Government procurement in Indonesia comes under Presidential Regulation No 16 of 2018, as partially amended by Presidential Regulation No 12 of 2021 on Government Procurement of Goods and Services (“PR 16/2018”).
PR 16/2018 sets out the rules of the procurement process for government institutions applicable to goods and services. It mandates the National Public Procurement Agency (Lembaga Kebijakan Pengadaan Barang/Jasa Pemerintah, or LKPP) to issue the implementing regulations of PR 16/2018, which cover procurement planning, procurement methods, qualification, bidding documents, the form of contracts, and other matters.
One of the LKPP regulations is Regulation No 12 of 2021 on the Guideline for Procurement of Goods/Services through Providers (“LKPP Regulation 12/2021”). This Regulation contains a detailed framework for the government procurement process, including guidance on necessary procedures and requirements, including a model procurement document that can be used as a basis to carry out procurement activities effectively. It also sets out instructions on how to proceed and evaluate procurement in a manner that is compliant with relevant regulations and promotes fairness, transparency, and efficiency.
Based on Article 2 of PR 16/2018, entities that are subject to PR 16/2018 and LKPP Regulation 12/2021 are ministries, institutions, or regional bodies that use funding for procurement from any of the sources below:
Under PR 16/2018, government procurement of goods/services is split into different forms of contracts based on the object of procurement. Article 3 of PR 16/2018 regulates the objects of government procurement, namely:
The type of contracts used for government procurement are as follows.
Furthermore, the type of contract form to be used will depend on the value and thresholds of the procurement object:
Article 1 (23) of Presidential Regulation No. 16 of 2018 (“PR 16/2018”) on international tender and LKPP Regulation No. 1 of 2022 on the Guidelines for the Implementation of International Procurement of Goods and Services regulate the participation of foreign entities in government tenders.
International tender/selection is defined as the process of selecting goods and/or service providers from both foreign and domestic participants. Consequently, irrespective of whether the tender is financed by state/regional budget or foreign loans/grants, it will be categorised as an international tender if the procuring committee opens the tender process up to foreign participants.
International tender/selection is carried out in the following circumstances:
International tender/selection may still be feasible for procurement having a value less than the thresholds above if there are no eligible and capable domestic businesses.
Furthermore, the selection of providers for international tender/selection can be carried out through international tender, international selection, or direct appointment. Generally, the decision process for international tender/selection is similar to domestic tender/selection. It is to be noted that, before the end of the contract period of an international tender/selection, transfer of knowledge is the obligation of the provider.
Normatively, foreign entities from any countries can apply to participate in an international tender process. However, there are exceptions. The following foreign businesses are prohibited from participating in an international tender process:
Moreover, foreign businesses that participate in international tenders are required to co-operate with domestic businesses or with domestic industries in the manufacture of spare parts and the performance of after-sales service for goods or construction work. Other than procurement regulations, sectoral law may apply in international tenders. For instance, in the procurement of construction work, foreign businesses are required to collaborate with a domestic business by way of, for example, entering into a joint operation by establishing a representative office upfront in Indonesia.
PR 16/2018 outlines the key obligations of the awarding authority concerning adherence to procurement ethics. These obligations include:
Additionally, the regulation mandates that all government procurement of goods and services should adhere to the principles of efficiency, effectiveness, transparency, openness, competitiveness, fairness, and accountability.
LKPP Regulation 12/2021 requires the government procuring committee disclose its procurement process on the Electronic Procurement System (Sistem Pengadaan Secara Elektronik, or SPSE), which can be accessed here. The website is often referred to as SPSE, which stands for Aplikasi Sistem Pengadaan Secara Elektronik or the Electronic Procurement System Application. Disclosure should also be made on the official websites of ministries, institutions, or local government, official public announcement boards, newspapers and/or other media.
Generally, the minimum of information that must be disclosed is as follows:
In accordance with LKPP Regulation 12/2021, guidelines are set down to regulate the activities of the awarding authority, in this case the Commitment Making Officer (Pejabat Pembuat Komitmen, or PPK) and the Selection Committee (Pokja Pemilihan) for a preliminary market consultation in the procurement process. The consultation is conducted in preparation for the procurement stage as follows.
