INDONESIA Law and Practice Contributed by: Yogi Sudrajat Marsono, Heru Pamungkas, Agnes Maria Wardhana and Andin Aditya Rahman, Assegaf Hamzah & Partners
In certain instances, the project owner may choose a provisional sum arrangement, allo - cating a predetermined amount for tools and equipment procurement in the agreement. This sum provides flexibility for potential variations in costs or unforeseen expenses during the pro - ject’s execution. 7.2 Assigning Responsibility for the Design and Construction of a Project The different methods used for assigning responsibility for the design and construction of a project are referred to as the delivery system under the Construction Service Regulation, and include: • design-bid-build (DBB), in which a contrac - tor will make an agreement with the project owner to provide a specific type of construc - tion service; and • design-build (DB), in which the contractor will make an agreement with the project owner to provide multiple construction services. Under DBB, typically one contractor will handle the design work, while another contractor takes on the construction phase. Each contractor will be responsible for the specific tasks based on its agreement with the project owner. Conversely, in the DB method, both the design and construc - tion works are carried out by a single contractor. 7.3 Management of Construction Risk Warranties are common to manage construction risk on a project, specifically guarantees issued by a financial institution. Depending on the nature of the project, the con - tractor may furnish various types of warranties to the project owner. The Construction Service Regulation and Presidential Regulation No 16 of 2018 on Government Goods/Services Procure -
ment recognises the following types of guaran - tees: • Bid Bond – a type of guarantee aimed to assure the project owner of the bidder’s seri - ousness regarding their bid and their financial capability to execute the project if awarded; • Advance Payment Bond – to ensure the repayment of any advance payments made by the project owner before the commence - ment of work on a construction project; • Performance Bond – to provide assurance to project owners that they will be adequately protected in the event of contractor default, non-performance or failure to achieve the determined quality or performance standards; and • Warranty Bond – guarantees the maintenance of the construction during the specified main - tenance period. There is no legal limitation to such warranties, which are typically governed by the agreement between the contractor and the project owner. 7.4 Management of Schedule-Related Risk Construction agreements commonly include penalties in the form of fines for contractors who fail to meet specified milestones or deadlines. These fines are typically calculated daily, with the amount usually set at a fraction of the agree - ment’s value, often 1/1000. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Project owners often seek additional security measures, especially when contractors require project financing for project execution. Typically, project owners will demand that contractors pro - vide guarantees, commonly in the form of per - formance bonds or third-party sureties. If the
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