The Cost of Multi-Level Sub-Contracting

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  • TEMPO.CO, Jakarta - On this day last year, Lingu (earthquake), Bomba Talu (tsunami), and liquefaction rocked Central Sulawesi, killing 4,845 people and displacing tens of thousands. Nine Palu journalists, members of the "Disaster Management Accountability" fellowship--a program held by Tempo Institute, International Media Support (Denmark), and AJI Palu, decided to tell the survivors' stories. They investigated projects suspected to be manifested with problems, as well as cover Palu's dream of having a tsunami wall. Here are their three coverages.

    The government built 699 temporary housing units worth Rp417 billion for 8,388 disaster survivors. Its budget was cut before work even began.


    NAPAKAREBA and his wife could only watch on as a dozen men suddenly cordoned off his residence with yellow and black tape. It reminded him of the taping off of a crime scene. However, no crime had taken place at this temporary housing, and these men did not look like police officers. What was going on?

    Napakareba’s confusion cleared up after one man spray-painted a message on one wall in large, red letters. It read: This temporary housing is being sealed. It has not been paid off!

    This all took place at the site of Huntara (Temporary Housing) Mamboro on that hot Thursday, May 16, 2019. It was done by employees of CV Livbar Perkasa, which built three such units in Mamboro, one of them being Napakareba’s place of residence.

    Those people from CV Livbar sealed off that house because most of the money for this project worth Rp1.3 billion had not yet been paid by PT Unik Sejahtera Bersama, the company which asked for that temporary housing to be built. This was the case despite the fact that those 36-room units were completed about six months earlier.

    However, this measure did not result in any payment being made. Therefore, once again, on June 28, 2019, more action was taken at the Huntara Mamboro, this time by employees of CV Karunia Nabelo. CV Karunia Nabelo Director Dedi Kristian wrote a message on the wall. It read: “PT PP (Pembangunan Perumahan, eds.) where is your responsibility. The construction materials and housing area roads have not been paid. We have been waiting for 6 months.”

    This time Napakareba was truly concerned. Would his housing unit be confiscated and his family evicted? Where would he live?

    It turns out that this second measure proved to be effectual. Three days later some men came to clean up the writing on the wall. This came as a massive relief to Napakareba. “Thank goodness. We were not evicted,” said this 69-year-old man when met by the Mercusuar at Huntara Mamboro, on July 28, 2019.

    However, this incident at Huntara Mamboro exposed a problem: chain subcontracting eating away at project budgets.


    Huntara Mamboro is a part of 699 temporary housing units built by the government for the victims of the earthquake, tsunami, and land liquefaction in the City of Palu, the Sigi Regency, and the Donggala Regency in Central Sulawesi. These units were allocated for 240 families impacted by the tsunami in the Mamboro and West Mamboro Sub-Districts in the North Palu District.

    The Ministry of Public Works and Housing (PUPR) named PT PP to carry out the construction work. The budget was Rp450 million per unit. In all, there were twenty temporary housing units to be built by PT PP in Mamboro.

    In addition to PT PP, the PUPR Ministry named twenty other companies to carry out the construction of temporary housing with a budget of Rp417 billion. Eight of those companies are state-owned enterprises (SOEs), namely: PT PP, PT Perentjana Djaja, PT Wijaya Karya, PT Waskita Karya, PT Hutama Karya, PT Adhi Karya, PT Nindya Karya, and PT Brantas Abipraya. The thirteen other companies were local contractors. Those twenty companies were directly awarded the construction work by the PUPR Ministry.

    In emergency disaster conditions, such construction work can be directly awarded. This is mentioned in the Standard Construction Procurement Documents issued by the Government Goods and Services Procurement Policy Institution (LKPP).

    The problem is, PT PP turned over all its work to PT Unik Sejahtera Bersama (USB), a company from Bekasi, West Java. Service providers are forbidden from transferring and/or sub-contracting all or part of the work. Transferring all of the work is only allowed if the provider changes name, whether as the result of a merger or other cause.

    However, according to Setya Budi Arijanta, Chief Secretary of the LKPP, because it was an emergency at the time the government was allowed to directly award temporary housing construction work to companies, and those SOEs were allowed to find contractors to do the work. “That is not called sub-contracting, because those SOEs are seen as the owners of the work,” said that former LKPP Director of Legal Problem Management when contacted by Mercusuar by telephone on Saturday, September 21, 2019.

