Multi-Year Contract in Indonesia: Its Validity and Conditions of Its Formation

A multi-year contract is legally permitted to be exercised within public procurement according to the existing regulations in Indonesia. The justification, however, hints at certain legal risks for the validity of multi-year contracts because the 1945 Constitution, State Finances Act 2003, and State Treasury Act 2004, respectively, prohibit funding contracts for more than one fiscal year. In this qualitative research design, a multiple research approach was used employing the statute, case based, conceptual approach, and comparative approaches. The data was collected through the Indonesian statutory laws, specific court decisions, relevant doctrines on Jurisprudence and best practices of the utilization of multi-year contracts in the Department of Defense (DOD) of the United States. This research eventually found three things: (1) without specific statutory authority, the government has no authority to exercise multi-year contracts within public procurement, (2) multi-year contract whose formation is based upon the existing regulations is legally invalid, (3) substantial savings should be the basis to determine conditions for the formation of a multi-year contract. It was also found that the existing multi-year contract conditions, being too general, present the government's lack of will to formulate new regulations of multi-year contracts and continue with their self-created regulations. The study highly recommends adopting the US multi-year contract conditions which are highly specific and validated for all types of scenarios.