Market Consultation by PPK
LKPP regulation 12/2021 requires the PPK to conduct a preliminary market consultation to determine the technical specification of goods and services, and to prepare and establish the owner’s estimate. The technical specification/scope of work document is reviewed based on the latest market data/information to determine the availability of goods/services, prices, market players, and alternative similar goods/services. In determining the owner’s estimate, the PPK will use local market prices, publications of ministries/agencies/local governments and associations. The PPK may engage a team of experts to assist in the preparation of technical specifications and the owner’s estimate.
Market Consultation by Selection Committee
The Selection Committee is required to conduct a preliminary market consultation as part of the selection preparatory stage. In this stage, the Selection Committee will review procurement preparation documents prepared by the PPK to align the owner’s estimate with technical specifications and scope of work based on the latest market data.
The market analysis carried out by the Selection Committee will determine the availability of goods/services and domestic businesses capable and qualified to carry out the work. However, if this analysis reveals that there are no domestic businesses that meet the necessary requirements, the Selection Committee can propose and request approval from the PPK to put the contract through an international tender/selection. The market consultation results will determine the best qualification and/or provider selection method for the contract award procedure.
Tender Procedures
Article 50 of PR 16/2018 regulates several selection methods to award a contract. Each method involves different processes, as follows.
Negotiation
Based on LKPP Regulation 12/2021, technical and price negotiation is permissible as follows.
Additionally, LKPP Regulation 12/2021 regulates that technical and price negotiations cannot be conducted if the validity period of the participant’s proposal letter has expired. During negotiations, no criteria or requirements within the bidding documents or proposal may be changed, as this could influence the result of the evaluation process. Otherwise, the PPK/Selection Committee and the provider run the risk of a post-bidding violation, as set out in Article 22 of the ICL on bid-rigging prohibitions. The PPK/Selection Committee and the provider may not change the contract value or the contract type. However, they may negotiate the value of direct personnel and non-personnel cost, whether lump sum, unit price, or at cost. Furthermore, they may negotiate expert personnel cost when it is lower than the minimum remuneration standard based on statutory regulations regarding the expert remuneration standard.
The tender procedure is one of the provider selection methods. PR 16/2018 stipulates that the procedure for selecting a provider is subject to the fulfilment of certain conditions and thresholds, as follows.
To sum up, PR No. 16/2018 and LKPP Regulation 12/2021 regulate the criteria and requirements of each tender procedure based on the type of goods or services, value amount and complexity, among other factors. This ensures that the awarding authority cannot select tender procedures based on its own preference and is obliged to conduct the procurement process fairly and transparently. Furthermore, certain conditions may allow for an international tender (please see 1.4 Openness and International Competition).
PR 16/2018 permits direct appointment for procuring goods, construction work, or other services, as well as consultancy services, under certain circumstances, as follows.
Direct appointment for the procurement of goods, construction work, or other services can be made for:
Meanwhile, for consultancy services, circumstances that permit direct appointment include:
Aside from the above, PR 16/2018 allows direct procurement in emergency conditions, including the following:
In the case of emergency conditions such as those set out above, the PPK, authorised by the Budget User (Pengguna Anggaran, or PA) to make decisions and/or take action using the state budget/regional budget, may appoint the nearest provider performing a similar procurement or another undertaking deemed capable of and qualified to carry out a similar procurement service.
PR 16/2018 does not specify a timetable for publishing the procurement documents. However, LKPP Regulation 12/2021 sets out a model timeline for procurement from providers of:
Based on the above, the general timeline for the procurement process is as follows.
