Legal Analysis of Public-Private Partnership (PPP) Contracts in Infrastructure Projects

Public-Private Partnership (PPP) contracts have become one of the most effective tools for infrastructure development worldwide. By combining private sector financing with public sector oversight, PPP agreements help deliver large-scale projects such as highways, airports, hospitals, energy plants, and water systems. However, the legal challenges of PPP contracts—especially in complex jurisdictions like Iran—require careful analysis to ensure project success and long-term sustainability.

What Is a Public-Private Partnership (PPP)?

A PPP contract is a long-term agreement between a government entity and a private company. The state ensures compliance with public interest, safety, and social standards, while the private partner seeks to maximize profit and efficiency. This dual nature makes PPPs unique: they are shaped by both public law (sovereignty, budgeting, regulation) and private law (contracts, finance, liability).

Legal Challenges of PPP Contracts in Iran

Iran’s legal system reflects contradictions that complicate PPP agreements:

• Article 10 of the Civil Code supports freedom of contract.

• Article 75 of the Public Accounting Law prohibits long-term financial commitments without budget approval.

This creates uncertainty: investors demand long-term guarantees (like revenue commitments), but the government cannot easily provide them under Iranian law.

Common PPP Models and Legal Issues

1. Build-Operate-Transfer (BOT):

   • Private sector builds, operates, then transfers ownership.

   • Risks: ownership transfer conditions, regulatory changes during operation.

2. Build-Own-Operate (BOO):

   • Private party keeps permanent ownership.

   • Risks: conflicts with public regulation, budgetary limits, and sovereignty.

3. Design-Build-Finance-Maintain-Operate (DBFMO):

   • Covers all project phases.

   • Risks: weak government oversight and quality control.

Key Legal Issues in PPP Agreements

• Risk Allocation: Political risks (laws, sanctions), financial risks (currency), operational risks (delays).

• Government Guarantees: Often challenged in Iranian courts if not budget-backed.

• Dispute Resolution: Ambiguity about whether arbitration, courts, or tribunals have jurisdiction.

• Transparency in Bidding: Lack of independent oversight leads to corruption risks.

• Financing Challenges: Sanctions and banking limitations increase reliance on state support.

• Ancillary Agreements: Weak integration of insurance, supply, and guarantee contracts.

• Civil Liability: Shared responsibility between state and private party is often unclear.

International Best Practices in PPP

• Turkey’s PPP Law (2013): Clear rules for guarantees, risk-sharing, and dispute resolution.

• Infrastructure Guarantee Funds: Backed by international banks to reduce investor risk.

• Smart Contracts and Blockchain: Used globally for automated payments and transparent financial management.

Recommendations for Iran

To strengthen PPP projects in Iran, a comprehensive PPP legal framework should:

• Define risk-sharing and government guarantees.

• Ensure independent and transparent bidding processes.

• Create specialized PPP training centers for public officials.

• Allow modern tools like blockchain and AI-based monitoring.

• Establish clear rules for arbitration and dispute resolution.

Conclusion

PPP contracts are not just a financing tool—they are a legal mechanism that can transform Iran’s infrastructure if designed properly. Without clear laws, projects risk becoming legal battlegrounds; but with a transparent, flexible, and internationally aligned legal system, PPPs can drive sustainable infrastructure development.

For Iran, the path forward is clear: adopt a comprehensive PPP law, strengthen institutional capacity, and build trust with domestic and foreign investors. Only then can PPPs deliver on their promise of modern, efficient, and reliable infrastructure.