Contract Performance Guarantee Template for Indonesia

A Contract Performance Guarantee is essential protection for your business projects in Indonesia. When you engage contractors for significant work, this document ensures that a third party—typically a bank—guarantees the contractor's performance obligations, giving you financial security if the contractor fails to deliver.

When do you need this document?

You need a Contract Performance Guarantee for most substantial projects in Indonesia. Government contracts under Presidential Regulation No. 16 of 2018 mandatorily require performance guarantees, typically 5-10% of the contract value. Private sector projects also commonly use these guarantees in construction, infrastructure development, IT system implementations, and major service contracts. Foreign investors particularly benefit from performance guarantees when working with local Indonesian contractors, as they provide recourse through established banking institutions. The guarantee becomes crucial when contract values exceed IDR 500 million or when project timelines span multiple months.

Key legal considerations

Your guarantee must specify the exact guaranteed amount, validity period, and triggering events for claims. The document should clearly define what constitutes contractor default, whether partial or complete non-performance. Include provisions for guarantee extension if the underlying contract is extended, and specify the currency of the guarantee amount. Consider whether you need an unconditional guarantee (payable on first demand) or conditional guarantee (requiring proof of breach). The guarantee should address force majeure events and their impact on performance obligations. Ensure the document includes proper termination clauses and procedures for guarantee release upon successful contract completion.

Legal requirements in Indonesia

Indonesian law requires performance guarantees to comply with Civil Code Articles 1820-1850 governing suretyship agreements. Banks issuing guarantees must follow Banking Law No. 7 of 1992 and Bank Indonesia Regulation No. 18/4/PBI/2016, which regulate guarantee issuance procedures and capital adequacy requirements. The guarantee must be denominated in Indonesian Rupiah unless specifically approved for foreign currency under Law No. 24 of 1999. For government projects, the guarantee format must conform to standard formats specified in procurement regulations. The document requires proper authentication, with bank guarantees needing authorized bank officer signatures and corporate seals. Foreign currency guarantees need Bank Indonesia approval, and the guarantee must specify governing law and dispute resolution mechanisms, typically Indonesian law and Indonesian courts or arbitration.