Pre-qualification Selection
The pre-qualification stage involves the following:
Selection stages with a two-phase mechanism are as follows:
Selection stages with a two-file submission method are as follows:
Post-qualification Selection
Selection stages with a two-file submission method are as follows:
Selection stages with a one-file submission method are as follows:
Quick Tender
The quick tender process is as follows:
LKPP Regulation 12/2021 sets out certain minimum time limits for the Selection Committee for receipt of expressions of interest in a contract award procedure or the submission of tenders. These prescribed time limits apply to all categories of respective selection mechanisms, except for a quick tender. As indicated in 2.6 Timing for Publication of Documents, LKPP Regulation 12/2021 offers flexibility in time limits for the Selection Committee based on its needs. However, the minimum time limit is set at three business days after the official report of the pre-bid meeting is issued. For a quick tender, the minimum is three calendar days after the tender invitations for the receipt of expressions of interest or the submission of tenders. Additionally, the submission of tender proposals must conclude on business days.
Article 17 of PR 16/2018 stipulates several conditions that must be satisfied by an interested party to participate in the procurement process. These conditions are set out for, but not limited to, each type of procurement, consisting of administrative and technical qualifications, which are detailed in LKPP Regulation 12/2021.
Administrative requirements for all types of procurements:
Technical qualification requirements for procurement of goods/other services and non-construction consultancy services:
The qualification requirements above are not limitative in nature. Therefore, the Selection Committee can add other qualification requirements according to the needs of the work, the type of procurement, the budget ceiling value, and provisions related to business entities set out by the competent authority.
According to PR 16/2018, direct appointment may be utilised to limit participation in a procurement process to a small number of qualified suppliers. The determination of the shortlist of such qualified suppliers is based on the explanation provided in 2.5 Direct Contract Awards. Additionally, the number of qualified suppliers that will be invited to participate in a direct appointment is limited to one business actor.
In addition to direct appointment, the Selection Committee may also limit participation through the direct procurement method. This method is utilised by the Selection Committee for procurement of goods/services with small value, as explained in 2.4 Choice/Conditions of a Tender Procedure. The requirements may be only be selected through the direct procurement method at one participant meeting.
The criteria for the evaluation of tenders depends on the provider selection method for each type of procurement.
For goods, construction works, or other services, the evaluation methods are as follows.
For consultants, the criteria for evaluation are as follows.
The awarding authority can exclude tenders from the contract award procedure and proceed directly to direct appointment. Please see 2.5 Direct Contract Awards for circumstances that will allow direct appointment.
According to LKPP Regulations 12/2021 and User Guide SPSE V.4.5 for Selection Committee (“User Guide”), the disclosure of evaluation methodology when selecting bidders and evaluating tenders is mandated. LKPP Regulation 12/2021 sets out the minimum information that must be provided, as described in 2.1 Prior Advertisement. In addition, the User Guide specifies that the Selection Committee must provide detailed information on the SPSE system when announcing a tender. The evaluation methodology for selecting tenders and evaluating tenders will be contained in the details of the tender announcement. The tender announcement on the SPSE system must include the following information:
The tender announcement will disclose the evaluation methodology based on the information provided above. It is important to note that the obligation to disclose the evaluation methodology for selecting bidders and evaluating tenders is not only contained in the tender announcement but is also mandated by LKPP 12/2021 in the selection document. The evaluation method is presented in the selection document in section (a) Submission of Qualification Data and Bidding Document, and (b) Opening and Evaluation of Offering Documents.
The information of evaluation methodology for selecting bidders and evaluating tenders is important for bidders to understand how their proposal will be assessed.
Regulation PR 16/2018 and LKPP regulation 12/2021 are silent on any specific obligation to notify interested parties who have not been selected to participate in the contract award procedure. However, the implementation of the SPSE application for electronic procurement has resulted in a more transparent, accountable and efficient procedure, significantly improving the procurement process. The SPSE application records every stage of the procurement process, including tender announcements, a list of participants who participated in the tender, evaluation results for each stage, winner of the tender, and the provider who is awarded the contract.