    Ferdinand Kana Lo, Head of the Residential Facilities Center of Central Sulawesi, agreed with Setya. However, he said he only found out about the sub-contracting after a local contractor sealed off temporary housing units in Mamboro and Pengawu. “There is no responsibility for the project executor to provide such notification,” he said when contacted by telephone in Luwuk, Banggai Regency, on Thursday, September 19, 2019.

    However, it turned out that PT USB had only completed construction of 11 of 20 temporary housing units. That company sub-contracted work on the nine other unites to a local contractor, Zulkifli Asdar.

    As it so happened, Zulkifli only built one unit. He farmed out the work on the other ten units to other local contractors. He selected the contractors with the caveat they had to carry out those projects using their own funds.

    One of those contractors was the above-mentioned CV Livbar Perkasa which had cordoned off Huntara Mamboro. This company located in the Parigi Moutong Regency, two hours from the City of Palu, had received an order from Zulkifli to construct one temporary housing unit in Mamboro at the end of November 2018.

    Yuli from CV Livbartold that he initially began searching for projects when he heard large-scale construction of temporary housing was going on in the City of Palu. He got a tip from a fellow contractor that Zulkifli was in charge of many such construction projects.

    Yuli then met Zulkifli and asked if he could build one unit. Zulkifli agreed as long as CV Livbar could finish the work in one month, without any advance capital.

    The fast work done by CV Livbar drew the interest of PT USB, which asked them to build two of the eleven temporary housing units which had initially been theirs. CV Livbar accepted PT USB’s offer. “(It was done) without contracts. It was based on trust,” said Yuli, project coordinator for CV Livbar to the Mercusuar Daily, in mid-August.

    However, not all of the contractors under Zulkifli could continue self-funding their work. About a month into the project, several contractors backed out.

    “One which had just erected some beams immediately stopped work because they didn’t have the capital to buy construction materials,” said Yuli. “This was because we did not give any advance funds. We did the work using personal funds. This led to the work on the temporary housing in Mamboro being neglected for roughly over a month,” said Yuli.

    Unfortunately, after the work was completed payment was not made.

    Then, in May 2019, he heard from other contractors that they had already been paid. This news made Yuli nervous. The work had been completed for nearly six months but they had not yet been paid.

    He tried to ask PT USB Director Desiana Parura about this, but to no avail. At this point, Yuli grew increasingly concerned. As was described above, he organized the taping off of the unit they had built, first on May 16, then again with Dedi Kristian on June 28, 2019.

    This annoyed PT PP and the PUPR Ministry. PT PP promised it would immediately pay for housing construction work. However, PT PP and PT USB had a difference of opinion. “PT USB pointed out that payment had to go through them, and not be done directly by PT PP,” said Yuli. “However, five days later it was indeed paid off directly by PT PP,” he added.

    How much was CV Livbar paid for this project? Yuli said that it was the amount received by Zulkifli, Rp375 million. For sure, in the document examined by the Mercusuar, Zulkifli received Work Order No. 002/SPKS/XII/2018 on November 26, 2018, with a contract price of Rp375 million per unit.

    In PT PP’s contract with PT USB, Number 021/SPK/PPG2-HUNTARA/XI18 dated November 20, 2018, it states that the unit price is Rp450 million, the same as in PUPR’s contract with PT PP. This budget consists of temporary unit housing construction costs of about Rp409 million and 10 percent value-added tax (VAT) coming to Rp40.9 million.

    Dartono, from PT PP’s Administration and Finance Section, who was contacted by telephone in Balikpapan on Monday, September 16, 2019, verified PT PP’s work order with PT USB. “However, the price in contracts from PT USB to local contractors, who we call foremen or other workers which we do not know about, depends on the scope of their work,” he said. 

    However, referring to PT USB’s contract price for Zulkifli in the work order and from Yuli’s admission, in the construction of eleven units at Huntara Mamboro about Rp374 million was cut, or Rp825 million before VAT was cut in the original budget. Was this reasonable?

