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Amendment in Licensing in the Construction Services Business Sector After the Enactment of Government Regulation Number 5 of 2021

Government Regulation Number 5 of 2021

The construction service sector is a community activity in constructing buildings that function as a support or infrastructure for social and economic activities of the community to support the realization of national development goals. In carrying out these development activities, it is necessary to have a permit that should be owned by Construction Service Business Entities (Badan Usaha Jasa Konstruksi, “BUJK”) especially domestically (Indonesia) as the legality of the company’s activities, especially in carrying out types of Construction Work and Construction Consulting activities in accordance with the prevailing development of laws and regulations. Therefore, this article is intended to provide an outline and an overview of the implementing regulations precisely in the new scope in detail, the differences between the previous regulations and the prospects for their further implementation in the future.

A. Legal Basis

  1. Law Number 2 of 2017 on Construction Services (“Law 2/2017”)
  2. Ministry of Public Works and Public Housing Regulation Number 8 of 2019 on Guidelines for National Construction Services Business Licensing (“MPWPHR 8/2019”)
  3. Law Number 11 of 2020 on Job Creation (“Job Creation Law”)
  4. Government Regulation Number 5 of 2021 on the Implementation of Risk-Based Business Licensing. (“GR 5/2021”)

Government Regulation Number 5 of 2021

B. Previous license

Business actors engaged in construction services as mandated by Law 2/2017 on Construction Services are mandatory to have a Construction Services Business License (Izin Usaha Jasa Konstruksi, “IUJK”) as stipulated in Article 26 paragraph 2. This is an absolute requirement for business actors in the construction sector in the event they are to carry out construction work. Without an IUJK, business actors are prohibited from participating in the auction or selection of the construction service sector. Likewise, every individual business that will provide Construction Services according to Law 2/2017 is required to have an Individual Business Registration Certificate as stipulated in Article 26 paragraph 1.

Furthermore, BUJK are required to have a Business Entity Certification (Sertifikat Badan Usaha, “SBU”) as regulated in Article 30 of Law 2/2017, where this certification must at least contain the type of business, nature of business, classification and business qualifications. To obtain a Business Entity Certificate, business actors or BUJK must submit an application to the Minister of Public Works and Public Housing (“Minister of PWPH”) through the Business Entity Certification Agency (Lembaga Sertifikasi Badan Usaha, “LSBU”) established by an accredited association of business entities. SBU ownership is a requirement for the issuance of IUJK for new business entities in the stage of fulfilling the commitments as stipulated in the MPWPHR 8/2019 in Article 23 paragraph 1.

C. Current Regulation

After the enactment of the Job Creation Law, there are implementing regulations which are mandated as regulations that are more specific and technical, one of which is GR 5/2021 which is the implementing regulation of the Job Creation Law. Article 80 paragraph (1) of GR 5/2021 states that construction services are one of the sub-sectors of the business licensing cluster in the public works and public housing sector which are measured based on 3 (three) levels of risk, namely construction consulting services; construction work; and Integrated construction works. One of the points corrected by GR 5/2021 regarding the Implementation of Risk-Based Business Licensing is the amendment related to IUJK which were abolished or previously regulated in Law 2/2017 and other construction services regulations. This is reinforced by a letter of application regarding the termination of IUJK at the One Stop Integrated Service Investment Service (Dinas Penanaman Modal Pelayanan Terpadu Satu Pintu, “DPMPTSP”) throughout Indonesia issued by the Directorate General of Construction Development, Ministry of Public Works and Public Housing by issuing the Letter numbered BK04.01-Dk/349 (“Letter BK04.01-Dk/349”)  as a follow-up to the enactment of the Job Creation Law and its implementing regulations, namely GR 5/2021.

Based on the Letter BK04.01-Dk/349, there are several points regarding the abolition of IUJK as a permit in the construction service business sector. The first point as stipulated in Article 10 paragraph (2) letter b and attachment I of GR 5/2021, the public works and public housing sector, the construction services sub-sector, belongs to the category of business licensing based on medium-high risk. Furthermore, the second point, namely the word “Business Permit” in Law 2/2017 is amended to the word “Business Licensing” through the Job Creation Law. Then, the third point is that business actors are required to have a Business Identification Number (Nomor Induk Berusaha, “NIB”) and standard certificates (business entity certificate or construction work competency certificate) to carry out construction service business activities in Indonesia. And the fourth point, based on points 2 (two) and 3 (three), which states that the application for IUJK issuance is stopped in all DPMPTSP because the construction services sub-sector only requires NIB and standard certificates.

So that this letter is an affirmation that IUJK is no longer issued, therefore business actors/business entities are required to have a NIB and standard certificate as stipulated in Article 99 of GR 5/2021 which includes SBU; Construction Work Competency Certificate (Sertifikat Kompetensi Kerja, “SKK”); and License with the type of service in the form of a new application, extension, or change so that business actors, especially BUJK are required to have SBU in providing construction services. BUJK could apply for SBU to the Minister of PWPH through LSBU whose validity period is 3 (three) years and can be extended. Meanwhile, the Construction SKK is mandatory for construction workers who are obtained through a competency test held by a professional certification body in the construction sector.

  1. Application for Permits through Online Single Submission institutions

The BUJK application is submitted to the Online Singe Submission (OSS) institution by completing the required documents, namely:

  1. Annual sales document, Financial capability document;
  2. Document the availability of construction manpower and,
  3. Documents of ability in the provision of construction equipment.

Furthermore, BUJK pays the registration fee which must be paid no later than 7 (seven) days. Verification and validation can be carried out after the submitted documents have been declared complete and the BUJK has paid the registration fee. Then the Construction SBU can be issued if it has been approved, no later than 15 (fifteen) days, and if it is not approved, then the BUJK cannot claim compensation from the LSBU.

Government Regulation Number 5 of 2021

E. Future Prospects

Minister of PWPH Basuki Hadimuljono stated that the development of business licensing in the construction services sector is a mandate of the Job Creation Law and GR 5/2021, which encourages the Central Government to create an integrated licensing system. It is expected that through changes and developments in licensing this will accelerate the licensing service process, and be more efficient because it reduces face-to-face contact as the OSS system provides convenience because services are more flexible, can be done anywhere, anytime, with quality assurance based on an integrated and standardized system. Thus, this digitalization process will minimize fraudulent efforts that lead to acts of corruption.

Furthermore, although the speed of the certification and licensing process for the construction service business is increasing, the quality of the results of construction services needs to be maintained so that you don’t just pay attention to speed and forget to look at the quality of the work with the aim that this process continues to go hand in hand so that speed is balanced with the quality of work.

In addition, that licensing changes as well as digitizing BUJK certification will increase the Ease of Doing Business index published by The World Bank considering that the business licensing process through OSS is one of the main agendas of the government’s structural reforms to encourage a more conducive business climate, including the construction services business.

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ADCO Law as a Law Firm in Jakarta has deep and extensive experience advising clients on all aspects of construction projects, from the early stages of planning, financing, setup, documentation and procurement to commissioning and final completion.

Should you have more queries regarding to this matter, please do not hesitate to contact us.

ADCO Law

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Jakarta Selatan, 12920, Indonesia.

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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from the ADCO Law. Furthermore, all the writings contained therein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be hold harmless and/or cannot be held responsible for anything from the parties who use this writing outside of what is the purpose of the ADCO Law.