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New Initiative Promotes Use of Domestic Engineering Resources - International Law Office

International Law Office

Company & Commercial - Iran

New Initiative Promotes Use of Domestic Engineering Resources

July 15 2002

On April 29 2002 the State Management and Planning Organization (SMPO) issued executive directives on the implementation of a 1997 law aimed at maximizing use of Iran's technical engineering and manufacturing capabilities. The directives explain how consultant engineering services, contractor services and service activities should be provided for SMPO projects.

The directives provide that the different types of work involved in such projects must be contracted out, either individually or collectively, to Iranian companies and institutes. The executive organization must take certain steps in order to identify the most suitable Iranian companies to undertake such work, including consulting with the SMPO, conducting inquiries and holding a tender, where necessary.

If, having taken these steps, the executive organization concludes that no competent Iranian company is available, or there are insufficient numbers of such companies available, it may assign the work to an Iranian-foreign joint venture, as long as it has first produced a report justifying why this is necessary and has obtained authorization from the Council of Economy. An Iranian-foreign joint venture will only be awarded a contract if the Iranian interest in the joint venture is equal to at least 51% of the consideration which it will receive for performing the contract.

The tender and inquiry notices must clearly and unequivocally state that Iranian companies and institutes are free to participate in the tender either independently or in the form of a civil partnership with foreign companies, as long as the Iranian interest in the civil partnership is at least 51%. When submitting its bid to the executive organization, an Iranian-foreign joint venture that wishes to participate in the tender must also submit a copy of its letter of agreement or understanding.

The executive organization will assign work exclusively to a bidder that undertakes to execute and implement 51% of the value of the work using equipment, accessories and services that are already produced and sold in Iran, or that can be produced in Iran. Contracts may only be awarded to bidders that undertake to execute less than 51% of the value of work using Iranian resources with the prior approval of the Council of Economy.

In order to obtain a clear idea of the contractual value of the work that is to be executed and performed inside Iran, the executive organization must request the bidders to provide clear and unambiguous information on the following items in the tender documents:

  • for engineering and procurement projects, or engineering, procurement, construction and management projects, the amount and contractual value of the engineering work to be performed inside Iran by Iranian entities;

  • with respect to the amount, value and supplier of the commodities, raw materials or bulk materials, the standardized items which are manufactured in Iran and which shall be utilized in the course of the project's implementation;

  • the amount and value of the equipment that will be produced by Iranian manufacturers, together with a list of Iranian manufacturers which may potentially be contracted to supply such equipment;

  • the amount and value of the work which shall be executed in Iran directly by the Iranian bidder (either independently or in the form of an Iranian-foreign joint venture);

  • the amount and value of equipment and machinery which is not currently manufactured in Iran, but which the foreign partner will arrange to have manufactured in Iran by foreign manufacturers (either independently or jointly with Iranian manufacturers); and

  • a full list of resources which will be developed, and of those, which will eventually remain in Iran for the country's benefit, both once the contract has been awarded to the Iranian-foreign joint venture and once it has been performed.

For further information on this topic please contact Behrooz Akhlaghi at International Law Office Dr Behrooz Akhlaghi and Associates by telephone (+98 21 873 21 38) or by fax (+98 21 873 41 29) or by email (bakhlaghi@kanoon.net).

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