A perspective into Iraqi Construction Contracts
Corporate Commercial / Iraq
Ali AL DabbaghSenior Associate,Corporate Commercial
Largely driven by increasing demand Iraq has been experiencing a construction boon in the past few years. This Article aims to give a brief overview of the Iraqi construction industry and highlight some key local considerations. This Article will cover both the public and the private sectors.
The Iraqi government is one the biggest spenders when it comes to the construction industry and its projects are mostly infrastructure typically, oil and gas, transport, and other infrastructure projects. Most government contracts are awarded on the basis of public tendering under Regulation No 2 of 2014 on implementing government contracts which includes the following methods of contracting that are relevant to construction contracts:
Public tendering, this approach is implemented by announcing a public invitation to all who like to participate, and offers are accepted from any parties that meet the conditions for participation. In addition, the financial allocations mentioned in the federal budget implementation instructions are taken into account when adopting this approach.
Limited Tendering, this method is used when the goods or services, consulting or contracting of tender subject is available from limited entities as required by the designs and conditions prepared by the government contracting party. Tenders are also announced publicly but they follow slightly different procedures determined in Regulation no 2 of 2014.
Public Tendering with technical qualification, with this method of contracting technical and commercial bids are submitted separately.
Two Step Tendering, phase I is a public invitation for technical preliminary designs. A technical committee studies initial bids and phase II is a direct invitation of bidders whose preliminary offers were accepted to provide their commercial bids to the amended tender documents (amended by the committee) reflecting the initial preliminary technical offers.
This tendering method is used when the government contracting parties cannot fully prepare the tender documents because of complexity and highly technical nature of the project.
Direct Invitation, this is implemented by direct invitation to at least three parties where one or more of the following justifications is present,
If the contract requires confidentiality in contracting and implementation procedures
there are security reasons requiring use of this method,
Emergencies and natural disasters,
Providing of medicines and medical equipment and supplies for life-saving,
Non participation in public tenders as advertised for the second time, or if the received bids did not meet the conditions and specifications for the second time,
Specialized contracts whose regulations are issued by the department of public governmental contracts, in coordination with the competent sector committee in Council of Ministers,
Large strategic projects that require foreign expertise, which are determined by the competent sector committee in Council of Ministers, in coordination with the Ministry of Planning and executed by reputable international companies with an experience in the relevant specialty for a period not less than five (5) years and not less than three (3) similar projects.
The Ministry of Planning is the primary regulator of the construction industry, and it handles classification of local construction companies, backlisting, and issues veracious guides and the standard documents that are used in government contracts. The standard contract documents prepared and issued by the Ministry of Planning are seen as mandatory by other government contracting parties and they rarely accept to negotiate when it comes to awarding government contracts. The standard contract documents prepared by the Ministry of Planning are similar to the standard terms of the International Federation of Consulting Engineers (FIDIC) in some party, however, Iraqi Ministry of Planning took liberty and made amended in a number of places.
The challenges faced by contractors when it comes to government contracts often revolve around payment. The most common problems can broadly fall into two categories. The first category is where the government has difficulty in paying on time causing delays and the second category tends to arise where the government agrees to contract conditions that are different from the standard documents prepared by the Ministry of Planning but still insists on implementing the standard documents and guidance provided by the Ministry.
In Iraq the construction industry in the public sector, regulated by the Ministry of planning, is largely focused on infrastructure typically, oil and gas, transport, and other infrastructure projects while the private sector, regulated by the various investment commissions and the Ministry of Construction and Housing.
The private sector construction industry is primarily focused on housing and other commercial development. Large projects can obtain an investment license offering various tax benefits and allowing non-Iraqi investors to own the residential units provided this is specifically for resale to the public. In some projects the government also provides the land for relatively low prices as determined in the investment regulations. The government has also recently agreed to the compensation for the land that it may contribute to residential projects to be paid in kind in the form of housing unites instead of cash in some contracts. Institutional financing is not common in the residential sector in Iraq, instead housing development is generally financed by a prepayment structure with some instalments paid before completion and the remaining instalments to be paid after delivery of the housing units. The building regulations in for residential and commercial buildings are issued by the Ministry of Construction and Housing. Overall, there is more flexibility in the private sector with regards to contractual arrangements compared to government contracts because the government is only involved as the regulator rather than a contracting party (typically the Employer in government contracts).
In Iraq the construction industry in the public sector, regulated by the Ministry of planning, is largely focused on infrastructure typically, oil and gas, transport, and other infrastructure projects while the private sector, regulated by the various investment commissions and the Ministry of Construction and Housing. The contracting rules in the private sector are flexible while they are more rigid in the public sector due to the need for increased oversight over government procurement and financing from the federal budget. Tax breaks are available in the private sector for large projects; however, contractors are expected to invest a certain amount of capital both on statuary grounds and because institutional financing is limited in the private sector.
For further information,please contact Ali Al Dabbagh.
Published in March 2025
