How to Conclude a Contract with a State-owned Company under Iranian Laws and Regulation
Concluding contracts with state-owned companies are part of Iranian administrative law and there is a number of restrictions and formalities governing this field. The Iranian Law on Tendering and Constitutional restrictions and requirements are some of the legalities to begin with.
Rise Up to Conclude an Agreement with Iran Public Sector
For concluding a contract with a state-owned company or a governmental institution, first you have to appear as a company. Your company formation could happen in any form and the preferences depend on any given field of business, but in general, governmental institutions in Iran are more willing to conclude contracts with joint stock companies, in comparison with limited liability companies and other forms.
Administrative Contracts vs Civil Contracts
There is a body of special requirements governing administrative contracts and makes important differences between this thread of agreements and civil contracts. Of course, the basic principles of the latter, are also enforceable for the former. As a principle, one should know, the governmental institutions and state-owned companies are not free to agree upon any terms and conditions they wish in a contract, but there are some regulations, general or genre-specific, which determine necessary clauses.
Pre-Selected Contractual Terms and Conditions
For example, the “regulation of purchasing consultative services” establishes the playground for governmental institutions and state-owned companies to meet their needs to experts and specialists. The terms embedded in this regulation include: ITC= Information to Consultants, LOI = Letter of Invitation, PQ = Pre-qualification, EC = Evaluation Committee, RFQ = Request for Qualification, QCBS = Quality and Cost Based selection, Engineering and procurement and Construction, Provisional Sum, etc.
Tendering and Governmental Transactions
As you already know, governmental institutions and state-owned companies choose their contractual parties by the means of tenders. The Iranian “Law on Tendering” presents a clear and detailed process of selecting contractors. Article 4 of this law divides tenders into single / two stage tender, and also open / selective tender. Article 5 deals with tender committee and the following articles discuss the details around it, like the mechanism for objecting to the committee decisions.
Types of Governmental Transactions and Applicable Tendering Laws
The Tendering Law divides the governmental transactions to the large, medium and small categories, based on the value each transaction is worth. The latest bylaw for rating the size of these transactions, has established the following chart:
| Small Transactions | Under 450,000,000 Rials |
| Medium Transactions | From 450,000,001 up to 4,500,000,000 Rials |
| Large Transactions | More than 4,500,000,000 Rials |
Small and medium transactions are almost devoid of formalities and only large transactions are subject to the rules of tendering. Article 25 provides the process of objection. Exceptions have been discussed in the article 29. According to this article, some large transactions are excepted and need no tendering, like when a stated-owned company has an opportunity to buy an undervalued item.
If you want to find an opportunity in this area, you can browse https://www.parsnamaddata.com/ and see the lists of items recently have been put out to tender. In the case of any questions, Iran Best Lawyer are available to answer them 24/7.
Banned Transactions for Iran Public Sector
As we said before, the principle of freedom to set up contracts doesn’t apply to the governmental transactions in its civil meaning. There should be some objective limits to the genres and types of contracts for public sector, beyond the general barriers regarding public policies. The “law of regulating a part of government financial activities” contains some important articles to this end.
Article 4 of this law provides that financial aids and free services are banned and no governmental institution and state-owned company may accept this sort of deals. Article 50 states that non-commercial institutions shall not engage in buying and selling activities or grant investment licenses to foreign companies. any similar transactions have to be preceded with the relevant license issued by the competent governmental organ.
Articles 31 and 32 of this law are also noteworthy, which provide that, except for governmental institutions sited overseas, foreign cars are forbidden and no organ, company or institution in the public sector may buy non-internal vehicles. Buying and renting aircrafts are also impossible for exclusive use. Head of the parliament, President of country and Chief Justice are excepted.
Restrictions on Types of Contracts in Special Fields
Article 88 of this law forces that forms of contracts in the context of privatizations not be out of these triangular choices: service purchase, co-ownership and administration transfer. Of course, this limitation is governing only some fields, included educational and cultural entities.
Term of the Contract Limitation
There are also some regulations restrict the term of contract. For example, police and military forces are subject to some limitations regarding the length of contracts for service purchase. For example, according to the article 1 of the “executive regulation of the article 37 of the law of the army”, the maximum term of this type of contracts shall not surpass one year.
Constitutional Terms and Conditions for Contracting Foreign Parties
Principle 80 of the constitution provides that loan contracts must be ratified by the parliament, regardless of the fact that government is borrower or lender, and the fact that the other party to the contract is a citizen or a foreign national. According to the principle 82, employing foreign experts are also forbidden and government may not conclude contracts to this purpose, unless in the case of necessity. Yet even in this case, the Parliament has to confirm it.
Principle 83 of the constitution states that national heritage including government buildings and properties are not transferrable. However, there is an exception: if those properties would not be considered as irreplaceable treasures, then the Parliament could permit the transfer.
Principle 139 of the constitution is one of those remarkable rules when it comes to the foreign contracts and transactions with governmental institutions and state-owned companies. According to this rule, arbitration clauses and settlement of claims relating to the to public and state properties are not applicable unless the Council of Ministers first approve them. Furthermore, in two situations the Parliament’s permission is also required, first if one of the parties is a foreigner and second, if the case be considered an important one.
Assurance and guarantee and Iranian Governmental Transactions
When you conclude a contract with a governmental institution or a state-owned company, it always may be a certain regulation requires you to give an assurance or guarantee. It could be a monetary deposit or insurance, promissory note, etc. article 6 of the “law of regulating a part of government financial activities” deals with this matter and allows the government to draw up the corresponding regulation, after consulting with the Plan and Budget Organization. In the fall of 2015, the Council of Ministers issued a regulation based on this article, followed by an offer of the Plan and Budget Organization. This regulation is known as the “Regulation of assuring governmental transactions”.
