Performance Bond and Its Relation to the Issuance of SP2D for Government Projects

Why is a Performance Bond an Important Requirement for SP2D?

After the contractor wins the tender and signs the government project contract, the next stage is the issuance of the SP2D (Fund Disbursement Order) for the down payment or first installment.

However, before the SP2D can be issued by the KPPN (State Treasury Service Office), the contractor is required to submit a Performance Bond.

A Performance Bond is more than just a formality. It’s a guarantee of trust, ensuring the contractor will execute the work according to the contract specifications, timeframe, and quality. Without this guarantee, the first SP2D would never have been issued.

In this article, we will discuss in depth how Performance Bonds work, their relationship to SP2D, and how L&G Insurance Brokers help contractors prepare guarantees quickly and efficiently to avoid delays in project fund disbursement.

Contact L&G Insurance Broker now at Phone number 08118507773 for a free consultation before the risks haunt your business.

What is a Performance Bond?

Performance Guarantee is a form of guarantee given by the contractor to the project owner (obligee) to ensure that the work will be completed according to the contract.

If the contractor fails to carry out the work — either due to default, delay, or breach of contract — then the surety company is obliged to pay compensation to the project owner in the amount of the guarantee value.

This guarantee is issued by a bank or surety insurance company registered with the OJK and recognized by LKPP.

Legal Basis for Performance Bonds in Government Projects

Regulations governing the use of implementation guarantees in government projects include:

1. Presidential Regulation No. 16 of 2018 concerning Government Procurement of Goods/Services
2. LKPP Regulation No. 12 of 2021
3. OJK Regulation No. 68/POJK.05/2016 concerning the Implementation of Guarantee Business
4. Regulation of the Minister of Finance No. 211/PMK.05/2013 concerning the Mechanism for Implementing the State Budget
5. The regulation explains that disbursement of funds through SP2D can only be done if all administrative requirements are met, including the existence of a valid Implementation Guarantee.

Functions and Objectives of Performance Guarantee

Performance Bond has three main functions:

🛡️Guarantees the contractor’s compliance with the contract. If the contractor fails, the surety will compensate the project owner for any losses.

💰It is an administrative requirement for the SP2D down payment. Without this guarantee, the PPK and KPPN will not process the disbursement of funds.

🤝Building trust between the government and contractors. The government is confident that contractors who have performance guarantees will work professionally.

In other words, a Performance Bond is a moral and financial guarantee that underpins trust in government projects.

1. Value and Effective Time of Performance Guarantee
2. The value of the performance guarantee is set out in the contract documents, usually:
3. 5% of the contract value, for contracts with down payment.
4. 10% of the contract value, for contracts without down payment.

The implementation guarantee period is usually the same as the implementation time of the job plus an additional grace period of 28-30 days.

Direct Relationship between Performance Bond and SP2D

1. SP2D can only be issued if all administrative documents are declared complete and valid by the PPK and KPPN, including:
2. Signed employment contract.
3. The Cost Budget Plan (RAB) was approved.
4. Work implementation schedule.
5. And the Performance Guarantee issued by an official institution.
6. 📌Without a Performance Bond, the SP2D down payment cannot be issued.
7. In other words, the implementation guarantee becomes the “opening door” for the disbursement of project funds.

The Process of Issuing Performance Guarantees Through Insurance Brokers

Here are the practical steps for contractors to obtain a guarantee of implementation quickly and legally through L&G Insurance Broker:

1. The contractor sends a copy of the project contract.
2. The broker checks the legality of the company (SIUJK, NPWP, deed, business permit).
3. Risk analysis and financial feasibility are carried out by insurance companies.
4. If approved, the guarantee is issued in the form of a policy or official certificate.
5. The original documents are submitted to the PPK, then forwarded to the KPPN for SP2D submission.
6. With a digital process and real-time monitoring system, the guarantee can be issued within 1 working day when the documents are complete.

Documents Required for Performance Bond Application

To ensure the publishing process is fast and without delay, contractors should prepare:

1. Copy of project contract or work agreement letter.
2. NPWP and company legality documents.
3. SIUJK and competency certificate.
4. Last 1 year financial report or 3 months bank statement.
5. Performance guarantee application form.

