Turkey: Legal Framework Of Public Private Partnership Projects In Turkey

Law on Building and Renewal of Facilities and Procurement of Services through Public Private Partnership Model No. 6428 (the "Law"), content of which was initially introduced by the supplementary Article 7 of the Health Services Law No. 3359. By taking into consideration the issues that arose as a result of implementation of the previous regulation and the criticisms made by parties to such contracts, the Law is formulated as a more comprehensive and satisfactory regulation.

This paper discusses the previous legislation and the Law, and lays out the suggestions made with respect to such regulations.


Public Private Partnership ("PPP") is a cooperation agreement between public and private sectors for rendering of public services that are traditionally provided by the state and funded by taxpayers, and is characterized by sharing the investments, risks, liabilities and revenue between the cooperating parties. In this model, public and private sectors complement each other by their respective individual distinctive features. The economic challenges associated with supplying fundamental public services, i.e. healthcare, are shared with the private sector in order to assure public welfare.

Advantages of the PPP model have enhanced it as a prominent and commonly used model in many countries. The PPP model, which was first adopted in the United Kingdom in 1990s, has then been applied in transportation, education and healthcare sectors both in other European countries (such as Ireland, Portugal, Spain, France, Italy and the Netherlands) and in other parts of the world (such as Australia, Japan, Canada and Latin America).

PPP offers an alternative approach by public to projects that are traditionally financed and operated by the state. Financing provided by the private partner allows faster and efficient construction of big-scale projects, which might otherwise get caught in the fishing net that is the state's budget.

As opposed to a state granted concession, PPP creates partnerships formed through negotiations held between equals thus the ability to more transparently and impartially determine, address and calculate risks and returns. When well structured, PPP helps addressing specific costs and investment challenges, creates improvements in efficiency i.e. improved service qualities (expertise, new technologies, a potential to attract and retain better performing staff) and low cost management1.

One of the most appealing aspects of PPP is sharing of risks related to the projects between the partners. While the "Build - Operate - Transfer" scheme limits the operational exposure and risk of the private sector to a relatively shorter period of time, the private investor in a PPP project is bound to be extra diligent when assessing its longer-term risks for financing, construction, quality of service, and maintenance. On the other hand, especially in the healthcare sector, long-term costs related to quality of service and maintenance can be quite difficult to foresee, and thus, may add up to an unknown variable while calculating future exposure. Therefore, contractual flexibility and giving the private investor breathing space especially during the construction phase through adjustment mechanisms are essential if the aim of the state is to attract top-tier domestic/international private partners.

The main difference between PPP projects and procurement (also "Build - Operate - Transfer" projects) is that in PPP projects, private sector incomes are linked to the performance of the assets, including the proceeds generated by services, which forces the private sector to maintain a successful operation throughout the term of the partnership. Since payments to the private partner are made by the public following the delivery of the project, the private sector contractor has an actual benefit in making sure that the contracted asset is delivered in due time, and services meet the committed quality, which was also mentioned by the HM Treasury: "Private sector expertise and experience has always been utilized in public sector procurement, but, where in traditional procurement, private companies built and then walked away, PFI seeks to ensure that the private sector takes responsibility for the quality of design and construction it undertakes, and for long term maintenance on an asset, so that value-for-money is achieved."2

As a summary, the advantages and key challenges of PPP projects can be stipulated as follows3,4,5:


  • Maximized use of private sector experience and skill
  • Affordable projects
  • Life cycle cost risk is undertaken by the private sector
  • Budgetary certainty regarding the projects
  • Ensured level of quality
  • The state makes the payments to the private sector only upon the delivery of services
  • Encouraging injection of private equity
  • Lower long term use of state resources

Key challenges:

  • Inability to transfer absolute risk
  • State's inability to day to day control of the management of the services provided in PPP Projects
  • Slow pace of the state's decision making and costly PPP projects
  • The private sector has a higher cost of finance
  • Lack of organizational focus on a state level
  • Lack of flexibility in public sector (heavy bureaucracy)


i. The Law

The Law, which has its roots in the supplementary Article 7 of the Health Services Law No. 3359, was adopted by Turkish National Assembly on March 09, 2013.

