslawyer.com/emergency-arbitration-in-2025-bani-rules-an-effective-measure-for-construction-arbitration-in-indonesia/

Court Proceeding

Process and Duration of Court Proceeding

The duration for the first instance proceeding is a maximum of 5 (five) months. The process is as follows:

1. filing of the claim;
2. exceptions and answers;
3. rejoinder;
4. counter plea;
5. examination of evidence from both parties;
6. conclusions; and
7. decisions.

The final decision of the first instance court can be appealed to the high court. Despite the five-month requirement, the court proceedings’ duration generally exceeds that period. Referring to SEMA 2/2014, the appeal process in the high court can be carried out for a maximum of 3 (three) months. The process covers applications for appeal, examination, and decisions.

In addition, the decision of the high court can be applied for cassation to the supreme court (final court proceeding). The duration for cassation is a maximum of 250 days. The cassation process covers applications for cassation, examination, and decisions.

Enforceability of Foreign Country’s Court Proceedings in Indonesia

Sut. Girsang, in her book entitled Arbitrase Jilid I (Arbitration Volume I), explains that, fundamentally, a court decision reflects the sovereignty of a country. Therefore, a decision issued by one country can only be enforced in that country and cannot be enforced elsewhere. As stipulated in Article 436 of Reglement op de Rechtsvordering (RV), decisions of a foreign court are not enforceable in Indonesia.

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Reference

Laws & Regulations

• Indonesian Civil Code.
• Reglement op de Rechtsvordering (RV).
• Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution.
• Law No. 13 of 2003 on Manpower as lastly amended by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law.
• Law No. 2 of 2017 on Construction Services, as lastly amended by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law.
• Presidential Regulation No. 16/2018 on Government Procurement of Goods/Services, as last amended by Presidential Regulation No. 46/2025.
• Presidential Regulation Number 10 of 2021 on the Investment Lines of Business, as last amended by Presidential Regulation Number 49 of 2021 on the Amendment to Presidential Regulation Number 10 of 2021 on Investment Lines of Business.
• Government Regulation No. 22 of 2020 on Implementing Regulation of Construction Law as amended by Government Regulation No. 14 of 2021.
• Government Regulation Number 5 of 2021 on the Administration of Risk-Based Business Licensing.
• Government Regulation Number 28 of 2025 on the Administration of Risk-Based Business Licensing.
• Minister of Public Works and Public Housing Regulation Number 11/2021 on Procedure and Technical Guideline on Construction Dispute Board.
• Minister of Public Works and Public Housing Number 8 of 2022 on Procedures for the Implementation of Construction Services Standard Certificate Fulfillment in the Context of Supporting the Ease of Business Licensing for Construction Service Business Actors.
• Minister of Foreign Affairs of the Republic of Indonesia Regulation Number 14 of 2022 on Procedures for the Legalization of Documents at the Ministry of Foreign Affairs.
• Minister of Public Works Regulation Number 6 of 2025 on Standards for Business Activities and/or Product/Service Standards, Supervision Implementation, and the Imposition of Sanctions in the Administration of Risk-Based Business Licensing in the Public Works Sector.
• Minister of Law of the Republic of Indonesia Regulation Number 50 of 2025 on Apostille Services.
• Investment Coordinating Board Regulation Number 4 of 2021 on Guidelines and Procedures for Risk-Based Business Licensing Services and Investment Facilities.
• Decree of the Director General of Construction Development of the Ministry of Public Works Number 37/KPTS/DK/2025 on the Establishment of Certification Scheme Standards for Construction Services Business Entities.
• Supreme Court Regulation Number 3 of 2023 on Procedures for Appointing Arbitrators by the Court, Right of Objection, Examination of Applications for Enforcement and Cancellation of Arbitration Decisions.
• Circular Letter of Supreme Court No. 2 of 2014 on Completion of Cases in the First Instance and Appeal Courts in 4 (Four) Judicial Jurisdictions.
• Decision of Head of Supreme Court No. 214/ KMA/SK/XII/2014 on The Timeframe for Handling Cases at the Supreme Court of the Republic of Indonesia.
• Government Goods/Services Procurement Policy Agency Regulation No. 12 of 2021 concerning Guidelines for the Implementation of Government Goods/Services Procurement through Providers as amended by Government Goods/Services Procurement Policy Agency Regulation No. 4 of 2024.
• BANI Arbitration Rules and Procedures 2025.