Through the SPSE application, the Selection Committee provides detailed information about every stage of evaluation. This includes a checklist of criteria for assessment (ie, qualification, administration, technical, financial, negotiation and proof qualifications), and the result of bidders who pass, fail, or win a tender. The application records the interested parties who have not been selected, and the reasons for the failure of the tender. The application also enables interested parties to track their progress by recording each procurement stage and evaluation. This ensures that all bidders can stay informed about the status of their bid in real time.
Therefore, because the SPSE application has provided a record of the procurement process and kept the bidders up to date with real-time information on the progress of procurement, the Selection Committee does not need to inform interested parties specifically. The electronic procurement process is now more transparent and efficient, showing significant improvement over the conventional procurement process.
As outlined in 3.2 Obligation to Notify Interested Parties Who Have Not Been Selected, the SPSE application has provided a record of the procurement process and informed the bidders with up-to-date and real-time information on the progress of procurement, providing information from the tender announcement to the winner of the contract. The announcement of the winning tender is specifically regulated by LKPP Regulation 12/2021, which mandates the Selection Committee, through SPSE, to publicly declare a winner, a reserve winner 1 (one), and a reserve winner 2 (two), if any, by providing at least the following information:
The regulations do not cover time frames for the Selection Committee in issuing the decision of a winning bidder. The time frames will be set out separately by the Selection Committee in bidding documents.
There are no prior hearings in procurement processes in Indonesia. However, losing bidders may submit a refutation after the winner has been announced in the following circumstances:
If the refutation is deemed correct and accepted, the Selection Committee will proceed with a re-evaluation or re-tender.
The public procurement regulations do not recognise the term “standstill period”. However, LKPP Regulation 12/2021 stipulates a refutation period after notification of the winning bidder. This period allows losing bidders to file a refutation within five calendar days of the announcement of the contract recipient, via the SPSE application, against the evaluation results conducted by the Selection Committee. Losing bidders may submit a refutation if the conditions stated in 3.4 Obligation of a Prior Hearing are fulfilled. During the refutation period, the Selection Committee will temporarily suspend the tender process to await refutation submissions from losing bidders.
If losing bidders file a refutation, the Selection Committee must respond through the SPSE application. If the refutation is deemed valid and accepted, the Selection Committee may proceed with a reassessment or re-tender.
The relevant administrative review body is the Government Internal Oversight Officer (Aparat Pengawas Intern Pemerintah, or APIP). APIP can receive complaints from the public regarding any alleged deviation in a procurement process. Based on its review, it will then issue a procurement audit report containing information regarding assessment results on the conditions of audited procurement of goods/services. This output will then be used as considerations for the ministries/institutions/regional apparatus to improve planning, implementation, and control of goods/services procurement activities. There is a specific mechanism for the auditee to respond to the audit report. If the auditee’s response is deemed correct, the audit report can still be corrected. Conversely, the audit report cannot be corrected if the auditee’s response is deemed incorrect. Subsequently, after follow-up on the outcome of the auditee’s response, the audit report will become final, and there is no appeal mechanism.
Remedies available are as follows:
Upon any findings of a public complaint, the APIP will report to the minister/head of institution/head of region if a violation in the procurement process has been identified. Subsequently, the minister/head of institution/head of region will follow up the APIP’s information by reporting to other authorised institutions, such as: a) the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, or KPK), if allegations of corruption in the procurement process are found; or b) the Indonesia Competition Commission (Komisi Pengawas Persaingan Usaha, or KPPU) if indications of unfair business competition are present.
It is also possible to challenge the validity of the procurement process in a civil court by filing a tort lawsuit, which will be examined based on the Indonesian Civil Code and the Indonesian Civil Procedure. In a civil lawsuit, the losing bidder can claim compensation for damages and/or a re-evaluation or re-tender.
Yes. Interim measures are available during the refutation period. Losing bidders can submit a refutation within five calendar days of the announcement of a winning application. The submission of a refutation will temporarily suspend the tender process. If the refutation is proven to be invalid, the tender process will continue.
A refutation can be submitted in the event that the following conditions have occurred:
Losing bidders have the right to submit a refutation against the result of the tender evaluation or the validity of the entire tender process if the conditions set out in our response to 4.3 Interim Measures have been fulfilled.
