Construction & Real Estate

Contact: Ozgur Kocabasoglu; Erdem & Erdem (Turkey)

Introduction

The goal of the public private partnership ("PPP") model is the procurement of public infrastructure investments, and the provision of long-term maintenance, operation and construction services, through a contractual relationship, which establishes a partnership between the private and public sectors. As stated in the legislative justification[1] of the draft Law on the Amendment to Certain Laws and Decrees, submitted to the Turkish Grand National Assembly and later promulgated as Law No. 6527 ("Law No. 6527"), the structure of PPP model is ever-changing.

In order to efficiently realize and implement the projects in the current evolving market conditions, and to provide flexibility for the contractual basis of projects, an amendment of the law was necessary.

Accordingly, Law No. 6428 on the Construction and Renovation of Facilities and Procurement of Services by the Ministry of Health under the Public Private Partnership Model and Amendment of Certain Laws and Decrees ("Law No. 6428") is amended by the Law No. 6527, which was published in the Official Gazette dated 01.03.2014 and numbered 28928. This newsletter article will examine the amendments introduced to Law No. 6428.

Amending the Agreement and its Annexes

Law No. 6527 amended paragraph 9 of article 4 of Law No. 6428, entitled 'Contract'. Prior to the amendment, the article stipulated that the contract would regulate matters governing the termination of the contract where force majeure events arise or through agreement between the contractor and the administration. However, the scope of this article is expanded with the amendment.

Pursuant to this provision, as amended, in cases where force majeure events, extraordinary circumstances or other events affecting the implementation of agreements and its annexes arise, or the provisions of the contract and its annexes contradict one another, the contract or its annexes may be amended by the parties to ensure applicability and comprehensibility of the agreement, provided that the contract price is not amended and upon approval by the Minister of Health.

However, in the event it is understood that the project may not be completed under the existing terms and conditions due to force majeure, extraordinary circumstances or any other circumstances not attributable to contractor, the amount will be adjusted by taking the date of the final bid into consideration, and the required amendments will be made in the contract with the approval of the Minister of Health.

It is explicitly regulated through the amendment introduced by Law No. 6527 that amendments made in contracts after the tender period may have retroactive effect. The legislative justification explains the purpose of this amendment as the prevention of the termination of long-term projects worth significant amounts, of material damages and of the rupture of services.

On the other hand, exactly what constitutes force majeure and circumstances that affect the implementation of the contract and its annexes are not clearly specified under Law No. 6527. Therefore, it would be beneficial for the scope of these terms to be clarified in the secondary legislation governing the application.

Reauthorization of the High Planning Council

Paragraph 9 of Article 4 of Law No. 6428, reads as follows: "... After the High Planning Council's ("HPC") authorization decision, where the pre-feasibility report or projects with respect to construction works are changed and will exceed the limits of the investment cost envisaged in tender documents, then the amended feasibility report or projects and other related documents will be re-submitted to the HPC. Upon the HPC's reauthorization, the draft contract and its annexes will be amended accordingly. ..."

The last sentence of paragraph 9 of Article 4 of Law No. 6428 is exactly preserved in the amending law; pursuant to which, termination of the contract by mutual agreement of the parties and amendments to the contract shall be governed by the provisions of the contact, and in case the contract is terminated, the performance letter of guarantee shall be returned.

Other Amendments

Another amendment is introduced by Law No. 6527 to provisional Article 1 of Law No. 6428. This new amendment relates to provisions on the establishment of a superficies right, on the application of paragraph 7 of Article 3 (entitled 'Principles and procedures of tender') and paragraph 9 of Article 4 on ongoing tenders and works, for which the contract has been executed.

Moreover, another amendment to provisional Article 1 of Law No. 6428 reads as follows: "Decisions given by administrative jurisdictions regarding lawsuits filed against tenders realized within the framework of Additional Article 7 of Law No. 3359 prior to the entry into force of this paragraph shall be complied with by making the necessary modifications in the existing tender documents and contracts, and projects will be conducted accordingly".

As an example, the 13th Chamber of the Council of State issued a stay of execution decisions related to tenders for the health campuses to be established in Ankara-Etlik, Ankara-Bilkent and Elazığ, and decided to apply to the Constitutional Court to challenge the compliance of paragraph 8 of Additional Article 7 of Law No. 3359, which forms the basis of the PPP tenders, with the Constitution[2]. Within this framework, considering the amendment made to provisional Article 1 of Law No. 6428, it could be argued that through the modification of tender documents and contracts to comply with the decisions of administrative courts, the goal is to prevent the cancellation of tenders.

Conclusion

The PPP model has an ever-changing and evolving structure. In this respect, Law No. 6428, as amended by Law No. 6527, introduces provisions changing the tender process, aims to prevent the termination of long-term projects worth significant amounts, the occurrence of material damages and the rupture of services.