Market Segmentation for Construction Company

Indonesian Government finally issued Government Regulation No. 22 of 2020 on implementing regulations on law number 2 of 2017 and has been in force since 23 April 2020 (“GR 22/2020”) in order to expedite construction services with more technical and detailed provisions. The key provisions under GR 22/2020 are as follows:

1. 1. Responsibilities and authorities of the government;
   2. Business structures of construction services;
   3. Market segmentation of construction services;
   4. Organization of construction-service business;
   5. Development;
   6. Organization of public participation; and
   7. Procedures for the imposition of administrative sanctions.

The new impacting provisions are the market segmentation and organization of construction services. The market segmentation distinguished by:

1. 1. Risk which determined by the scope of work, location and workforce demand, technology, and cost. the risk determined by the scope of work, location and workforce demand
   2. Technology which determined based on materials, equipment, experts, and implementation methods; and
   3. Cost, which defined as the amount of money required to complete a given job.

The risk, technology, and cost may be determined as low, medium, and high as regulated under the Minister of Public Works and Housing (“Minister”).

After looking at the criteria above, the type of company and market segmentation for construction services regulated as follows:

1. 1. Small companies, only allowed to handle low-risk construction services that utilize simple technologies, and involve low costs and only allowed to handle construction works within their areas of expertise;
   2. Medium-sized companies, only allowed to handle construction works within their areas of expertise and allowed to handle construction services which are a medium risk in nature, which utilize average technologies and/or which involve medium costs; and
   3. Large companies and representatives of foreign construction-service companies, only allowed to handle construction services that are high-risk in nature, which utilize advanced technologies and/or which involve high costs and handle construction services which are high-risk in nature, which utilize advanced technologies and/or which involve high costs.

It is still possible for small and medium-sized construction companies to engage in medium and high-risk construction works if they employ the required experts.