Many companies enter various types of contracts, starting from MOU to binding contracts.
Many basic elements of Iraqi contract law are similar to those found in common law legal systems; with some important differences such as; mutual consideration in the Western sense is sometimes not required for a valid contract as long as a lawful subject matter and a reason to be bound exist. For instance, certain gratuitous promises may create binding obligations under Iraqi law.
There are more legislative and judicial restrictions on the charging of interest that might be expected under Western law. However, unlike some Sharia law countries, Iraqi law allows interest to be charged in commercial and banking transactions, subject to some restrictions on compound interest and total interest exceeding the amount of the principle
The primary remedy for breach of contract is specific performance.
Compensatory damages are allowed when specific performance is inappropriate. Liquidated damages are also possible under some specific conditions.The statute of limitations for contract claims in Iraq may vary – it is typically around one year but can be as long as 15 years.
Contracts can be signed before a local notary public or two witnesses. However, notary fees will be exceptionally high, as they will be a percentage of any amounts mentioned in the agreement.
Contracts can be a valuable tool to help foreign businesspeople deal with issues in Iraqi law, such as the inability of foreigners to own real estate in Iraq.
However, it is important to mention one of the most important types of contracts that most foreign companies focus on which is construction contracts.
1. Contracts for Works Construction; contracts in Iraq are governed by Articles 864-890 of the ICC. These provisions provide the framework for the main requirements for the “muqawala” (contract for works). Any construction or engineering contract governed by Iraqi law must, therefore, comply with these twenty-five articles, irrespective of what the parties agree in their contract. Article 864 defines contracts for works as contracts in which one of the contracting parties undertakes to perform certain works and/or services for a consideration that the other contracting party undertakes to provide. the main contractor has three principal obligations arising from a construction contract under Iraqi law:(i) performance of the work assigned to him in accordance with the provisions of the construction contract between the parties, (ii) delivery of the works on completion, and (iii) liability to guarantee the works upon delivery.
2. Decennial Liability One of the most important obligations of a designer and/or contractor under a muqawala contract is what is commonly known as ‘decennial liability.’ This is a joint liability imposed on the contractor and the designer for certain building defects. According to ICC Article 870, during a ten- year period from completion and delivery of the works, the designer and the contractor are jointly and severally liable for the total or partial collapse of any building or other fixed structure erected by them, even if the collapse is due to the condition of the site, or if the employer (who may be either the owner of the building or the person or entity commissioning the works) knowingly consented to the construction of a defective building. The liability includes damage resulting from inadequate ground conditions and damage resulting from inherently inadequate designs to which the employer has agreed. The parties to muqawala cannot agree to exclude or limit any obligations of decennial liability (Article 870). If the designer’s role does not involve supervision and relates only to the preparation of drawings, he will only be liable for defects resulting from those drawings but not for defects as a result of the method used to implement the design (Article 871(1).
If the employer has contracted with both the contractor and the designer, their liability will be joint and several, even if the defect or collapse was caused by only one of them (Article 871(2). Neither the employer nor the contractor would be liable if it can be established that the defects resulted from causes that could not have been foreseen at the time of the construction (Articles 871 and 872.
3. Termination A unilateral termination by the employer of the construction contract may also be permitted if so agreed by the parties. However, the employer must pay compensation to the contractor for all the expenses that the contractor has incurred and for that part of the contract that has been performed, as well as for the contractor’s loss of profit in respect of the work which he will have been prevented from undertaking. The parties may also obtain a court order to terminate the contract. Iraqi courts normally order termination of a muqawala when the contractor is in breach of a contractual obligation and fails to remedy the breach (e.g., defective work) even after being served with the notice under the contract. The court may also order that the contract is terminated if the contractor is in breach of contract by being in delay with no realistic prospect of completing the work by the contractual completion date.
4. Liquidated Damages According to Article 170 of the Iraqi Civil Code, the parties may agree, either in the original contract or in a subsequent agreement, on liquidated damages for their respective contractual liability. The parties can agree on the compensation to be paid by the parties for the delay in performance and other breaches of contractual obligations. However, the parties cannot agree on limiting their liability for damages in tort, including those arising from gross negligence or fraud. Article 170 differentiates between the debtor (the party who owes the obligation) and creditor (the party to whom the obligation is owed) in terms of their ability to increase or decrease the contractual compensation. If the loss exceeds the amount fixed under the contract, the creditor may not claim an increased sum, unless the creditor establishes that the debtor’s breach is due to the debtor’s fraudulent behavior or gross negligence. However, the same Article 170 allows the debtor under a contractual compensation obligation to request a court to reduce—and even excuse the debtor from—the obligation to pay a contractual compensation if the debtor establishes that the compensation stipulated by the contract “grossly exceeds” the loss sustained by the creditor or that the loss suffered by the creditor is not serious enough to justify the awarding of contractual compensation. In effect, liquidated damages provisions are always prone to be challenged by the debtor on the grounds that they exceed fair compensation.
Government Contracts:
It is important to consider the Implementation of government contracts No. (2) for the year 2014, as one of the most important regulation when implementing government contracts. The law is specified For contracts concluded by the Iraqi official contractual party represented by the Presidency of the Republic of Iraq, the Council of Ministers and other official parties and Ministries with Iraqi or foreign contractors.However, the law does not apply to certain official parties such as projects funded by foreign organizations, Ministry of Defense contracts, Ministry of Interior contracts and others (second of Article 1).
Contracting Methods;
First: Public tender:
This approach is implemented by announcing the public invitation to all who like to participate in the implementation of various contracts, those who meet the conditions for participation, that the procedures are characterized by generality and Competitiveness, justice, openness and transparency and taking into account the financial allocations mentioned in the federal budget implementation instructions when adopting this approach.
