Iraq’s new public contracts instruction No. 1 of 2025: Key changes and implications

Iraq has modernised its public contracts regulations with the Ministry of Planning issuing the New Iraq Public Contracts Instruction No. 1 of 2025 (2025 Instruction). The 2025 Instruction introduces a new set of rules applicable to working with Iraq’s public bodies or projects funded by Iraq’s budget. The 2025 Instruction is an evolution (rather than a revolution) and aims to improve transparency, efficiency and a standard set of rules for working on government projects. 

What’s important to know?

• The 2025 Instruction comes into effect today (17 February 2026) and replaces the previous Government Contracts Implementation Instruction No. 2 of 2014 (2014 Instruction).

• No retroactive effect: The 2014 Instruction will continue to apply to contracts entered into while it was in force. The 2025 Instruction will apply to new tenders and contracts signed from 17 February 2026 onwards.
• Iraqi law / courts: The 2025 Instruction sets strict criteria that all contracts must be governed by Iraqi law. The Iraqi courts are the default dispute resolution method with the possibility of arbitration in certain circumstances and subject to strict conditions. 
• New unified electronic platform: The 2025 Instruction introduces a unified electronic platform for announcements and tenders. Invitations to tender will be sent to approved companies that are registered on the unified electronic platform as well as being made available to the general public via publication on the public procurement portal and newspapers.

Applicable and excluded contracts

The 2025 Instruction will apply to contracts with government entities for public works and construction, consultancy services and supply of goods and/or services. The 2025 Instruction will not apply to:

• Contracts that are fully foreign funded, except where contracts say the New 2025 Instruction applies.

• Public companies executing internal government projects.
• Ministry of Defence and security agencies contracts relating to supply of security and military equipment and devices or related training.

Tender procedures

The 2025 Instruction sets out detailed regulations and processes surrounding the public procurement process. Similar to the 2014 Instruction, the 2025 Instruction provides for four methods for procurement:

Limited tender

Where there is limited availability of the relevant goods, consulting services or suppliers, authorities may make an announcement for potential participants for evaluation by committee in accordance with the technical, financial, and legal qualification requirements. Two qualified participants may be selected and invited to submit tenders. 

Two-stage tender

A two-stage tender process may be used for projects with uncertain scopes of work. The first stage invites participants to submit tenders outlining the potential scopes of works or ‘solutions’ for a particular concept. Once the proposed solutions are reviewed, a minimum of two bidders (deemed acceptable) are invited to submit their commercial bids on the basis of their own design.

Direct invitation

Authorities may issue direct invitations to tender to a minimum of three pre-qualified contractors or consultants registered on the unified electronic platform in certain circumstances. For example, if the contract requires strict confidentiality, prior bids do not meet the requirements of the first invitation to tender or for strategic / large projects requiring foreign expertise.

Single bid/invitations

Authorities can also issue single invitations with the approval of the Central Committee in certain circumstances (e.g. for OEM limitations, contracts related to State security, emergencies, etc.).

Contract administration

The 2025 Instruction sets out clear contract administration procedures for the authorities, including in relation to Variations / Changes (and valuations thereof), suspension / termination (and outflowing payment consequences) and penalties / delay damages.

Variations / changes

Authorities are allowed to request changes. However, these may not lead to a fundamental change in the scope of work. Further, any increase or reduction may not affect more than 30% of the contract value or duration. 

The valuation of changes is also regulated by the 2025 Instruction. For example, if a de-scoping affects a contractor’s expected profit, the contractor may be compensated up to a maximum of 20% of the value of the de-scoped item.

Suspension

Each party may suspend the contract based solely on approval of the supervising authority overseeing the implementation of the relevant contract. If such suspension exceeds 90 days (for construction contracts) or 30 days (for supply or consulting contracts), the supervising authority must take one of the following actions:

1. If the cause of suspension is unresolved, terminate the contract, with settlement of the contractor’s dues for completed works prior to suspension.
2. If the cause of the suspension is resolved, resume execution, in whole or in part.
3. Cancel affected, non-essential works, provided this does not impact other contract components, with formal cost adjustment.

If the contract is terminated by mutual agreement due to continued unresolved suspension, the contractor may claim compensation for proven damages, subject to ministry regulations.

Termination

A contract can be terminated either by mutual consent, upon completion or by order of the court. There are no other express provisions entitling the parties to terminate the contract.

Upon termination without consent (and not subject to fault) a party will be entitled to a maximum of 4% of the unperformed value of the works as compensation for lost profit. 

Penalties / delay damages

The 2025 Instruction provides that delay damages should be between 10%-25% of the contract amount and the contract must specify the exact cap. The delay damages should be reduced in proportion to the partial completion of the project (e.g. for partial completion / delivery of goods).

Interestingly, the 2025 Instruction sets out a formula for delay damages:

This is incredibly generous to contractors, as it means that a contractor will have double the duration of the contract, before it reaches the cap on delay damages.

Initial acceptance, warranty period and final acceptance

The 2025 Instruction sets out the requirements for initial acceptance of the work, including that a contractor must submit a written undertaking to complete any remaining work or remedy defects during the warranty period. 

Unless specified otherwise in the relevant contract, the warranty period will be deemed to be 365 calendar days following the date of completion of the work.

Standard documents and implied terms

The 2025 Instruction provides that contracts entered into by the parties must be based on standard templates produced by the Ministry of Planning. We note that some of these templates are incredibly old and do not conform to other standard industry contracts (e.g. FIDIC).

Separately, it is a mandatory requirement that any terms of the 2025 Instruction, which are not expressly set out in the contract, are implied to such contracts automatically.

Dispute resolution

The 2025 Instruction provides for a tiered dispute resolution process that requires parties to first attempt to resolve disputes amongst representatives. The second step of the 2025 Instruction simply requires that a neutral third party is appointed to help the parties resolve the dispute. The 2025 Instruction is not specific as to how this should work in practice and it could be interpreted to require a non-binding expert determination process or mediation.

If parties fail to resolve the dispute, the dispute may be referred to court or arbitration. In order for the contract to provide for international arbitration, the 2025 Instruction requires that one of the parties (i.e. the contractor) is foreign and that the Council of Ministers approves and decides on:

1. One of the accredited international arbitration institutions. NB: it is not clear what these are but the ICC has been a longstanding forum for arbitration related to Iraqi projects.
2. The place and language of the arbitration. NB: there is no formal guidance but, in practice, a Paris seated arbitration conducted in English is common. 
3. Iraqi law as the governing law.
4. Whether the employees at the authority have necessary qualifications in arbitration or whether they should seek other authorities’ assistance.

The Council of Ministers must then notify the Ministry of Justice accordingly.

What do contractors / consultants need to be doing?

Overall, the 2025 Instruction is an update to the 2014 Instruction. Contractors and consultants seeking to tender for Iraqi government projects should become familiar with the 2025 Instruction and the standard templates of the Ministry of Planning.

In our opinion, the evolution to the 2014 Instruction is a welcome step. However, in our experience there will be a difficulty in implementation until the Ministry of Planning provides updated (and unified) standard documents. While the Ministry of Planning tried to implement a FIDIC-based contract in the past, it has led to mixed results.

Frequently, the public authorities largely ignored the Ministry of Planning templates in favour of actual FIDIC contracts. With the 2025 Instruction, the Ministry of Planning templates cannot be ignored. Therefore, unless exempt by special resolution, use of non-Ministry of Planning produced documents could result in unexpected issues for contractors (e.g. the invalidity of such contracts).

Meshal Alfawaz, Trainee Solicitor, co-authored this briefing.