Bank Guarantee Performance Bond Template for Indonesia
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What is a Bank Guarantee Performance Bond?
The Bank Guarantee Performance Bond is a crucial financial instrument in Indonesian business transactions, particularly in construction, infrastructure, and major procurement projects. This document is required when a project owner needs security for a contractor's performance obligations, typically representing 5-10% of the contract value. The bond, issued by an Indonesian bank or a foreign bank's Indonesian branch, must comply with OJK regulations and the Indonesian Civil Code. It contains specific provisions about the guaranteed amount, validity period, demand mechanisms, and payment terms. The document becomes especially important in government tenders and large-scale private projects where performance security is mandatory. Banks typically issue these guarantees based on their assessment of the Principal's creditworthiness and often require counter-security or collateral.
About the Bank Guarantee Performance Bond
A Bank Guarantee Performance Bond is an essential financial security instrument that protects project owners when engaging contractors or service providers in Indonesia. Under Indonesian banking law and the Civil Code, this document creates a three-party relationship between the bank (guarantor), the contractor (principal), and the project owner (beneficiary), ensuring that contractual obligations are met or compensation is provided.
When do you need this document?
You need a Bank Guarantee Performance Bond when participating in government tenders, large-scale construction projects, or significant procurement contracts in Indonesia. This document is typically mandatory for contracts exceeding IDR 200 million and is required by most state-owned enterprises and government agencies. The bond amount usually ranges from 5-10% of the total contract value, serving as security that you will complete your contractual obligations. International contractors working in Indonesia must obtain these bonds from Indonesian banks or Indonesian branches of foreign banks to comply with local regulations.
Key legal considerations
The performance bond must contain specific elements to be legally enforceable under Indonesian law. The guarantee amount, validity period, and demand mechanism must be clearly defined, with the bank's obligation being unconditional and payable on first demand. You must ensure the bond includes proper identification of all parties, references to the underlying contract, and compliance with OJK banking regulations. The document should specify whether it's an unconditional guarantee or a conditional one, as this affects the ease of claiming under the bond. Banks typically require counter-guarantees or collateral from the principal, and the bond's validity period must align with the contract performance timeline plus a reasonable grace period.
Legal requirements in Indonesia
Indonesian law mandates that performance bonds comply with Law No. 10 of 1998 on Banking and OJK Regulation No. 40/POJK.03/2019, which governs bank guarantee quality assessment and issuance standards. The bond must be issued by a bank licensed by OJK and contain specific legal language recognizing Indonesian jurisdiction and applicable law. For government projects, additional compliance with Presidential Regulation on Government Procurement is required. The document must be executed with proper signatures from authorized bank officials and may require notarization depending on the contract terms. Foreign banks must issue guarantees through their Indonesian subsidiaries or branches, and all documentation must be in Indonesian language for government contracts, with English versions permitted for private sector agreements.
GOVERNING LAW
Applicable law
This Bank Guarantee Performance Bond is drafted to comply with Indonesia law. Key legislation includes:
Law No. 7 of 1992 on Banking as amended by Law No. 10 of 1998: Main banking law that regulates banking activities in Indonesia, including the issuance of bank guarantees
OJK Regulation No. 40/POJK.03/2019: Regulates the quality assessment of bank guarantee assets and sets standards for bank guarantee issuance
Bank Indonesia Regulation No. 18/4/PBI/2016: Governs foreign exchange transactions and settlements in banking operations, relevant for international performance bonds
Law No. 21 of 2011 on Financial Services Authority (OJK): Establishes OJK's authority to regulate and supervise financial services sector, including banking services and guarantees
Minister of Finance Regulation No. 124/PMK.010/2007: Specific regulations regarding the issuance of bank guarantees for government procurement projects
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