Can Foreign Companies Participate in Government Procurement in Indonesia?

The participation of foreign companies in government procurement in Indonesia is, in principle, permitted, but does not generally apply to all types of procurement. Foreign companies may, in principle, participate only in international procurement, subject to the applicable package value thresholds, procurement methods, qualification requirements, and obligations to cooperate with national business entities as stipulated under Indonesian government procurement regulations.

This framework demonstrates that although foreign companies are not absolutely prohibited from participating in government procurement, Indonesia’s procurement system continues to prioritize national business entities and domestic products.

International Procurement as the Entry Route for Foreign Companies

LKPP Regulation No. 1 of 2022 provides guidelines for international procurement financed through the State Budget (APBN) or Regional Budget (APBD). Under LKPP Regulation No. 1 of 2022, international procurement may be conducted for packages exceeding certain value thresholds, namely:

• Construction works: above IDR 1 trillion;
• Goods/other services: above IDR 50 billion; and
• Consulting services: above IDR 25 billion.

Procurement below these thresholds may, in principle, still be conducted internationally if there are no national business entities capable of performing the relevant procurement and meeting the applicable requirements.

Accordingly, the package value is not the sole factor determining whether procurement may be opened internationally. The availability and capability of national business entities are also important considerations in determining whether a procurement package may be opened to international participation.

Several ministries also have sector-specific regulations governing the participation of foreign companies with different value thresholds. For example, within the Ministry of Marine Affairs and Fisheries, Minister of Marine Affairs and Fisheries Regulation No. PER.11/MEN/2008 establishes thresholds of above IDR 50 billion for construction works, above IDR 10 billion for goods/other services, and above IDR 5 billion for consulting services.

Meanwhile, within the Ministry of Defense/TNI, Minister of Defense Regulation No. 17 of 2011 as amended by Minister of Defense Regulation No. 17 of 2013 establishes thresholds of above IDR 100 billion for construction works, above IDR 20 billion for goods/other services, and above IDR 10 billion for consulting services.

For packages below these thresholds that cannot be fulfilled by domestic providers, certain sector-specific regulations may nevertheless permit international tendering or selection.

Therefore, foreign companies seeking to participate in government procurement must consider not only the general LKPP framework but also the sector-specific regulations applicable to the ministry or government institution conducting the procurement.

Obligation to Cooperate with National Business Entities

Participation in international procurement does not mean that a foreign company may independently perform the entire procurement package.

Under various procurement regimes, foreign companies are required to cooperate with national business entities where there are national companies capable of performing the relevant scope of work.

In the marine and fisheries sector, for example, Minister of Marine Affairs and Fisheries Regulation No. PER.11/MEN/2008 requires foreign companies carrying out work above the applicable threshold to establish business cooperation with national companies in the form of partnerships, subcontracting, or other forms of cooperation.

Similar requirements apply in the defense and TNI sectors under Minister of Defense Regulation No. 17 of 2011 as amended by Minister of Defense Regulation No. 17 of 2013.

In international procurement practice, such cooperation may take the form of a consortium, subcontracting arrangement, partnership, or other forms of cooperation in accordance with the requirements set out in the procurement documents.

For certain goods or construction procurement, foreign companies may also be required to cooperate with domestic industries in the manufacture of spare parts and the provision of after-sales services. Such requirements are generally intended to support technology transfer and ensure the continuity of services in Indonesia.

In particular, for defense-sector procurement financed through export credits, other credits, or grants, procurement documents may also contain requirements concerning cooperation with domestic industries, the transfer of capabilities, knowledge, and expertise, as well as the implementation of procurement, to the extent possible, within Indonesia.

No Requirement to Establish an Indonesian Legal Entity

One important question for foreign companies is whether they must first establish an Indonesian legal entity in order to participate in an international tender.

In principle, there is no normative requirement to establish an Indonesian legal entity solely for the purpose of participating in an international tender or selection.

However, the absence of such a requirement does not mean that foreign companies may disregard the legal and administrative requirements applicable to the procurement process. Companies must still satisfy all qualifications stipulated in the procurement documents.

Foreign companies must also have the legal capacity to enter into a contract. In practice, this may be demonstrated through corporate establishment documents, amendments to the company’s constitutional documents, evidence of the appointment of an authorized representative, and the identity of the person representing the company.

For procurement conducted through an electronic procurement system, foreign providers must also comply with the applicable registration procedures and submit the required business information through the Electronic Procurement System (SPSE).

