Provisions for Foreign Companies Participating in Goods/Services Procurement

PERTANYAAN

1. What is the procurement process of local government goods/services in the form of online applications, if the application provider is a foreign company?
2. Does the foreign company have to go through a tender process, e-procurement, or direct appointment? How much can the local government approve the purchasing budget if they want to make a direct appointment?
3. Does the foreign company have to have a legal entity in Indonesia?

INTISARI JAWABAN

Currently, there is an e-marketplace for goods/services procurement ("E-marketplace") which is an electronic marketplace provided to meet the needs of government goods/services. The e-marketplace is part of the Electronic Procurement System (Sistem Pengadaan Secara Elektronik/ "SPSE"), which is the implementation of public procurement conducted electronically developed by the Policy Board for Government Procurement of Goods/Services (Lembaga Kebijakan Pengadaan
Barang/Jasa Pemerintah/ “LKPP”).

Regarding the method of selecting providers of goods/construction works/other services, it consists of E-purchasing, Direct Procurement, Direct Appointment, Express Tender; and Tender.

Then, regarding the obligation of foreign companies to have a legal entity in Indonesia, there is no regulation regarding this matter, but foreign business actors can only participate in international tenders/selections. What are the requirements and process of conducting selection through international tender/selection?

Please read the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of Ketentuan Perusahaan Asing Mengikuti Pengadaan Barang/Jasa, written by Dian Dwi Jayanti, S.H., and was published on Thursday, 3 August 2023.

This article is an update of the article with the same title, written by Bernadetha Aurelia Oktavira, S.H., and was first published on Tuesday, 31 December 2019.

All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

Procurement of Goods/Services by Local Government

Government Procurement of Goods/Services, from this point onward, is referred to as the Procurement of Goods/Services, is a procurement activity by ministries/institutions/regional apparatus, funded by the state budget/regional budget, with the process beginning from the identification of needs up until the handover of work results.[1]

Before answering your main question, it is important to know that the regulated Procurement of Goods/Services includes goods, construction works, consultancy services, and other services.[2] The difference between consultancy services and other services is consultancy service is a professional service that requires a certain expertise in various scientific sectors that prioritize thought processing,[3] meanwhile other services are non-consultancy services or services that require equipment, special
methodology and/or skill sets, in a governance system well-known in the business realm, to finish any work.[4]

In its development, there is now an e-marketplace for goods/services procurement ("E-marketplace") which is an electronic marketplace provided to satisfy the government's needs for goods/services.[5] The E-marketplace is part of the Electronic Procurement System (Sistem Pengadaan Secara Elektronik/ "SPSE"), which is the implementation of public procurement conducted electronically developed by the Policy Board for Government Procurement of Goods/Services (Lembaga Kebijakan Pengadaan
Barang/Jasa Pemerintah, from this point onward, is referred to as LKPP).[6] We assume that the E-procurement you are referring to is an E-marketplace.

To continue answering your question, the method for selecting the providers of goods/construction works/other services are comprised of:[7]

1. E-purchasing;
2. Direct Procurement;
3. Direct Appointment;
4. Express Tender; and
5. Tender

Each method is organized with certain requirements, namely:

1. E-purchasing, shall be performed for goods/construction works/other services that have been incorporated into an electronic catalog or online shop.[8]
2. The Direct Procurement, shall be performed for goods/construction works/other services that have a maximum value of IDR 200 million.[9]
3. The Direct Appointment, shall be performed for goods/construction works/other services in certain circumstances, which encompasses:[10]

 

1. organizing the preparation of sudden activities to follow up on an international commitment attended by the President/Vice President;
2. goods/services that are confidential in nature concerning state interests, that encompass intelligence, witness protection, the security of the President and Vice President, the Former President and Former Vice President and their families, as well as heads-of-state/head-of-government-level state guests, or other goods/services that are confidential in nature according to the provisions of laws and regulations;
3. Building Construction Work that is one unit of a construction system and one unit of the responsibility for the risk of building failure that, as a whole, cannot be planned/calculated beforehand;
4. goods/construction works/other services that can only be provided by 1 capable Business Actor;
5. the procurement and distribution of superior seeds including seeds of rice, corn, and soybean, as well as fertilizers including Urea, NPK, and ZA, to farmers in order to ensure the availability of seeds and fertilizers in an accurate and prompt manner for the implementation of improvements to food security;
6. the public utility, facility, and infrastructure work in residential neighborhoods for Low-Income Citizens as performed by the relevant developers;
7. goods/construction works/other services that are specific and can only be performed by patent holders, parties that have already secured a license from a patent holder, or parties that have won a tender to secure a license from the government; or
8. goods/construction works/other services that experience failure after undergoing re-tendering.
9. the selection of a provider to continue the procurement of goods/construction works/other services in the event of contract termination

 

4. The Express Tender, shall be performed where Business Actors have been qualified in the Provider Performance Information System for procurement and:[11]

1. the work specification and volume can already be determined in detail; or
2. it is possible to mention a trademark, as regulated in Article 19 section (2) letter b and letter c.

 

5. Tenders are carried out in the event that it is not possible to use provider selection methods such as e-purchasing, direct procurement, direct appointment, or quick tender.

