4 April 2020
The Presidential Circular on "the Impact of the COVID-19 Outbreak on Public Procurement Contracts" ("Circular") has been published in the Official Gazette numbered 31087 and dated April 2, 2020.
According to the Circular, the contracts signed following the tenders concluded pursuant to the Public Procurement Law No. 4734 ("PPL"), as well as those signed following the tenders conducted for the purchase of goods and services exempted from the scope of the PPL as per Article 3 of the PPL, may now be requested to be revised in light of the social and economic impact of the coronavirus outbreak.
The Circular covers the contracts made between the administrations and the contractors for the procurement of goods, services and construction works.
As known, the procurement of goods or services and construction works compensated from the sources of the administrations listed under Article 2 of the PPL should be carried out in accordance with the provisions of the PPL. In this context; purchase of goods or services and procurement of construction works by the following administrations are subject to the PPL and hence should be evaluated within the scope of the Circular:
(i) departments included in the general budget, (ii) administrations with an added budget, (iii) special administrations, (iv) municipalities, (v) revolving funds, unions, legal entities associated with those, (vi) public economic enterprises, and (vii) social security institutions.
The main procedures and principles regarding the contracts in relation to such works and transactions are regulated under the Public Procurement Contracts Law ("Law") numbered 4735.
According to the Circular, relevant administrations may be requested to revisit and review the contracts and accordingly to revise them in light of the current circumstances. In addition to the provisions of the Circular, pursuant to Article 36 of the Law, for the matters not regulated under the Law, the Turkish Code of Obligations ("TCO") numbered 6098 shall be applied.
Therefore, if it would be necessary to adapt the contract to the changed conditions due to the difficulties in the performance of the contractual obligations, and if the situation has arisen for reasons that are independent from the fault of one of the parties and not foreseen by the parties, the application of the provisions of hardship as per Article 138 of the TCO or the other provisions of the TCO which regulate contracts for works (for lump-sum contracts, Art. 480/2) may be requested by the contractors. Hence it will be possible to request the court to consider adaptation of the contract to the new conditions, and if this is not possible the contractor may have the right to withdraw from the contract (for continuous performance contracts, in principle, to terminate the contract).
Although the Circular provides no clarity or restriction as to the matters which may be asked to be reviewed, in our view, any provisions of contracts which became difficult to perform due to the current situation, such as provisions of payments, guarantees, contract value or specified periods, may be requested to be reviewed by the administration.
The applications will be reviewed by the relevant administration and before rendering a decision, opinion of the Ministry of Treasury and Finance will be obtained.
Pursuant to Article 10 of the Law, "cases of epidemic" are explicitly denoted as a circumstance of force majeure. Accordingly, the Circular clarifies that if the below conditions are collectively met, the administration may decide on the termination of the contract or the extension of the periods set out in the contract:
(i) the situation has not occurred due to the fault of the contractor,
(ii) the existing circumstances has prevented the contractor from fulfilling its contractual obligations; and
(iii) the contractor is unable to overcome this obstacle.
Contractors in this situation may submit their applications to the administration, who is party to the contract, with the necessary information and documentation indicating that the above-mentioned requirements have been satisfied. Accordingly, the contractor should notify the administration in writing within twenty days following the date of force majeure and the application must be certified by the competent authorities.
As a result of the review, the relevant administration may decide on the termination of the contract or the extension of contractual periods due to circumstances of force majeure.
In case the contract is terminated by the administration due to force majeure, as per Article 23 of the Law, the accounts of the relevant contractor shall be settled in accordance with the general provisions and the performance bonds as well as additional securities obtained by the administration in the process of tender, if any, shall be returned to the contractor.
If you have any questions regarding our above note, please do not hesitate to contact us.
Güner Law Office