Understanding Iraqs Procurement Regulations

Jorge E. Restrepo, Esq. Managing Partner

November 28, 2012

2012 New Frontiers Business Consulting LLC. All rights reserved.

Disclaimer
This presentation contains general information only and is based on the experiences and research of the author. The author is not, by means of this presentation, rendering business, legal advice, or other professional advice or services. This presentation is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this presentation. The Author gives his permission to link, post, distribute, or reference this presentation for any lawful purpose, provided attribution is made to the author. 2012 New Frontiers Business Consulting LLC. All rights reserved. This material may not be reproduced, displayed, modified or distributed without the express prior written permission of the copyright holder. For permission, contact info@newfrontiersbc.com.

NEW FRONTIERS

Local Firm with on-the-ground International professionals, and reputable local attorneys to offer reliable and effective advice and assistance to clients in Iraqs new frontiers; Experienced professionals with unparalleled track records with both Government and Private Sectors throughout Iraq; Members participated in major projects such as the $5.6 B GOI-Boeing/Bombardier aircraft acquisition; establishment of IOC in Iraq; oil and gas JV and procurement transactions between the GOI and international companies; developed GOI Standard Bidding Documents and procurement regulations; established international legal and contracts section at the EIA; and negotiations on multi-million dollar airport contracts EIA, BIAP. We represent clients in corporate establishment, post-SOFA Iraqi corporate, tax, and legal compliance matters; due diligence for FCPA compliance; risk assessments; Iraqi/Kurdish tendering and investment matters; dispute resolution; contracts negotiations; labor matters; and more.

Table of Contents
1. 2. 3. 4. 5.

6.
7. 8. 9.

10.

Principal Legal Authorities Applicability Government Procurement Planning and Preparation Tendering Methods Available Tender Preparation Requirements Tender Evaluation and Award Contract Execution Claims and Dispute Resolution Contracting Issues Questions

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1. Principal Legal Authorities

Law of Public Contracts (CPA Order) 87 of 2004; Implementing Procurement Regulation No. 1 of 2008 as amended; Kurdistan Regional Government Ministry of Finance Order 1111, 24JAN10 (adopts CPA 87);

Kurdistan Regional Government Govt. Contracts Execution Instruction No. 1 of 2011 (implements CPA 87)

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2. Applicability

CPA Order 87 applies to the federal and regional governments, governorates, municipal and local governments;

IR No 1 of 2008 applies to all federal, regional, governorates, and municipal governments (*KRG does not implement this one);
KRG Instruction 1 of 2011 applies to all KRG government entities and private companies doing business with the KRG entities, except for any oil and gas related contracts (MNR is contracting authority); All of the above exclude projects funded by international donor organizations or other donor governments, concession contracts, PPP contracts, and certain strategic projects.

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3. Government Procurement Planning and Preparation

One of the most troublesome stages in Iraqs public procurement system due to lack of capacity and inability to conduct market research;

Government entities are required to have a feasibility study for the project or purchase in mind, to include specifications, plans, drawings, bills of quantities, cleared source of funding and allocation amount identified; all needed approvals from relevant ministries and governmental entities; nature of contract required; advertisement in at least 3 local newspapers (and DG Market, UN Website, or consulates/embassies;
Federal Govt allows Government entity to adjust up to 20% variation of proposed contract value; KRG only allows up to 7% adjustment from proposed contract value.

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4. Tendering Methods Available

Public Tender: Open to all interested bidders and issued publicly; bidders pay for tender and winning bidder pays for tender advertising costs incurred by Govt; bid and performance bond usually required. Limited Advertising Two-Stage Tender: 1) request for Expression of Interest (EOI) and prequalification Request for Information (RFI) to sector-specific companies only; 2) invitation and Request For Proposal (RFP) only to companies that submitted EOIs and were prequalified (min. 2). General Two-Stage Tender: 1) Open publishing of request for EOI and RFI for complex projects where more information is needed; Govt. may request general pricing based on BOQs and technical specifications; 2) RFP only to prequalified candidates that submitted EOIs and response to RFI.

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4. Tendering Methods Available (cont.)

Direct Invitation: Govt entities may submit a non-public RFP to prequalified companies (GOI: min. 3 companies if no previous bids or consulting contracts; KRG: Minimum 5 companies); invitation RFP free for bidders, and no bid bond/performance bond required; this method can only be used in specific cases (i.e. requirements are specialized and highly technical in nature, emergency situations, consulting contracts, medical supplies, national security-related contracts.). Sole Source: For contracts that are monopolized or specialized in nature; for import contracts, maintenance contracts; for supply or execution of works or consulting services or manufacturing or contracts which the govt. entity can justify; company pays no bid or performance bond. Purchasing Committee: Contracts and tenders usually for smaller purchases within the thresholds imposed by relevant authorities (usually IQD 50 Million in the GOI); however, this method may be applied for larger purchases as well.