The time limit to challenge the awarding authority’s decision is five calendar days from the announcement of the winning bid. This period must end during a business day and business hours.
The length of proceedings relating to a procurement claim is subject to variation based on the type of review system for a particular claim. For refutations, the process lasts for five calendar days after the winner is announced, followed by a three-day deadline for the Selection Committee to respond to the refutation. Meanwhile, proceedings in civil, corruption, and anticompetitive cases will depend on their respective case-handling regulation as well as the complexity of each case.
Not all APIPs in central and regional government institutions publish the average number of procurements claims they audit. However, there are instances where they publish their stand-alone working performance. For instance, the APIP in the Ministry of Law and Human Rights (MOLHR) has published two annual reports for the 2022 and 2023. In 2023, the APIP audited 183 procurement cases, whereas in 2022 it audited 207 cases. Consequently, it audited around 150 procurement cases per year from 2022 to 2023 within the MOLHR.
In a procurement for construction work, losing bidders can submit a refutation against the Selection Committee’s decision within five calendar days from the announcement of the winning bid. Based on Section 4.2.13 of Attachment I of LKPP Regulation 12/2021, a losing bidder wishing to submit a refutation must provide a refutation guarantee amounting to 1% of the total owner’s estimate. The refutation guarantee will be valid for 30 calendar days from the date of the refutation submission.
If the Selection Committee accepts the refutation request, the refutation guarantee will not be disbursed. However, if the Selection Committee rejects the refutation request, the refutation guarantee must be disbursed and distributed to the state/regional treasury by the losing bidders or the Selection Committee directly.
Based on Article 54 of PR 16/2018, changes to a contract can be made when there are discrepancies between the field conditions and the drawings and/or technical specifications detailed in the contract during the contract implementation period. Such changes can be carried out through an amendment/addendum mechanism. In this case, PPK, with the consent of the provider, and vice versa, may make the following changes:
Changes to the contract can be followed by an increase in the contract’s value, with a maximum 10% increase from the contract’s original value. Based on Section 5.14 of Attachment I of LKPP Regulation 12/2021, an increase of more than 10% is permissible if: a) the PA has given its approval for the increase; and b) the increase is due to the need for separate tenders or direct appointment in the case of a single construction unit.
Additionally, Section 5.14 of Attachment I of LKPP Regulation 12/2021 also regulates that an amendment/addendum must be technically and professionally justified. Consequently, an amendment/addendum cannot be used as an escape clause to extend the contract period due to delays that occurred after the contract period ends. In this regard, the PPK can establish a team/teams of experts/an expert to verify the legitimacy of a contract amendment/addendum.
Otherwise, PPK and the provider face post-bidding risk. LKPP Regulation 12/2021 defines post-bidding as “any actions of adding, reducing, replacing and/or changing criteria and requirements that have been set out in the bidding documents and/or the substance of bidder’s proposal after the bidder’s proposal submission deadline”. Consequently, this post-bidding prohibition applies after the bidder’s proposal submission deadline until the contract implementation stage.
LKPP Regulation 12/2021 does not specify further criteria/requirements for the bidding documents or what LKPP Regulation 12/2021 means by “the substance of the bidder’s proposal.” Therefore, in our view, post-bidding refers to changes in criteria/requirements or the substance of the bidder’s proposal that would alter the bidder’s evaluation. So, minor changes are acceptable if they do not alter the bidder assessment. Based on this, we consider that post-bidding occurs with any action of adding, reducing, replacing and/or changing a) the criteria or requirements stipulated in the bidding documents; or b) the bidder’s proposal, that may change the bidder’s evaluation after the bidder’s proposal submission deadline.
Post-bidding may trigger the risk of a competition-law violation as it can create unfair advantages to a certain bidder to win a tender among other bidders, eg, bid-rigging. Bid-rigging is prohibited under Indonesian Competition Law.