Insurance brokers will help ensure that all documents comply with LKPP and OJK regulations so that they are not rejected by the KPPN when submitting the SP2D.

Benefits of Using Insurance Guarantees Compared to Bank Guarantees

From an efficiency and financial perspective, insurance coverage is more beneficial for contractors, especially for projects with tight cash flow and many simultaneous contracts.

Case Example: SP2D Delayed Due to Invalid Guarantee

One of the road contractors in Kalimantan experienced delays in disbursing SP2D down payments because the implementation guarantee submitted did not come from an OJK-registered insurance company.

The KPPN rejected the documents, and the disbursement of funds was delayed for two weeks.

After working with L&G Insurance Broker, the contractor received a new, valid and digitally verified guarantee, so that the SP2D was issued immediately the next day.

This incident demonstrates the importance of choosing an experienced broker who understands LKPP regulations and the KPPN system.

Impact of Performance Bond Delays on SP2D

Delays in issuing performance guarantees may result in:

1. SP2D down payment delayed.

1. The project could not be started on time.
2. The contractor’s reputation in the eyes of the PPK declined.
3. The risk of penalties for delays increases.

Insurance brokers like L&G help prevent all these risks by ensuring that coverage is issued ahead of the SPM schedule.

Strategy to Ensure SP2D is Not Hampered by Implementation Guarantees

Here are some practical tips to ensure the SP2D process runs smoothly:

1. Submit a performance bond as soon as the contract is signed.
2. Use an experienced broker who has access to many insurance companies.
3. Make sure the guarantee issuer is registered with the OJK and recognized by LKPP.
4. Check the warranty period so that it doesn’t run out before the job is done.
5. Keep a digital copy of the collateral in case of an audit.
6. Make sure all data on the guarantee policy is identical to the contract documents.

The Role of L&G Insurance Brokers in Ensuring Smooth SP2D Processing

As a leading national insurance broker, L&G Insurance Broker provides a complete service for contractors requiring project coverage.

We not only issue documents, but also ensure that the guarantees issued are valid, comply with regulations, and recognized by the KPPN.

Our featured services:

1. Consultation and recommendations on the type of guarantee according to the project contract.
2. Negotiate the best premium and coverage limits with insurance companies.
3. Fast publishing (1 working day) with integrated digital system.
4. SP2D administrative assistance to avoid KPPN rejection.
5. Guarantee claim assistance in the event of a dispute or default.

With over three decades of experience, L&G has assisted many national and regional contractors in issuing project guarantees and ensuring smooth SP2D processes.

Case Study: Rp25 Billion Irrigation Project with SP2D Runs Smoothly Thanks to L&G

A contractor in Central Java won an irrigation development project worth Rp. 25 billion.

Once the contract was signed, they immediately applied for a 5% performance bond (Rp1.25 billion) through L&G Insurance Broker.

Within 8 working hours, the guarantee was issued, verified by the PPK, and the SP2D down payment was disbursed two days later.

The project started on time without any administrative obstacles.

Conclusion: Performance Bonds Are the Main Gateway to SP2D

1. For government project contractors, a Performance Bond is a mandatory document that ensures that the SP2D advance payment can be issued on time.
2. Without this guarantee, the project will not be able to proceed, and the disbursement of funds will be delayed.
3. With the support of L&G Insurance Broker, contractors get:
4. Fast and legal publishing process,
5. Competitive premiums,
6. Documents that comply with LKPP & OJK regulations,
7. And full assistance until the SP2D is issued.
8. In government projects, SP2D will only be disbursed if all guarantees are complete, valid, and verified.

Entrust your insurance needs to L&G Insurance Broker — a professional partner of contractors throughout Indonesia.

DON’T WASTE YOUR TIME AND SECURE YOUR FINANCES AND BUSINESS WITH THE RIGHT INSURANCE.

HOTLINE L&G 24 JAM: 0811-8507-773 (PHONE – WHATSAPP – SMS)

Website: lngrisk.co.id

Email: halo@lngrisk.co.id