    Whether this is fair or not, according to Setya, depends on the difference. “Please check to see whether or not there is a 300 percent difference in the contract,” he said. The thing is, even though companies are allowed to turn over work to other companies and still receive a fee, the amount must be reasonable.

    Desiana personally assured that their company did not make large profits from the temporary housing construction project. “The contract price of Rp450 million per unit includes 10 percent VAT and 4 percent income tax. After being reduced for those taxes, the price was about Rp379 million per unit,” he said.

    However, Desiana said that the work was not actually allowed to be sub-contracted. However, at that time many local contractors wanted work. On humanitarian considerations, according to Desi, she divided up some of the work among others. “They included victims of the disaster, so they were given a chance to work on the housing,” she said via telephone on Monday, September 9, 2019.

    Desi had another consideration. The situation in the wake of the disaster, she said, resulted in building materials becoming scarce and expensive. Those companies were given deadlines to complete the work. “If local contractors were not brought in, this project would likely have not been completed on time.”

    PT USB did the work on the temporary housing by partnering with some local contractors. Their head hunter was Zulkifli.

    Zulkifli said that he got in touch with PT USB through Rudy. That executive at PT USB in Palu was his under classman at Tadulako University in Palu. Rudy was an engineering student, while Zulkifli studied architecture. After meeting, he was asked to work on temporary housing in Mamboro.

    However, he denied being the one who gave work to other contractors. His task, he said, was only to put local contractors in touch with PT USB because they recognized him as a representative. He said that there were some contractors who he asked to join, but there were others who contacted PT USB directly.

    Zulkifli was later appointed by the local contractors as a sub-contract coordinator, but only for collecting payment for work. “I happened to have a network and often work with SOEs. So, when payment was late and the work had been done, local contractors who were not used to this were afraid that they would not be paid. On top of that, that company is located in Jakarta,” he said by telephone on Monday, September 2, 2019, from Tolitoli, Central Sulawesi.

    It is not clear if this chain sub-contracting led to the poor construction quality at Huntara Mamboro, which some residents have complained about. One woman, for instance, showed a blocked sewage pipe at her unit to Mercusuar. Sewage was building up in parts of the yard there, creating a stench. “Look at that. It has been like that from the beginning. The water puddles and smells foul. It broke so quickly. We don’t know who to ask to fix it,” said this woman who lives in Unit 5.

    Septic tanksare also damaged, not only at Unit 5, but also in the space between Units 1 and 8. Pipes are leaking between Units 18 and 19. “Most of the septic tanks are already clogged. The sewage pipes are also damaged. A lot of the plumbing leaks,” said Abdul Razak, also a resident at the Mamboro temporary housing.

    Things are not much better with the drainage system. Many of the doors to the bathrooms and toilets are broken and their pipes clogged. “Go and check them all. Many of them are broken. One here was just fixed and it is already broken again. Many bathrooms and toilets are not even usable,” said Pasialang, a resident at Unit 15.

    According to Pasialang, in addition to those problems, residents of Units 15 and 20, which face one another, are having trouble with water tanks. The foundation walls for the beams which support the water tank in front of those two units are failing. “The steel beams are slanted because the foundation is lifting out of the ground. We are worried that one day it could collapse,” said this older woman.

    From the observations made by the Mercusuar, at Units 1 and 5, for instance, the bathrooms and toilets have accumulated water due to clogged drainage. In Unit 2, of the eight bathrooms and toilets, two bathrooms and two toilets are no longer functional. Two doors are missing and the water pipes are clogged. The cement floors have long cracks in them. It can be said every unit has a bathroom and toilet issues.

    Pasialang also showed the condition of window and door frames at his unit. The windows cannot be fully shut because the woodwork has shifted position. This is also true of the doorframes. Doors can no longer be shut normally.

    Desi verified that there are problems with some of the temporary housing units. She said that their side has fixed damage six times. In April 2019, for instance, a major flood at Huntara Mamboro broke water drainage pipes and damaged septic tanks, bathrooms and toilets. The company made nearly Rp100 million in repairs. More repairs were made between July and August 2019.

    Because they do not want to lose a lot of money, Desiana said that their company is submitting an addendum to PT PP. “It is still being processed, and I am confident that it will be granted. It is not only the contractors who are concerned.We feel what they feel,” said Desi.      

