Construction projects involving overseas contractors and investors in Indonesia are inherently complex. Beyond technical execution, such projects require careful navigation of Indonesian contract law, construction-specific regulations, and local business practices. In practice, many disputes do not arise from the absence of contracts, but from inadequate contract management and misaligned risk allocation throughout the project lifecycle.
On 15 December 2025, Schinder Law Firm conducted a Contract Drafting & Management Training for PT PECI, focusing on practical legal risk management in construction projects involving overseas contractors and cross-border stakeholders. The training was designed to address recurring contractual and operational challenges frequently encountered by Chinese companies and foreign-invested enterprises executing construction and EPC projects in Indonesia.
Contract Management: A Critical Risk Control Function for Overseas Projects
For Chinese companies operating in Indonesia, construction contracts are often perceived primarily as commercial instruments. However, under Indonesian law, contracts carry strong binding force. Pursuant to Article 1338 of the Indonesian Civil Code, a lawfully executed contract binds the parties as if it were law.
In the context of construction projects, contract management should not be understood as a purely administrative function. Rather, it is a systematic process of controlling legal, commercial, and operational risks from contract execution to project close-out. Consequently, ineffective contract management, such as failing to follow contractual procedures for variations, notices, or handover, can significantly weaken a party’s legal position, even where commercial justifications appear reasonable.
Accordingly, Schinder emphasized during the training that contract management should be treated as an integral part of project risk management, not merely an administrative or documentation exercise.
For overseas construction projects, effective contract management typically includes systematic monitoring of contractual obligations and milestones; strict control over variations and change orders; documentation of performance and communications; and preparation of evidentiary records for potential disputes.
Risk Allocation in Construction Contracts: Practical Issues for Chinese Contractors
Construction contracts in Indonesia function as risk allocation frameworks, determining how time, cost, and liability risks are distributed between the employer and contractor. Schinder team explains several risk areas were highlighted as particularly relevant to Chinese companies includes:
- Scope of Work and Technical Consistency
Disputes frequently arise from discrepancies between the contract, technical drawings, BOQs, and tender documents. In cross-border projects, translation inconsistencies further increase risk. Indonesian courts and arbitral tribunals generally rely on the written contract, underscoring the importance of clear, consistent, and integrated documentation. - Time, Delay, and Extension of Time (EOT)
Delay claims often fail not because delays did not occur, but because contractors did not follow contractual notice and submission requirements. Overseas contractors commonly underestimate the importance of formal notices, relying instead on project meetings or informal approvals. - Payment and Handover Risks (BAST)
In Indonesian construction practice, the Berita Acara Serah Terima (BAST) serves as formal legal evidence of completion and acceptance. BAST is commonly required as a basis for:
- progress payments;
- release of retention or bank guarantees; and
- commencement of defect liability periods.
Failure to properly issue or secure signed BAST—even where physical completion has occurred—often results in delayed payments and weakened legal claims.
- Variations and Change Orders
Project changes are inevitable, particularly in large-scale or technically complex projects. However, informal changes implemented without written amendments or variation orders expose contractors to significant payment and liability risks. Indonesian adjudicators place strong emphasis on documented agreement.
Common Contract Management Issues Identified in Practice
Based on Schinder Law Firm’s extensive legal experience and legal audits to prominent Chinese enterprises, overseas construction projects in Indonesia commonly face the following issues:
- overly broad or imprecise contractual language;
- incomplete identification of project locations, ports, or handover sites;
- unclear commencement points for contractual timelines;
- inconsistencies in bilingual contracts without a clear prevailing language clause;
- reliance on “business practice” rather than contractual provisions;
- failure to issue contractual notices within prescribed deadlines; and
- fragmented or poor documentation of performance and correspondence.
The aforementioned issues are often compounded by differences in legal culture and project management practices between Chinese contractors and Indonesian counterparties.
Dispute Resolution Considerations for Chinese Companies
Construction contracts in Indonesia typically provide for dispute resolution through negotiation, mediation, arbitration (such as BANI), or litigation before Indonesian courts. For Chinese companies, arbitration is often preferred due to neutrality, confidentiality, and enforceability considerations. Nevertheless, the training emphasized that successful dispute resolution depends less on the forum chosen and more on the quality of contract compliance and documentation throughout the project lifecycle.
More than just a technical exercise, the programme served as an investment in foresight—equipping PT PECI with the capacity to anticipate potential disputes and to approach contracts as dynamic instruments that evolve with business needs. In this sense, contract review is not only about avoiding pitfalls but also about building a stronger foundation for governance, resilience, and long-term sustainable growth.
The session was led by Budhi Satya Makmur, S.H., M.H., Partner at Schinder Law Firm, whose 14 years of experience in litigation, arbitration, and corporate matters include representing both domestic and multinational enterprises in high-stakes disputes before Indonesia’s arbitration institutions and national courts. His expertise offered participants both authority and practical insight into navigating complex contracts. To further ensure the program was delivered in a way that was clear and accessible to participants, Budhi was supported by Rifcky Utomo, S.H., a Schinder lawyer experienced in cross-border matters involving Chinese, English, and Indonesian-speaking companies. Rifcky’s assistance helped align the discussion with the client’s business context and day-to-day realities.
Schinder Law Firm is fully committed to guiding Chinese enterprises through Indonesia’s evolving regulatory landscape. With careful training and strategic support, the fine print in a contract can be transformed from a hidden risk into a source of resilience and opportunity.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Budhi Satya Makmur