Furthermore, the method of selecting consultancy service providers consists of:

1. Selection

The selection shall be performed for Consultancy Services that have a minimum value of more than IDR 100 million.[12]

2. Direct Procurement

The Direct Procurement shall be performed for Consultancy Services that have a maximum value of IDR 100 million.[13]

3. Direct Appointment

The Direct Appointment shall be performed for Consultancy Services in certain circumstances, which encompasses:[14]

1. A Consultancy Service that can only be performed by 1 capable Business Actor;
2. A Consultancy Service that can only be performed by 1 registered copyright holder or party that has already secured a copyright holder license;
3. A Consultancy Service in the legal sector encompassing legal consultation/advocacy or the procurement of unplanned arbitrators, to deal with the lawsuits and/or legal demands of certain parties, where the nature of its work in the implementation and/or defense must be prompt and cannot be postponed; or
4. Repeat orders for the same Consultancy Service Provider;
5. Consultancy services that after re-selection have failed;
6. The selection of providers to continue Consultancy Services in the event of contract termination;
7. Confidential Consultancy Services, in accordance with the provisions of laws and regulations; or
8. Construction Dispute Board expert services

Foreign Business Actors as Procurement of Goods/Services Providers

Answering your question, according to our research, foreign business actors can only participate in international tenders/selections, namely the selection of goods/services providers with election participants that can come from domestic business actors and foreign business actors.[15] International tender/selection may be implemented for:[16]

1. Procurement of construction works with a value of at least above IDR 1 trillion;
2. Procurement of other goods/services with a value of at least above IDR 50 billion;
3. Procurement of consulting services with a value of at least above IDR 25 billion; or
4. Procurement of goods/services financed by export credit insurance companies or private foreign creditors.

However, international tender/selection shall be implemented for the value less than the limit as referred to above, in the absence of a capable and eligible domestic business.[17]

Answering your last question, there is no regulation on the obligation of the foreign company to have a legal entity in Indonesia. Foreign business entities participating in international tenders/selections must cooperate with domestic business entities in the form of consortiums, subcontracts, or other forms of cooperation. Especially for foreign business entities that carry out procurement of goods/construction works, they must cooperate with domestic industries in the manufacture of spare parts and the implementation of after-sales services.[18]

The international tender/selection mechanism is not specifically regulated. Thus, in our opinion, its implementation still refers to the provisions of tenders in general. The implementation of an election through tender/selection comprises of the following stages:[19]

1. Qualification Implementation;
2. Announcement and/or Invitation;
3. Registration and Election Document Pickup;
4. Explanation;
5. Bidding Document Submission;
6. Bidding Document Evaluation;
7. Determination and Announcement of Winners; and
8. Objection.

You also need to know that PBJ conducted through international tenders/selections is announced on the ministry/agency/local government website and the international community website. The selection documents used are written in at least two languages: Indonesian and English. If there are differences in interpretation of the selection document, the Indonesian language document shall prevail. Meanwhile, the contract payment can use rupiah and/or in accordance with the provisions of laws and regulations.[20]

Thus, we advise you to review the information on public procurement organized by the local government you are referring to. The foreign business entity concerned can follow the information provided on the local government website or consult with LKPP as the developer of the e-marketplace if the implementation is carried out through e-purchasing. Ultimately, whether the company is allowed to participate in the tender is determined by the value and categorization of the procurement of goods/services online application itself.

These are the answers we can provide, we hope you will find them useful.

Legal Basis:

Regulation of the President Number 16 of 2018 on Government Procurement of Goods/Services as amended by Regulation of the President Number 12 of 2021 on the Amendment to Regulation of the President Number 16 of 2018 on Government Procurement of Goods/Services.

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[1] Article 1 number 1 Regulation of the President Number 12 of 2021 on the Amendment to Regulation of the President Number 16 of 2018 on Government Procurement of Goods/Services (“President Regulation 12/2021”).

[2] Article 3 section (1) Regulation of the President Number 16 of 2018 on Government Procurement of Goods/Services (“President Regulation 16/2018”).

[3] Article 1 number 31 President Regulation 12/2021.

[4] Article 1 number 32 President Regulation 12/2021.

[5] Article 1 number 20 President Regulation 12/2021.

[6] Article 69 President Regulation 16/2018.

[7] Article 38 section (1) President Regulation 12/2021.

[8] Article 38 section (2) President Regulation 12/2021.

[9] Article 38 section (3) President Regulation 12/2021.

[10] Article 38 section (4) and (5) President Regulation 12/2021.

[11] Article 38 section (6) President Regulation 12/2021.

[12] Article 41 section (1) letter a jo. Article 41 section (2) President Regulation 12/2021.

[13] Article 41 section (1) letter b jo. Article 41 section (3) President Regulation 12/2021.

[14] Article 41 section (1) letter c jo. Article 41 section (4) and (5) President Regulation 12/2021.

[15] Article 1 number 38 President Regulation 12/2021.

[16] Article 63 section (1) President Regulation 16/2018.

[17] Article 63 section (2) President Regulation 16/2018.

[18] Article 63 section (3) and (4) President Regulation 16/2018.

[19] Article 50 section (1) President Regulation 12/2021.

[20] Article 63 section (5), (6), (7), and (8) President Regulation 16/2018.