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Find out moreWe are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.
Read the full editionMohammed Norri - Partner, Head of Office - Baghdad - Corporate / Mergers and Acquisitions / Commercial
September 2013
In particular this article will attempt to address the following issues.
First we need an overview of the contracting process. This article concerns official contracts governed by the Public Government Contracts law No 1 for the year 2008 and followup regulations for implementing government contracts. Please note that exceptions can be made where there is a need for confidentiality or speed, or for other reasons such as a market monopoly by one supplier. It should be noted as well that contracts totaling 50 000, 000 IQD (fifty million Iraqi Dinars) and less are also exempt from most of the said procedures. The latter is handled by an acquisition committee.
For construction and supply contracts the first step is to buy a tender. This is a requirement to enter public biding and submit offers, this payment can not be refunded. Potential Contractors/Suppliers then submit technical and commercial offers, along with any other documents which may be required for the specific contract. At this stage a guarantee of 1% of the total contract price is required. This is to ensure the seriousness of an offer. This guarantee has to be issued from a CBI – Central Bank of Iraq – certified bank and is refundable. When opening a Letter of Credit the buyer (Public Entity) refunds the fees if it’s opened inside Iraq.
If an offer is accepted the government entity will enter negotiations with the offeree to sign a contract. Contracts specify the need for a performance bond of 5% of the total contract price. This is a guarantee for good faith performance and is refunded by the bank after successful contract completion. Requires inspection reports for supply contracts and other similar documents for construction contracts.
There are no restrictions on foreign entities wishing to do business in Iraq so generally speaking foreign contractors and suppliers do not have to be registered with the ministry of planing. However to sign contracts a foreign entity needs to either open a branch in Iraq or incorporate an Iraqi company, it can own 100% of its stock in. A representative office does not suffice and needs to be converted to a branch.
In case of refusal to sign a contract within 15 days after a valid offer has been accepted the penalty is to liquidate the 1% preliminary guarantee. Other legal measures may be taken in case of other damages. In case of delayed or non performance the Iraqi contracting entity can suggest inserting the defaulting Contractor/Supplier in the ministry of planing black list. Being blacklisted deprives a party from any future business with the government for a minimum of two years. This does not effect litigation or any other legal actions taken.
Disputes arising before or during contract formation, complaints about offer acceptance, conditions effecting fair competition and other public biding procedure issues are handled by an administrative court at the ministry of planing, complaints have to be submitted within 7 days of contract formation. The ministry of planing central contracting department oversees this process by following up on the courts decisions with contracting departments in relevant public ministries.
Article 11 of the regulation for implementing government contracts No 1 for the year 2008 allows for and encourages Mediation and arbitration, including International arbitration when dealing with a foreign entity. Article 9 states that (a) Contracts shall be written in Arabic, Kurdish and English whenever possible and (b) The tender document shall determine the prevailing version in case of difference in interpretation. This is relatively new in Iraq
When it comes to defining “special circumstances” or force majeure, Iraqi law requires that the impediment causing non performance be unforeseeable to the non performing party. Since 2003 Iraqi courts have ruled that security problems are not considered unforeseeable and that parties assume this risk when contracting. Therefore, it can not excuse non performance.
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