Second: Limited tender:this approach is implemented when the goods or services, consulting or contracting of tender subject is available in limited entities in terms of jurisdiction for the purpose of submitting bids in accordance with the designs and conditions that prepared by the Contracting party and shall be announced to all who want to participate in the bids, those who meet the conditions for participation and pay the price, in accordance with the two following procedures
A- The first procedure: includes receipt of the documentation for the legal, technical and financial rehabilitation of participants in the tender in order to be evaluated by a specialized committee of Contracting party according to the terms of technical, financial and legal required qualification to select eligible to participate in the second procedure, the eligible shall not be less than three.
B- The second measure: the Contracting party shall invite all eligible for free to provide technical and commercial bids for the purpose of the study, evaluation and award, and in accordance with these instructions. Instructions for implementing governmental contracts No. 2 of 2014 8 of 25.
Third: The public tender by technical qualification methods: Implementation of this method is by announcing the tender to all who would like to participate in the bid to submit their technical and commercial bids in separate envelopes for a price, taking into account the following:
A- Opening technical bids to be studied by the analysis committees of the Contracting party to determine the qualified bidders that met the required conditions.
B- Opening the commercial bids of qualified bidders, not less than three to choose the best one by bid analysis committee, taking into account the financial authorities that adopted for the purpose of the award in this regard.
C-The envelopes of the commercial bidding of non-qualified bidders technically, shall be returned to the applicants without opening and then complete the analysis procedures, contracting, according to the adopted contexts in this regard.
Fourth: The tender in two phases:This method shall be implemented by the following two phases it two phases, this measure may be preceded by implementation this technique prequalification, this method shall be used in the contracts that Contracting party cannot prepare its technical specifications or designs, the contracts with technological level complex and specialized contracts with advanced scientific nature, as follows:
A- Phase I: by declaring public invitation to all those who like, for a price to provide their technical bids on the basis of preliminary designs and functional requirements or a general description of the phase of the implementation work to be studied by specialized technical committee for the purpose of selecting the appropriate tenders in accordance with the standards of technical, financial and legal rehabilitation and similar acts, Contracting party have to modify the first design or technical specifications and other requirements according to the technical amended bids after the technical negotiation, Contracting party have the right modify the speculative cost if necessary. Instructions for implementing governmental contracts No. 2 of 2014 9 of 25
B- Phase II: direct invitation for bidders that their technical bids were accepted according to the qualification criteria in the first phase to provide their commercial bids on the basis of the amended tender documents, then complete the contractual process in accordance with the procedures specified in these instructions
Fifth: Direct invitation:This method is implemented by direct invitation for free, to at least three (3) contractors or suppliers or accredited consultants for their sobriety, ability and technical and financial competence to implement the projects or contracts of the official authorities, as well as providing one or more of the following justifications:
(A) If the contract requires confidentiality in contracting and implementation procedures.
(B) There will be security reasons requires that.
(C) Emergencies and natural disasters.
(D) Providing of medicines and medical equipment and supplies for life-saving.
(E) Bidders should refrain from participating 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.
(F) Specialized contracts that its regulations identified by the department of public governmental contracts, in coordination with the competent sector committee in Council of Ministers.
(G) Large strategic projects that require foreign expertise, which determined by the competent sector committee in Council of Ministers, in coordination with the Ministry of Planning and executed by reputable international companies has an experience in this specialty for a period not less than five (5) years and a similar actions not less than three (3) projects in this field.
Sixth: Single Bid (one offer only):Directing free invitation to one competent; supplier, contractor or consultant to fulfill the contract with Instructions of implementing governmental contracts No. 2 of 2014 10 of 25 the approval of the Central Committee to review and ratify the referral if one of the following two cases is provided:
(A) When the goods, advisory services or monopolistic contracting or available at one monopolistic party has patents, license or exclusive rights.
(B) If the goods or contracting are required for maintenance or for the providing spare parts for previous contracts.
Seventh: Direct Contracting: directing free invitation, to contract directly, to one party to implement this method with the consent of the competent sector committee in Council of Ministers on the recommendation of the Central Committee to review and ratify the referral of import or local contracts to provide non-monopoly goods or services that the following conditions are met:
A- The contracts are related to the security and sovereignty of the state necessitated by the necessary conditions.
B- Those contracts characterized by high technology technical or developed specifications, and may accept more sophisticated technical or standard specifications and offered by the party may be contracted after being supported by a specialized technical entity of the Contracting Party.
C- The party may be contracted shall be reputable, accredited and manufacturer of the required material and services.
D- Providing a technical report illustrates the needs and specifications prepared by the specialized technical party, certified by the Central Committee to review and ratify the referral.
E- A tester reputable party was approved to ensure the accuracy of the required specifications and the extent of compliance with the required contracted conditions.
F- The competent sector committee shall issue the decision within (14) fourteen days from the date of application registration, otherwise, the approval shall be considered done implicitly.
OUR SERVICES IN LEGAL CONTRACTS:
The complicated contract law is based on a number of laws and regulation gathered together to control the contracting process in Iraq and is complicated and difficult. Foreign companies have entered different contracts and such drafting has witnessed the lack of legal profession causing damage either financially or legally to their business in Iraq. Our specified team of lawyers possessing 40 years of experience can draft and review the contracting process, guaranteeing a successful outcome, and safeguarding the company’s assets and legal status when entering any commercial or civil contract. Alsaif can assist and help any company willing to participate in any Governmental contract from scratch. In addition, we can investigate and gather information regarding this kind of contracts to recognize and clarify the weakness and strengths.