IMPORTANT! LANGUAGE REQUIREMENT IN CONSTRUCTION WORK CONTRACT WITH FOREIGN PARTIES

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To address the challenges of the expanding Indonesian market in construction services as well as its dynamic development, the Indonesian Government has issued Law No. 2 Year 2017 on Construction Services ("UUJK 2017") on 12th January 2017.

CONSTRUCTION SERVICES PROVIDED BY FOREIGN PARTIES
One of the new provisions set in UUJK 2017 is the development of foreign-owned or joint-owned construction services business by way of foreign investment. Foreign investment in construction services aims to provide construction services in high-risk, high-tech, and/or high-cost business segments. Currently, foreign investors wishing to provide construction services business in Indonesia may do so in forms of:

  1. Foreign Construction Services Representative Office (Kantor Perwakilan Badan Usaha Jasa Konstruksi Asing "BUJKA"), in partnership with local construction companies or services provider; or
  2. Foreign Investment Company (“PT PMA”) through joint venture with local investor, with maximum foreign shares ownership of 67% ownership, and 70% for ASEAN-based investor ownership.

OBLIGATION TO USE TWO LANGUAGES (BILINGUAL) IN CONTRACTS
In construction services, both execution of work and cooperation agreement are set in one agreement, known as "Construction Work Contract." The obligations and rights of each party in executing construction project are set in great detail in the aforesaid Construction Work Contract.

For foreign construction services provider, it is important to make sure that the Construction Work Contract has legal certainty which guarantees the execution of construction project. Furthermore, foreign construction services provider in Indonesia may only work for high-risk, high-tech, and/or high-cost construction project.

Cancellation of Construction Work Contract due to the non-fulfilment of language requirement will cause damage for foreign construction services provider, both in terms for costs, time, and its reputation as a construction services provider.

Below are the things foreign construction services provider need to know about the language requirement in Construction Work Contract:

  1. Usage of Bahasa Indonesia in addition to foreign languages, in another word, the Construction Work Contract must be made in 2 (two) languages (bilingual) (Article 50 paragraph (2) UUJK 2017); and
  2. In case of dispute, Bahasa Indonesia will be used as the referred language.

Hence, it is important for foreign construction service provider to make sure that the agreed Construction Work Contract is in accordance with the Indonesian regulations.

CONSEQUENCES IF THE CONSTRUCTION WORK CONTRACT IS NOT MADE IN TWO LANGUAGES
As previously explained, although usage of Indonesian and foreign language is an obligation in drafting Construction Work Contract with foreign parties, UUJK 2017 does not regulate sanctions in case there is violation or non-fulfilment of this provision.

Nevertheless, the absence of sanctions in case of violation and/or non-fulfilment of provision under Article 50 paragraph (2) and (3) of UUJK 2017 does not necessarily make this obligation cease to exist. This is because, in previous cases, several Construction Work Contracts are annulled by the Court due to the violation of Indonesian language requirement. This happened in Construction Work Contracts which are drafted by foreign parties who use foreign language.

How can SMART assist You?
To prevent cancellation of contract, the Construction Work Contract must be made both in Indonesian and English. Hence, the parties can easily understand its content and prevent any disagreements. In this case, SMART Legal Consulting can assist you drafting contract in both Indonesian and English.

SMART Legal Consulting is an Indonesian Corporate Legal Service experienced in assisting Clients to draft contracts, including Construction Work Contract. With professional team who speaks English fluently, SMART not only assists in drafting contract effectively, but also assisting Investors and foreign construction services providers in reaching agreement with Indonesian partners and clients, and executing construction work by client in Indonesia.

Contact SMART for further information of our services, or arrange your meeting with us in:
E: info@smartcolaw.com
H: +62821-1234-1235
O: 021-8067492

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