Work Withdrawal from the Contractor under Iraqi Laws and Regulations

By Mustafa Muayad - Head of Baghdad office in Salt & Associates - m.ridha@saltandassociates.com - 00964 78 050 10222

Since 2003, Iraq entered into a new phase of economic development through openness to the global market and the progress toward privatization more ever. To cope with these developments, Iraq needed to set many laws, regulations and instructions which govern and regulate the economic activity. Iraq,due to the new circumstances, needed expertise of non-governmental agencies and the private sector companies, national and international, to rebuild and develop the infrastructure and superstructure of the country, which require many contracts in which the State will be a party, such as the governmental contracts which are increasing enormously. Therefore, the current economic development needs a parallel development in the legal aspect for activities in order to regulate and cover its legal needs. In this regard, several laws, regulations and instructions have been issued to achieve this objective, such as Regulations No. 2 of 2014 of Public Procurement Contracts implementation, and the Conditions of Civil Engineering Contracts, in both parts, 1 and 2,  and other laws, regulations and instructions, some of them are new and some others are amendments for previous versions.

This was at the legislative level, as for the judicial level, several courts were established to consider the potential disputes that could arise from enforcing contract regulating laws in case a contracting party fails to fulfill its contractual obligations. Examples of the new courts include the Court of First Instance for Governmental Contracts, which is specialized in considering contractual disputes in which the government is a party; and the Commercial Court, which is specialized in contractual disputes in which one party is foreigner.

In this paper, we try to highlight one of the procedures the new regulations present, namely work withdrawal. We will be brief about this subject and try our best not to neglect the important details.

Work Withdrawal

In fact, work withdrawal is a special way found by Iraqi lawmakers to terminate a contract with a contractor who fails to fulfill the contractual obligations as contracts of mutual obligations typically are not familiar with this way, if we have a look at the Iraqi Civil Law No. 40 of 1951 (amended), being the law specialized in regulating such contracts. However, the normal judicial and legal procedure was to terminate the contract as we can see in Article 177 of the Civil Lawand its provisions. This article explains how to terminate a contract and the necessary steps to be taken prior to contract termination. It is worth noting that  contract termination according to article 177 requires giving a prior official notification. Nevertheless, the development in the economic conditions as stated earlier require finding new ways to govern the contracts with private contractors as an attempt to shorten the time period needed to resolve disputes and to grant a recognized legal status to the employer.

Looking at Regulations No. 2 of 2014 that govern Public Procurement Contracts implementation, we find no clear expressed reference to work withdrawal as a procedure available for the contracting party,rather we find a reference to it in the official circulated letter No. 4/07/16134 issued by the Ministry of Planning in 3 August 2017, which regulates the mechanism of dealing with the tarrying contractors whenever they fail to fulfill their contractual obligations. This is mentioned in the first article of the said circulated letter in paragraph 2(b): “In case the work is not in its final stages; or when the contracting parties fail to form committees to hasten the pace; or when they could do that but the contractor refused to be represented in the committee, the contract owner can issue a decision to withdraw the work and take over implementation after warning or notifying the contractor in writing. Work withdrawal would be carried out by one of the ways stipulated in Regulations No. 2 of 2014, or by a committee to complete the work according to Regulations No. 19 issued by the Ministry of Planning.

As for the contractual conditions to perform civil works, Article 65 stipulated the cases of work withdrawal like, for example, bankruptcy of the contractor; or putting the contractor’s assets under a liquidator’s custody by a court order; or when the company of the contractor declares liquidation except for the purposeful liquidation chosen by the contractor for the sake of merging or reformation; or when the contractor relinquishes the contract without a written consent from the contract owner; or when the assets of the contractor are seized by the court which may lead to hindering the contractor from performing the work.

We have to clarify that work withdrawal, as a procedure set by the legislator has put at the contract owner disposal, must be proceeded by some procedures performed by the contract owner before taking the withdrawal decision. Since work withdrawal is a procedure which has important consequences regarding the interests of the contractor directly, and in order not to surprise the contractor by such a procedure; the contractor must be notified in writing before issuing the withdrawal decision and the contract owner can take over the work after 14 days, then the owner resumes works with the contractor out of the picture.

After the written notification, the fourteen-day period and taking over works, the value of the completed work must be calculated by the contractor by the aid of experts hired by the contractor, or by the specialized court if an agreement is not reached at. Unused materials are also calculated  and added to the value of the implemented work in this regard.Then come the settlement of the contractor’s account,  and establishing the value of the dues payable to the contractor, but the payment should not implemented unless the works and maintenance are complete, and the delay fines and expenses on the part of the contract owner are calculated and deducted from the amounts spent by the contractor, after the approval of the resident engineer. If the amounts paid to the contractor are more than what the contractor deserves, the contractor has to return the surplus to the owner. Such amounts are consider eddebts on the contractor payable to the owner.

Finally, we have to know that, although work withdrawal is a procedure intended to save time to resolve contractual disputes arising from the contractor’s failure do his contractual obligations, it cannot be a substitute resorting to the court by the affected party. This would return things to square one and work withdrawal would become an unnecessary procedure because the final word would be up to the court about the appropriateness of such procedure.


Article written by :

Hussein N. Abdullah
hussein.abdullah@saltandassociates.com

Associate
Salt & Associates
Baghdad Office