    An addendum is a contractual term for an additional clause or article which is made separately from the core agreement, but which legally becomes inseparable from it.

    However, when contacted on Thursday, September 19, 2019, Desiana reported that their company had failed to submit an addendum to PT PP. She declined to cite a reason for doing do.


    Huntara Mamboro was not the only housing to be sealed off by contractors. On Friday afternoon, May 31, 2019, temporary housing in the Pengawu Sub-District, Tatanga District, City of Palu, was also cordoned off by contractors. The reason was the same: they had not been paid for their work.

    The temporary housing units in Pengawu were the same size as those in Mamboro, consisting of twenty units and 240 rooms. Each temporary housing unit comes with four toilets, four bathrooms, a septic tank, washing area, and kitchen.

    The PUPR Ministry named PT Adhi Karyato to build the Huntara Pengawu. That SOE then turned over the work to a local contractor, CV Karya Cemerlang, through Temporary Work Commencement Order (PMKS) No 002/SPMKS/AK-DG-PCR/HUNTARA-PALU/XI/2018 dated November 2, 2018. This company was given 45 days, up to December 19, 2018, to complete construction.

    In that work order, CV Karya Cemerlang took on the construction of twenty temporary housing units for a contract price of Rp8.36 billion. This contract consists of Rp7.6 billion for temporary housing and Rp760 million for 10% VAT. This broke down to a contract price of Rp418 million for each temporary housing unit plus VAT. This is Rp32 million lower per unit than in the PUPR Ministry’s contract to PT Adhi Karya, priced at Rp450 million per unit.

    To complete the project work, CV Karya Cemerlang worked with another local contractor, CV Sinar Tritunggal Jaya.

    Muhammad Jaya, Director of CV Karya Cemerlang, was reluctant to be interviewed by the Mercusuar about the project, including about the taping off incident carried out by their company. By phone, he gave the phone number of the project’s field officer, named Pay.

    According to Pay, the housing was sealed because the workers suddenly asked to be paid their six months of back pay. At that time it was nearly the end of Ramadan holiday. Building material shops which supplied construction materials also asked for the invoices to be paid.

    PT Adhi Karya promised to pay the wages before the Eidul Fitr holiday, which was in early June 2019. But as the holiday neared they had still not been paid. The anxiety of the workers climaxed when they contacted PT Adhi Karya. “We received the disappointing reply that all of the employees at that SOE were already on leave,” said Pay.

    PT Adhi Karya also said that they could not yet release funds because CV Karya Cemerlang had not yet provided all of the necessary documents. However, according to Pay, all of the documents related to that work were prepared by PT Adhi Karya. “We only had to put a company stamp and signature. If they say not all the documents are there then who is to blame for that,” said Pay.

    Unfortunately PT Adhi Karya, through their person in charge in the field, Ardany, did not respond to the Mercusuar’s interview request. There was no response to text messages as well. 

    From the Mercusuar’s observations, damage at Huntara Pengawu is worse than at Huntara Mamboro. In Pengawu, most of the ceilings and soffits leak. “When it rains I must catch water in buckets in the rooms. Look there, the ceiling is leaking,” said Yanggong, who invited Mercusuar into his room to see the leaky ceiling on Friday, August 23, 2019.

    This chubby woman added that floors move when walked on, like there are springs underneath it. According to her, some flooring broke, but she fixed it herself.

    Another resident, Mutmainah also complained about the floor in her room being springy like in Yanggong’s room. She never brings heavy items into her room because she is afraid the floor will give way. “Even large water dispenser bottles kept in the room shake when people walk by,” she said.

    “The typical complaint of residents here is that the ceilings leak and the floors bounce when stepped on. Many of the bathrooms and toilets are broken and unusable. The water faucets also break quickly and the water pipes are clogged,” said Emy.

    Fortunately, there is a source of water behind the sub-district office not far from the housing units. Residents take water there because the water faucets are unusable.

    “So don’t be surprised if you see many residents have hoses. This is what they use to take water from behind the sub-district office, running water to bathrooms or kitchens for cooking and cleaning,” she said.

    The water pipes are not the only problem, said Mutmainah, but so are the septic tanks. The one near her unit has a large hole in it. It has been covered with a board. Similar damage can be seen on the septic tank near Ulfa’s room. 

    The stench is incredible.