Introduction
Like many other countries, there is no specific law in Iran which only governs construction contracts. Construction law is tied to other laws and roots in well-established legal principles. However, there are a few regulations and predesigned contracts which should be considered when one of the parties (usually employer) is a public or a state sector. In the following, we will discuss about the most important subjects of Iranian construction law.
Procurement Routs
Procurement routs here means the processes in which a contractor is appointed to implement a construction project. There are three common methods in appointing a contractor, namely direct individual negotiation, tendering and hybrid versions. Private sectors in Iran often negotiate with a contractor directly and then sign a contract for performing small projects. On the other hand, while state enterprises and public organizations must use the tendering process for choosing a contractor, private companies are not required to go through tendering procedure even though they prefer to use it in large and complex projects.
Public Tenders
Based on “Tender Law” of Iran: “All three powers of the Islamic Republic of Iran shall follow the stipulations of this Law in organizing a bidding; this includes: ministries; public organizations, institutions, and companies; profitable institutes affiliated to the Government; public financial establishments and banks; public insurance companies; nongovernmental public institutions and foundations”. Therefore, where a state sector intends to deliver a … construction project to a contractor, it is required by law to use the tendering procedure, otherwise its contract would be void.
Licensing requirements and permits
In most cases, contractors have to obtain qualification license before being engaged in construction works. In house building projects, most of protagonists (contractors and engineers) must be a license holder obtainable from “Construction Engineering organization”. However, where the project is about construction of an industrial plant or where foreign contractors are involved, the qualification of contractors often assessed during the tender process. Furthermore, a number of different types of approvals, consents and permits are required at each stage of design, construction works, transportation, and installation and commissioning. In addition, obtaining permits is likely to cause delays during the project. Therefore, it is important that parties clearly agree on their responsibilities relating to the obtainment of permits. Generally, it should be noted that more approvals and permits must be obtained in Iran for construction projects, particularly in comparison with Europe or the USA.
Insurance
Using any sort of insurance in construction works is not imperative based on Iran’s laws and regulations. However, almost all construction and engineering contracts contain some conditions regarding insurance requirements. A contractor often required to procure “Third-party liability insurance”, “all risks insurance” and “property and plants insurance”. There are other kinds of insurance that might be used based on the circumstances of each construction project.
Taxation
A foreign contractor working in Iran will almost certainly have tax consequences when working on construction projects. Based on the most recent changes in the tax regulations, a contractor has to pay tax according to the amount of its income. Moreover, a contractor has to pay VAT. Therefore, many contractors use professional tax accountants and also try to do tax planning and optimization prior to contracting on the project.
Indemnity and Liability
Although indemnity is not a recognized legal concept in Iran, it would be enforceable if it is used in a contract. However, “liquidated damage” and “Tort” are well-established concepts that Iranian courts enforce them. Iran’ contract law respects parties’ intention regarding allocation of risks and liabilities, therefore, an employer and a contractor can negotiate and divide their responsibilities and civil liabilities.