In addition, participants must comply with requirements concerning integrity pacts and participant declarations, including requirements relating to bankruptcy status, blacklisting, and restrictions applicable to management or directors under the regulations governing procurement through providers.

Accordingly, a foreign company does not necessarily need to establish an Indonesian entity solely to participate in government procurement. However, it must still demonstrate the required legal standing, contractual capacity, and administrative and technical qualifications.

International Procurement Mechanisms

LKPP Regulation No. 1 of 2022 provides that the method for selecting providers in international procurement is determined based on the procurement strategic plan.

Such methods may include:

• International Tender, for goods, construction works, or other services;
• International Selection, for consulting services; and
• Direct Appointment, for certain circumstances as provided under the applicable regulations.

In general, international tender or selection processes continue to follow the applicable procurement stages, including qualification, announcement or invitation, registration and collection of procurement documents, clarification, submission of bids, evaluation, determination of the successful bidder, and objection procedures.

For certain international procurement, particularly in the defense sector, procurement documents may be required to be made available in Bahasa Indonesia and English. Where there is a difference in interpretation, Bahasa Indonesia may be designated as the prevailing language in accordance with the relevant sector-specific regulations.

Announcements for international procurement may also be made through the websites of ministries, government institutions, or regional governments, as well as international community websites, in accordance with the applicable procedures.

Priority for Domestic Products and National Business Entities

Although foreign companies may participate, Indonesia’s government procurement framework continues to give greater priority to domestic products and national business entities.

In certain sectors, there are requirements to maximize the use of domestic production and national providers. Procurement documents may also provide price preferences for domestic products or providers.

For example, within the Ministry of Marine Affairs and Fisheries, sector-specific regulations provide for price preferences for domestically produced goods and national construction service providers. For certain international procurement financed through foreign loans, price preferences may also be granted to domestic products and national contractors in accordance with the applicable regulations.

Procurement may also be restricted based on package value to provide opportunities for micro, small, and small cooperative enterprises. In the marine and fisheries sector, for example, packages for construction or other services with a value of up to IDR 1 billion are allocated to small businesses, including small cooperatives, unless the required technical competence cannot be met.

In the defense sector, procurement packages for goods, construction works, or other services with a value of up to IDR 2.5 billion are allocated to micro and small businesses and small cooperatives, subject to an exception where the required technical competence cannot be met.

This framework demonstrates that, in practice, access for foreign companies to government procurement is more open for large-value packages and/or packages that cannot be fulfilled by national business entities.

Key Considerations

For foreign companies seeking to enter Indonesia’s government procurement market, several matters should be considered from the outset.

First, the company should determine whether the relevant package may be conducted through international procurement based on the package value and characteristics of the procurement.

Second, the company should assess whether there are any sector-specific regulations establishing additional thresholds or requirements applicable to foreign providers.

Third, the company should prepare an appropriate cooperation structure with national business entities, whether through a consortium, partnership, subcontracting arrangement, or other permissible form of cooperation.

Fourth, the foreign company should ensure that all legal, administrative, technical, and contractual requirements can be satisfied without first establishing an Indonesian legal entity, where the selected procurement structure permits direct participation by a foreign provider.

Ultimately, the participation of a foreign company in government procurement is not merely a question of whether foreign companies are permitted to participate in a tender. The procurement structure, package value, sector-specific requirements, availability of national providers, cooperation arrangements, and domestic product requirements should be assessed together.

How TAMA Global Mobility Can Assist

• Government Procurement Eligibility Assessment, assessing whether a foreign company may participate in a government procurement process in Indonesia and identifying the applicable procurement framework.
• International Procurement Structuring, advising on the appropriate structure for participation in international tenders or selections, including applicable value thresholds and procurement mechanisms.
• Local Partner & Consortium Structuring, assisting foreign companies in assessing and structuring cooperation with Indonesian business entities through consortium, partnership, subcontracting, or other permissible arrangements.
• Qualification Review, reviewing corporate documents, contractual capacity, administrative requirements, and other qualification requirements applicable to foreign bidders.
• Sector-Specific Procurement Advisory, assessing sector-specific procurement requirements applicable to foreign companies, including requirements concerning domestic suppliers, domestic products, technology transfer, and local implementation.
• Procurement Compliance Advisory, assisting foreign companies in navigating government procurement requirements.

TAMA Global Mobility assists foreign companies in navigating Indonesia’s regulatory and market-entry landscape through a structured approach to corporate, licensing, government procurement, and cross-border compliance.

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TAMA Global Mobility

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Email: info@tamaglobalmobility.com

 

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