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5. Tender Preparation Requirements

IR No. 1, 2008: RFP should allow for a minimum of 10-60 days for standard contracts; but not applicable to tenders for food and medicines; The time duration for submission of bids for direct invitation and single source or sole bid is left to the discretion of the contracting entitys head. KRG Instruction No. 1, 2011: 14 days between the date of RFP publishing and proposal submission date. RFP should be detailed enough to provide synopsis, requirements, required amounts of bid and performance bonds, defined deadline for submission of proposal, method of payment, desired INCOTERMS and other requirements.

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6. Tender Evaluation and Award

Govt. entity must have an opening committee and a separate evaluation committee for the tenders in accordance with the regulations. Opening Committee responsible for opening and recording data of sealed proposals in front of bidders. Opening Committee is authorized to accept bids with proposed costs above the original fixed contract cost as follows:

IR No. 1, 2008: entity may accept and analyze a bid that does not exceed the cost estimate by 25% for contracting purposes, provided the availability of funds allocation and that the price is within the projects total cost. The Ministry of Planning & Development Cooperation shall be notified about this matter accordingly; KRG Inst. No. 1, 2011: entity may accept and analyze a bid that does not exceed the cost estimate by 7-10% for contracting purposes. The KRG Council of Ministers shall approve this in advance.

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6. Tender Evaluation and Award (cont.)

Evaluation Committee takes over once Opening Committee submits the proposals and recorded information.

Evaluation Committee is authorized to utilize outside consultants and experts to perform its technical evaluation duties, with certain restrictions.
Upon full review, the Evaluation Committee recommends a winner in its report and sends it to its contracting authority for approval and official award. Once the Govt. entity notifies winner of award, winner has 14 days to sign contract; the winner also has 28 days to submit all required certifications and performance bonds/guarantees.

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7. Contract Execution

Contractor is authorized to use sub contractors as described in its proposal, but for no more than 30% of the project.

Contracts should be drafted in English and Arabic or Kurdish, depending on the location of the contract; contract should also specify governing language version.
Advance payments are authorized for contractors (usually from 5-20% with backed bank guarantee from contractor). Contract period extensions without penalties are authorized under certain circumstances.

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8. Claims and Dispute Resolution

Pre-Contract Execution Claims:

IR No. 1, 2008: Govt. Entity uses a Claims Central Committee established by the relevant minister or governor of Contracting entity to review contractual claims and objections;

Central Claims Committee must issue response within 7 days of the contract award notification date; No response means refusal to the objections;

Bidders may also submit claims to the Special Administrative Court (SAC) at the MoPDC if their issues were not resolved at the contracting govt. entitys Claims Central Committee; contract cannot be awarded until SAC makes a decision;
SAC must issue its decision within 120 days from the date claimant paid its court dues;

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8. Claims and Dispute Resolution (cont.)

SAC decision is final and binding unless claimant motions for appeal at relevant court of appeals within 30 days of the SACs notification of its decision to claimant.

KRG Inst. No. 1, 2011: Govt. Entity uses a committee within its Legal Department to review all contractual claims and objections (pre and post contract) under the same time requirements as the SAC;

The KRGs MOP shall form a committee to offer review of all claims raised by contractors within 60 days of the Legal Department Committees decision.

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8. Claims and Dispute Resolution (cont.)

Post-Contract Execution Claims: All post-contract execution disputes are solved through one of the following: Conciliation between the parties; Arbitration (local or international as agreed in the contract and if the contractor is international); and Transfer of disputes to specialized courts. Choice of governing law is acceptable as long as it is mutually agreed.

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9. Contracting Issues

Major Roadblocks to more effective contract execution in Iraq:

Poor procurement planning by govt. entities due to lack of capacity and inexperience with laws and regulations; Overly burdensome LoC process for performance bonds; Difficult (but not impossible) environment for FCPA Compliance program requirements;

Advertising requirements burdensome and inefficient, especially for international goods and services;
Delays in tendering/awarding/signing supply contracts causing problems with quotes over 90 days for commodities and goods.

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10. QUESTIONS?
Jorge E. Restrepo, Esq. Managing Partner New Frontiers Business Consulting, LLC Erbil, Iraq Baghdad, Iraq Istanbul, Turkey Dubai, UAE Iraq Cell: (+ 964)(0) 750 736 6443 Other Outside Iraq: (+1)(202) 559-4677 Email: jrestrepo@newfrontiersbc.com; restrepolaw@me.com www.newfrontiersbc.com
2012 New Frontiers Business Consulting LLC. All rights reserved. This material may not be reproduced, displayed, modified or distributed without the express prior written permission of the copyright holder. For permission, contact info@newfrontiersbc.com