Previously, PPP projects were governed by the supplementary Article 7 of the Health Services Law No. 3359 (the "Law") and "Regulation on the Building of Health Facilities in Exchange for Leasing and Renewal of the Areas and Services Outside the Areas for Medical Services in the Facilities in Exchange for Leasing" (the "Regulation").

The Law repeals the supplementary Article 7 of the Law, amends Article 4 of the Law on Public Financing and the Regulation of Loan Administration numbered 4749, Article 11/A of the Law on Realization of Certain Investments and Services through Build-Operate-Transfer Model numbered 3996, Article 68/B of the Law on Public Officials numbered 657, and adds a provisional article.

The Law introduces new provisions with the aim of preventing the problems encountered during the execution of the Law, the Regulation, and other regulations mentioned above. The Law also aims at avoiding criticism often posed by the private sector especially concerning the demands and guarantee requirements of finance providers.

With the Law, the law maker attempts to stand equidistant to private legal persons during the long term partnership due to the inherent complexities posed by just any "partnership". At that note, definition of special purpose entity (which is the entity to be party to the agreement) under the Law limits the corporate form of the entity to a joint stock company.

A PPP contract will be subject to the provisions of private law and its term shall be determined by the state depending on the characteristics of facility and the feasibility report, albeit up to thirty years, excluding the fixed investment period specified in the relevant contract. The contractor / "private party" shall not only be responsible for the project designing of the buildings, commissioned works in relation to the facility in addition to financing, construction, maintenance and repair, but also for providing any and all types of long-term services within the context of the relevant PPP project. Following the expiration of the PPP contract term, the private partner undertakes to transfer the facility to the relevant ministry free of any and all encumbrances, as well-kept, operational and available for use.

To name a few of the important regulations included in the Law:

Tender Types and Procedure

The Law, as the Regulation previously did, governs the cornerstones of tender procedures and stipulates the options on how a tender will be conducted, i.e. open tender procedure, tender procedure between predetermined bidders, and tender procedure through negotiation. In case of tender by underbidding, should the initial bidder (who offered the lowest bid during the tender) fail to reach an agreement with the administration during final negotiations, the administration continues its final negotiations with the second bidder (who offered the second-lowest bid during the tender). In case the final offer of the second bidder is lower than the initial bidder, the administration offers the final amount to the initial bidder. If the initial bidder accepts such amount, the administration awards the tender to the initial bidder, if not the second bidder.

The Law introduces "tender executive" as the top executive of the central organization of the Health Ministry and its sub-undertakings or the provincial organization, as the case may be. Accordingly, the tender executive is responsible for execution of the contract and expenditure authority.


Tax and other levies that would be applicable to the agreements with respect to any business activities, transactions, and any papers that will be executed between private and public partners concerning the investments to be made, will be exempt from stamp tax and applicable charges, on the condition that it will be limited to the investment period.

Usage of Turkish Goods

According to the Law, at least 20% of the medical instruments and apparatus that are part of the fixed investment have to be manufactured in Turkey.

Re-arranging the Partnership Structure / Step-in Rights

In cases where the following conditions are met, finance providers are entitled to re-arrange the shareholding structure of the private partner / contractor upon mutual agreement with the public partner / administration:

  1. In case the contractor is unable to fulfill its undertakings under the partnership contract during the construction phase:

    • administration shall first serve a written notice explicitly stating the circumstances, and grant the contractor a cure period suitable for the contractor to take necessary measures
    • if the contractor fails to realize its undertakings within the cure period, the administration and the finance providers could re-arrange the partnership structure and have the project completed. Should this not be possible, the state is entitled to terminate the partnership agreement.

  2. In case the contractor is unable to fulfill its undertakings under the partnership contract during the operation phase, excluding the facts of the matter where the health services become unsustainable:

    • administration shall first serve a written notice explicitly stating the circumstances, and grant the contractor a cure period suitable for the contractor to take necessary measures
    • administration shall also notify the financial providers of project financing
      • In case the contractor fails to realize its undertakings within the cure period, the administration shall ensure the contracted services are provided for and on behalf of the contractor.