Other than force majeure events (Article 55 of PR 16/2018), PR 16/2018 is silent on the grounds that parties can apply to terminate a contract. However, Section 5.17 of Attachment I of the LKPP Regulation 12/2021 allows either the PPK or the provider to unilaterally terminate a contract.
Section 5.18.1 of Attachment I of the LKPP Regulation 12/2021 allows the PPK to unilaterally terminate a contract if the provider (note that this list is not exhaustive):
On the other hand, Section 5.18.2 of Attachment I of the LKPP Regulation 12/2021 allows the provider to unilaterally terminate a contract if:
PR 16/2018 is silent on special prerogatives for the awarding authority. However, based on our understanding of the term in other jurisdictions, special prerogatives refer to the awarding authority’s ability to unilaterally fix the tender value and norms for awarding a contract if it is in the national interest and is not arbitrary. Based on the above, there are no special prerogatives in favour of the awarding authority in Indonesia.
Section 4.2.4 of Attachment I of LKPP Regulation 12/2021 permits the Selection Committee to change the selection documents’ terms and value due to any errors discovered during the pre-bid meeting period. Consequently, changes to the selection documents must be technically justifiable and announced to all participants indiscriminately.
On the other hand, LKPP Regulation 12/2021 is silent on changes to the contract terms and/or value after the winner announcement except in circumstances as described in 5.1 Modification of Contracts After the Award. This is because changing the contract terms without justification may affect the evaluation result of the tender process and run the risk of post-bidding violation, which is prohibited by Article 22 of the ICL.
In 2022, the KPPU imposed an administrative fine of IDR28 billion (about USD1.7 million) in a bid-rigging case (KPPU Decision No 17/KPPU-L/2022 on the Procurement for the Jakarta Taman Ismail Marzuki (TIM) Arts Centre Revitalisation Phase III). In this Decision, the KPPU found that the Procuring Committee had granted an exclusive treatment to a participating consortium (“Reported Consortium”) and violated Article 22 of the ICL on bid-rigging prohibition.
The KPPU discovered that the Procuring Committee had cancelled the initial tender process without valid and justifiable grounds when the evaluation assessment had placed the Reported Consortium in a disadvantaged position. The cancellation was due to intervention from the Reported Consortium’s director, who had requested that the Construction Management Consultant present the assessment result of the initial tender process to the Reported Consortium.
To ensure the Reported Consortium’s victory, the Procuring Committee held a second tender process and changed the tender evaluation criteria, including the technical components of the company’s minimum work experience to facilitate the Reported Consortium. Consequently, the Reported Consortium received a high score during the second evaluation process.
There was a lack of communication evidence between the Procuring Committee and the Reported Consortium in the case. Therefore, the KPPU used indirect evidence by examining the causal connection between changes in the tender documents and the Reported Consortium’s evaluation result to prove the existence of bid-rigging violations. Consequently, this decision marked another precedent where the KPPU had used indirect evidence for bid-rigging cases.
The Indonesian legislative body is currently preparing a new procurement law bill (the “Procurement Bill”) on the public procurement of goods and services. As of the current date, it is still unclear whether the new bill will revoke PR 16/2018.
As background, the current procurement regulatory framework in Indonesia is segmented, based on the business entity that conducts the procurement process. For instance, procurement by state-owned enterprises (SOES) is regulated by the SOE procurement rules, namely SOE Minister Regulation No. PER-2/MBU/03/2023 on Guidelines for Governance and Significant Corporate Activities of SOES. Procurement by regional-owned enterprises (ROES) is regulated in the respective governor’s regulations. Meanwhile, government procurement is regulated by PR 16/2018. To unify these regulations, the Procurement Bill is aimed at providing a one-stop procurement regulation for procurement by government, including SOES, ROES and other business entities that are financed wholly or partially by the state/regional budget.
Based on our latest update in March 2024, the new Procurement Bill has not been included in the 2024 Priority National Legislation Program. Consequently, it is unclear as to when it will be passed. However, some of the notable points that can be expected in the new bill from the existing draft as of 28 July 2023 are as follows.
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