Client Newsflash

Minister of State-Owned Enterprises Bolsters Use of Local Products in Procurement of Goods and Services

On December 12, 2019, the Minister of State-Owned Enterprises (Badan Usaha Milik Negara or “BUMN”) issued Regulation No. PER-08/MBU/12/2019 on General Guideline for the Implementation of the Procurement of Goods and Services by State-Owned Enterprises (the “New Regulation”). This New Regulation aims to increase the use of local products and to enhance the role of national business actors.

The New Regulation replaces the Minister of BUMN Regulation No. PER-05/MBU/2008 dated September 3, 2008 which bore the same title and which was amended through the issuance of Minister of BUMN Regulation No. PER-15/MBU/2012 dated September 25, 2012 (collectively, the “Previous Regulation”).

We set out below the key points of the New Regulation.

  • Utilization and Monitoring of Local Product

Under the New Regulation, any BUMN that intends to procure goods and/or services (a “User”) is required to prioritize the utilization of domestic goods and services, national designs and engineering, as well as to participate in the expansion of opportunities for small-scale businesses. Furthermore, the board of directors (“BoD”) of a User will be required to establish an internal Local Component Level (Tingkat Komponen Dalam Negeri or “TKDN”) Team in order to monitor and ensure the utilization of local components during the procurement process. These rules were not addressed under the Previous Regulation.

  • Price Preferences for Local Component

Previously, the rules on price preferences were not addressed under the Previous Regulation. Under the New Regulation, a User may set price preferences for domestic products with the TKDN value of 25% or above.  The price preferences for said products are to be determined as follows:

  1. up to 25% for local products; and
  2. up to 7.5% for construction services offered by local companies.
  • Qualifications and Options for BUMN Subsidiaries or BUMN-affiliated Companies

The New Regulation allows BUMN subsidiaries or BUMN-affiliated companies to directly appoint any other BUMN, BUMN subsidiaries, or BUMN-affiliated companies in procuring goods and services. However, the New Regulation relaxes the share percentage requirement for a BUMN subsidiary or a BUMN-affiliated company. Previously, the Previous Regulation required a minimum of 90% ownership by one or more BUMN before a company qualified as a BUMN subsidiary or a BUMN-affiliated company. Now, the New Regulation only requires more than 50% ownership by one or more BUMN.

Further, the New Regulation stipulates that the application of the New Regulation is optional for BUMN subsidiaries and BUMN-affiliated companies. As such, these companies can choose whether or not to adopt the requirements under the New Regulation through their general meeting of shareholders.

  • Procurement Procedures

The New Regulation uses different terms than those of the Previous Regulation on the procedure for the procurement of goods/services. However, the procedures are still similar with the Previous Regulation, as follows:

  1. a tender/general selection (previously, an “open tender”), where a User announces its procurement plans publicly through the mass media in order to provide a fair opportunity for all qualified providers of goods/services to participate in the selection process (auction);
  2. a limited tender/limited selection (previously, a “direct tender”), where a User only informs a limited number of parties of the relevant procurement plans. This process must result in at least two bids;
  3. a direct appointment, where a User directly appoints a single party to be the provider of goods/services or makes an appointment through “beauty contests” once they have satisfied at least one of the requirements set under Article 13 (2) of the New Regulation; and
  4. a direct procurement, which refers to purchases of goods that are currently available in the marketplace so that the price follows the market price. This procedure includes e-purchasing.

Further, the New Regulation stipulates that BUMN may set a bid bond as a requirement in a tender, a general selection, a limited tender, or a limited selection process unless the supplier of the goods/service is a BUMN or ex-BUMN parties.

  • Long Term Procurement

The New Regulation clarifies the details of the requirements for the long-term procurements, which are as follows:

  1. work that requires more than 12 months or one fiscal year to complete;
  2. work that will provide an added value if the contract lasts for a period of one to three fiscal years;
  3. work that requires a long-term investment; and
  4. routine work that must be completed at the beginning of a given year.

The BoD of BUMN is allowed to formulate the price adjustment for multi-year contracts based on market conditions and prevailing best practices.

  • Deadline to File an Objection

Previously, a User could file an objection within 4 business days as of the date of announcement of the winning bidder or the date of the contract award (whichever is earlier), and the BUMN will have 14 calendar days to respond.

Now, the New Regulation shortens the period in which a bidder can file an objection against a BUMN’s determination of the winning bid or contract award. A User may file an objection against the announced tender winners within 2 days as of the date of announcement of the winning bidder or the date of the contract award (whichever is earlier), and the relevant User must then respond to the objections within 7 calendar days of receiving them.

  • Procurement Contract

Unlike the Previous Regulation, the New Regulation only requires the procurement contract to provide, at least, clear rules on the rights and obligations between the parties. Such procurement contract must also heed the provisions of the applicable laws and regulations, good corporate governance as well as the precautionary principle on the business judgment rule.


February 11, 2019

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