    If healthcare services become unsustainable :

    • the facts of the matter shall be notified to the contractor in the quickest fashion and the administration shall have the works performed by third parties for and on behalf of the contractor, where the administration also reserves the right to terminate the contract
    • same rules apply in cases where the contractor fails to meet the performance grades prescribed in the partnership contract
    • if the contractor fails to realize its undertakings within the cure period, the administration and the financial providers could re-arrange the partnership structure and have the project completed.

ii. Suggestions

Construction Lien & Sub-Contractor Usage

The Law does not cover two important aspects of PPP projects; namely there is no regulation on whether a construction lien is permitted, and it is also not clear whether delegating sub-contractors is allowed.

Transfer of the Asset to the State

The provision governing "transfer" in the Law is parallel to the pervious regulation. That said, the Law has been worded such that deficiencies and errors shall be determined by the contractor or its representative together with a committee that will be authorized by the administration. It is important to clearly regulate how the costs that should cover the remedies, i.e. deficiencies and errors, will be collected. From a contract drafting standpoint, it would be prudent if the parties stipulate in the contract the fundamental terms of the partnership including how they would be compensated with clear provisions in order to avoid any future discrepancies.

Zoning Plans

The Law states that the zoning plans of places where the project will be implemented shall be carried out by the Ministry of Environment and Urban Planning upon the Ministry of Health's request. On the other hand, to give relief to private investors, it can be considered to state in the Law that delays resulting from finalization of zoning plans as well as delays resulting from expropriation works will not adversely affect the contractor.

Explicit Provisions and Transparency in Tender Process

The secondary legislation of the Law, which is expected to govern the details and specific rules of the tender process of PPP projects, has not been published yet. However, in order to prevent problems and conflicts already faced and surpassed by the public and private sectors in countries that adopted PPP before Turkey, a comprehensive legal framework is undoubtedly essential for the success of PPP in Turkey.

The principle of checks and balances must be respected while drafting the secondary legislation in order to prevent arbitrary rules and directives. This principle was put to test during the implementation of the Law, which paved the way for over-involvement of the executive branch due to lack of detailed regulation with respect to PPP by the legislative branch. Upon the legal proceedings initiated by the Turkish Medical Association, 13th Circuit of Council of State6 has held that the Turkish Medical Association had valid legal ground to initiate proceedings before the Turkish Constitutional Court, arguing that the Law violates the Turkish Constitution7 by taking legislative powers from the Grand National Assembly of Turkey and giving such law-making powers to the Turkish cabinet, as the latter determined the supplementary rules for PPP. These previous experiences should shed light to drafting of the secondary legislation.

Needless to mention, the prerequisites and procedures governing tender process and project specifications must be specified in a clear, comprehensive and explicit manner, and should be easily accessible by each applicant. During the 2005 PPP Transport Summit, Mr. Gerhard Becher, Chairman of the Executive Management, Bilfinger Berger BOT GmbH, has rightfully mentioned that "The tender process must be as transparent as it possibly can be, with clear bid evaluation criteria set out and made known to bidders in advance, with an open and comprehensive debrief to unsuccessful bidders".

Favoring of International Financing

Article 12(3) of the Law has amended Article 11/A of the Law on Realization of Certain Investments and Services Based on Build-Operate-Transfer Model. However, the suggested wording of the Law this time makes discrimination between domestic and international financings in case of early termination. In case a project that is financed internationally is prematurely terminated, the Law authorizes the Cabinet of Ministers to appoint the Undersecretariat of Treasury to undertake the financial liabilities of the private party.

It would be more appropriate to state that the Undersecretariat of Treasury will undertake the financing the project, irrespective of financing being obtained from domestic or international sources.

General Comments

Although it is recognized that the law maker attempts to stand equidistant to private legal persons during the long term partnership due to the inherent complexities posed by the public private partnership, we think that it is necessary to have a clear partnership contract that will be executed between the parties, and some amendments should be made in the "standard" contracts so that the private legal persons may have the opportunity of a fair negotiation.

The fact that topics such as the facilities' construction, renovation and obtaining services are not clearly regulated in the Law, and the fact that these issues will be addressed in secondary regulations could bring with it arbitrary applications. For instance, the limits of the concept "commercial service fields" must be carefully determined because this concept has constituted the ground for stay of execution of certain tenders made within the scope of the Law and the Regulation, and also was previously subject to the Council of State's review.

Prospective Implementations of PPP and the Turkish Example

PPP as a model has been implemented in Turkey by the enactment of the Law on Realization of Certain Investments and Services through Build-Operate-Transfer Model since 1994, primarily in relation to airports and ports.

