Before the 1979 revolution, the Iranian commercial law was basically a Western commercial code. Although none of the pre-revolution codes has been formally repealed the same rules are subject to Islamic interpretation and in practice will be set aside if they do not conform to Islamic norms.

Prior to the revolution when the Iranian Government agencies were interested in concluding a contract, there was a rigid pattern for governmental contracts which had to be adhered to unless there were special circumstances to justify departure from the usual pattern. These patterns were designed primarily to guarantee the performance of the contractual obligations of the foreign contractor. The standard form Iranian contracts were well suited to the rapid development programmes of the Shah’s Iran.

One of the major pieces of legislation applicable to foreign contracts under the Shah was the Plan and Budget Act 1973. There was other legislation covering foreign investment in Iran. These scattered pieces of legislation need no elaboration here because they are now, in practice, “repealed”—foreign investment being prohibited under Principle 153 of the Constitution 1979.

The basic manner of contracting on the part of Iran’s governmental agencies was either tendering or through negotiation. Before the increase in the oil revenue, most of the governmental contracts were through tendering. In the course of not only the oil rush, but also the haste to spend the oil money for development purposes, Iran chose to negotiate for more favourable and varied terms in its contracts with foreign concerns.

So far as tendering was concerned, two ways of tendering were operative in Iran. One was public tendering and the other was the so-called “closed or limited tendering”.

Closed or limited tender was through a pre-qualification selection. Both public and selective tendering were adopted.

Negotiated contracts do away with the tender procedure in one or other of its forms. It is, in effect, a process of selection of a contractor or consulting engineer who the agency concerned believes is capable of doing the job.