Jurisprudence

• Supreme Court Decision No. 600 K/Pdt/2018.
• Supreme Court Decision Number 2449 K/Pdt/2018.
• Jakarta High Court Decision No. 24/Pdt/2017/PT. DKI.
• Batam District Court Decision No. 80/Pdt.G/2015/PN.Btm jo. Decision of the Pekanbaru High Court No. 80/PDT/2016/PT.PBR jo. Decision of the Supreme Court No. 1750 K/Pdt/2017
• Denpasar District Court Decision No. 20/Pdt.Sus-PHI/2021/PN Dps jo. Supreme Court Decision No. No. 1210 K/Pdt.Sus-PHI/2022.
• Karawang District Court Decision No. 86/Pdt.G/2015/PN Kwg jo. the Decision of the Bandung High Court No. 21/PDT/2017/PT.BDG jo. Decision of the Supreme Court No. 220 K/Pdt/2018.

Books

• Munir Fuady, Hukum Kontrak (Dari Sudut Pandang Hukum Bisnis), PT Citra Aditya Bakti: Bandung, 2007.
• Munir Fuady, Hukum Kontrak: Buku Kesatu, PT Citra Aditya Bakti: Bandung, 2015.
• Paula Berger and Brennan Ong, Best Practice in Construction Disputes: Avoidance, Management and Resolution, Australia: LexisNexis Butterworths, 2013.
• S. Soemadipradja, Penjelasan Hukum tentang Keadaan Memaksa (Syarat-Syarat Pembatalan Perjanjian yang Disebabkan Keadaan Memaksa/Force Majeure), Jakarta: Nasional Legal Reform Program, 2010.
• S.U.T Girsang, Arbitrase Jilid I. Jakarta: Mahkamah Agung Republik Indonesia, 1992.

Journal

Sri Bala Murugan Gogulanathan, The doctrine of substantial performance: comparisons between English and Malaysian law, Commonwealth Law Bulletin, 44:3, 2018.

Article

• Aryoputro Nugroho, MED-ARB: Harapan Baru Dunia ADR Indonesia Dalam Penyelesaian Sengketa Secara Arbitrase, Indonesia Arbitration – Vol. 14 No. 3, September 2022: 10 – 17.
• Construction and Engineering Law – Indonesia Chapter of the International Comparative Legal Guide 2023, https://blog.lekslawyer.com/construction-and-engineering-law-indonesia/.
• Construction Arbitration Indonesia – Global Arbitration Review Know-How 2025, https://blog.lekslawyer.com/construction-arbitration-indonesia-2025/.
• Contractor’s Claim under FIDIC Contract: Contractual Time Limit v Statute of Limitation, https://blog.lekslawyer.com/contractors-claim-under-fidic-contract-contractual-time-limit-v-statute-of-limitation/
• Contractual Risk in Construction Contracts: Practical Legal Guide, https://blog.lekslawyer.com/contractual-risk-construction-contracts-indonesia/.
• Emergency Arbitration in 2025 BANI Rules: an Effective Measure for Construction Arbitration in Indonesia?, https://blog.lekslawyer.com/emergency-arbitration-in-2025-bani-rules-an-effective-measure-for-construction-arbitration-in-indonesia/.
• Enforcement of International Arbitration Award in Indonesia: A Practical Approach on its Procedures and Challenges, https://blog.lekslawyer.com/enforcing-international-arbitration-award-in-indonesia/.
• Understanding Indonesia Contract Law: Navigating the Essentials, https://blog.lekslawyer.com/understanding-indonesia-contract-law/.