Legal Memorandum

I.
Date 10th 2020.
Legal Issues
: January,
From : Gracia
1. What Monica P.H.
is Liquidated Damage?
To2. How
: Mr.does Indonesian
Michel legal
A. Rako, S.H.system regulate liquidated damage?

II. Relevant Regulations

1. Undang – Undang No 18 Tahun 1999 tentang Jasa Konstruksi

2. Peraturan Menteri Pekerjaan Umum No.7 Tahun 2011 Tentang Standar Dan Pedoman
Pengadaan Pekerjaan Konstruksi Dan Jasa Konsultansi
3. Peraturan Pemerintah Nomor 29 Tahun 2000 tentang Penyelenggaraan Jasa Konstruksi
juncto Peraturan Pemerintah Nomor 79 Tahun 2015 tentang Perubahan Kedua PP No 29
Tahun 2000.

III. Legal Analysis

A. What is Liquidated Damage

Liquidated Damages are a sum / amount which a party to a contract agrees to pay, or a
deposit which he agrees to forfeit, if he breaks some promise, and which, having been
arrived at by a good faith effort to estimate in advance the actual damage which would
probably ensue from the breach. 1 Liquidated damage is usually regulated specifically in a
contract as a form of penalty. In Indonesia, liquidated damage is commonly known as one
of the form of “Ganti Rugi ”.

“Ganti Rugi ” is a clause that can be found in many contracts, one of which is construction
contract. Construction Contract is an agreement to build a building with certain
requirements made by party I as the project owner and party II as the executor/ contractor.
If we refer to Law Number 18 year 1999 regarding Construction Service, normatively the
contract must contain thirteen (13) essential items. The Liabilities of The Parties is one of
the essential items, which can also regulate regarding the obligations that arise because of
the action that was conducted by the company or the contractor. Liquidated damage is one
of the consequences that arises due to the wrongdoing of the party in the contract, and for
it to become enforceable, it needs to be specifically regulated in the contract. In practice to
protect the Project Owner from the wrongdoing or bad performance by Contractor, parties
set out circumstances where liquidated damages becomes enforceable;

1
McCormick, C. (1930). Liquidated Damages. Virginia Law Review, 17(2), 103-128. doi:10.2307/1066240
 1. Delay of work; is a situation where the contractor is unable to finished the project
according to the period agreed in the contract.
2. Unfinished work; is a situation where the performance or the result of the work is not
as promised/ agreed in the contract.

However, the circumstances are not limited to the instances stated. Based on Article 1338
of the Indonesian Civil Code, party to a contract has the freedom to regulate / draft their
contract, in the condition of a lawful clause. It means that both parties have the freedom to
regulate the kind of circumstances where an action could resulted in the liquidated
damages. With the existence of liquidated damage as one of the consequence, parties to the
contract will make a Performance Bond. It is a one variety of surety bonds committing one
party to carry out an obligation. Serves as a form of insurance, compensating the client if
the contractor fails to complete the project. A Bank will be chosen to secure the amount of
money agreed by both party (liquidated damages), which can be thawed if a clause has
been breach or contractor failed to perform.

It is important to be noted that the liquidated damage clause must be distinguished from
the penalty clause. A penalty clause is a clause that does not aim to calculate or estimate
the loss that will be incurred in a contract. To enlighten the meaning and objectives of
liquidated damage ,one of the example of a clause in Specimen of Performance Bond in
regards to the amount of liquidated damages in Construction Contract will be provided
below;

“ At the request and for the account of the Contractor we hereby absolutely and irrevocably
guarantee and undertake to pay to you an amount not exceeding Rupiahs Twenty One
Billion Five Hundred Million (Rp 21,500,000,000) in immediately available funds at
Jakarta, upon your first written demand presented to our office, accompanied by a written
certificate signed on your behalf stating that the Contractor has failed or refused to fulfil
his obligations under the contract”

B. How does Indonesian Legal System regulate Liquidated Damages

As stated above, liquidated damage is a result of a breach of contract, and the

wrongdoing or the action of a party must meet the circumstances that has been concluded
in the contract. Since Indonesian Law acknowledge freedom of contract, there are no fixed
or certain circumstances that is regulated under the Indonesian Law.

However, for the construction contract, Indonesian Government has the created a
regulation, commonly used as a reference in the making of a contract in question.
Peraturan Pemerintah Nomor 29 Tahun 2000 tentang Penyelenggaraan Jasa Konstruksi
juncto Peraturan Pemerintah Nomor 79 Tahun 2015 tentang Perubahan Kedua PP No 29
Tahun 2000, this provision never obliged a party to a contract to include or regulate
regarding Liquidated Damages. The regulation only stated a general circumstance where it
rises obligation of the Contractor/ Service Provider. Those circumstances are set out in
Article 40 of the government regulation, which are ;

“Kewajiban dan Tanggung Jawab Penyedia Jasa

Pasal 40
(1) Sebagai dasar penetapan jangka waktu pertanggung jawaban, perencana konstruksi
wajib menyatakan dengan jelas dan tegas tentang umur konstruksi yang direncanakan,
dalam dokumen perencanaan dan dokumen lelang, dilengkapi dengan penjelasannya.
(2) Apabila terjadi kegagalan bangunan yang disebabkan oleh kesalahan perencana
konstruksi, maka perencana konstruksi hanya bertanggung jawab atas ganti rugi sebatas
hasil perencanaannya yang belum/tidak diubah.
(3) Apabila terjadi kegagalan bangunan yang disebabkan oleh kesalahan pelaksana
konstruksi, maka tanggung jawab berupa sanksi dan ganti rugi dapat dikenakan pada
usaha orang perseorangan dan atau badan usaha pelaksana konstruksi penandatangan
kontrak kerja konstruksi.
(4) Apabila terjadi kegagalan bangunan yang disebabkan oleh pengawas konstruksi,
maka tanggung jawab berupa sanksi dan ganti rugi dapat dikenakan pada usaha orang
perseorangan dan atau badan usaha pengawas konstruksi penandatangan kontrak kerja
konstruksi.”

Even if the government never stated regarding the obligation to regulate Liquidated
Damage, In practice many companies whom enters into a Construction Contract include
the provision in the contract. Since construction work takes long period and cost a lot of
money. The provision exist with the intention to secure Project Owner’s rights and ensure
that the contractor will perform their obligation accordingly to the contract.