As for the implementation of the Law, domestic and international investors already jumped the gun. According to a survey conducted by Deloitte in 2012, Turkey came in second, with 23%, as the top choice of the participants as "the most emerging PPP market in the medium to long term" globally8. The growing interest in Turkish PPP market results from the huge need of infrastructure in Turkey.

So far, there are three major PPP agreements that have been executed by and between private and public parties in the healthcare sector:

  • Kayseri Integrated Health Campus is the first PPP project in Turkey.
  • Ankara Etlik Integrated Health Campus Project.
  • Ankara Bilkent Integrated Health Campus Project.
  • Elazig Integrated Health Campus Project.

Negotiations of Istanbul Ikitelli Integrated Health Campus Project are nearly completed.

Although the ongoing PPP projects are implemented only with the perspective of building and renewing hospitals, it should be noted that there is a lack of specialized care-homes for elderly, hospice services, and specialized facilities for kids and adults suffering from down syndrome or autism, where around the clock care is essential for life quality of the persons.

Turkish government is trying to take the necessary steps for the young populace in general – taking into consideration the young population percentage of Turkey. However, senior citizens are unfortunately thrown to the bottom of the priority pyramid. On the other hand, considering the life-cycle, the young and dynamic population of today will no longer be in this tip-top shape in the near future. While private healthcare insurances seem to cover the healthcare costs during the term of their employment, an average person in her/his 70's either will have to be financially supported by their kids or have enough money to afford private senior citizen homes – which costs around the same with buying a fairly expensive apartment. This raises the question of why should spending your later years in life with dignity and receiving proper care be a privilege? Therefore, well established PPP practices would provide the necessary key ingredient to this bleeding problem in Turkey.

It is also a fact that the state has a huge responsibility in PPP projects. Stability in the government and economy, flexibility in contract negotiations and assistance during every phase of PPP projects will enable PPP to be a huge success in Turkey, and will change and benefit the life standards in Turkey to the greatest extent possible. Creating momentum across the wider governmental administrations through cooperation will enable a rapid expansion of PPP projects in Turkey. As Nick Prior, Head of Infrastructure of Capital Programs at Deloitte, reminds us, "The preference will always go to the markets where you have transacted before, where you have been successful and where you know and understand it", PPP projects should be implemented under the robust implementation of a fully structured legal framework.

As to flexibility, during the contract drafting and negotiation phase of the projects, i.e. the make or break phase, the state should abandon the commonly known approach of "my way, take it or leave it" and handle each unique PPP case with a clean slate. As mentioned above, sharing the risk to some extent, refraining from impossible time-frames, and continuous governmental support will enable the success of PPP in Turkey. From a legal standpoint, while the rights and obligations of all parties to a PPP project should be specified in detail in order to avoid any future conflict, the public party should also loosen its leash to maintain the best partnership environments possible. As it currently stands, the Law fails to provide detailed legal framework for a proper PPP contract, which we believe shall be remedied by way of providing a detailed framework.


1. Public-Private Partnerships and Collaboration in the Health Sector, An Overview with Case Studies from Recent European Experience, Irina A. Nikolic and Harald Maikisch, pg. 15

2. PFI: Meeting the Investment Challenge - HM Treasury, www.hm-treasury.gov.uk/d/PFI_604a.pdf

3. Delivering the PPP Promise, A Review of PPP Issues and Activity, PriceWaterhouseCoopers, pg. 4

4. Turn Risks and Opportunities into Results, Exploring the Top Ten Risks and Opportunities for Global Organizations, Ernst&Young, pg. 48

5. KPMG-International Experience with PPP Programmes: Success, Failure and Key Lessons, February 22, 2012, pg.1.

6. 13th Circuit of Council of State with its decisions numbered E. 2011/3392, E. 2011/4558 and E. 2011/4233 has held stay of execution of Ankara Etlik Integrated Health Campus construction works and providing of service, Elazig Integrated Health Campus construction works and providing of service and Ankara Bilkent Integrated Health Campus construction works and providing of service.

7. 13th Circuit of Council of State decisions numbered E. 2011/3392.

8. Deloitte Partnership Bulletin, The Global PPP Market 2012, pg. 6

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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