Turkey: Memorandum On The Communique Of The Ministry Of Finance Regarding The Letters Of Guarantee

Last Updated: 1 April 2004
Article by Vural Günal

January / 2003

(Has been reviewed in February 2004 after the Accounting General Directorate General Communiqué Serial No. 15 published in the 1st Repeated Official Gazette dated 20.02.2004)

INDEX

I. SUBJECT

II. GENERAL INFORMATION ABOUT LETTERS OF GUARANTEE

  1. Types of Bank Letters of Guarantee
  2. Legal Status of Letters of Guarantee

III. PROVISIONS OF THE COMMUNIQUE

  1. Purpose of the Communiqué
  2. Explanations About Relevant Laws and About Documents Acceptable as Guarantee
  3. Status of Checks
  4. Compliance of Letters of Guarantee With the Laws
  5. Control of the Letters of Guarantee of the Public Entities
  6. The Notification to be made by the Customs Authority to the Treasury Offices
  7. Replacement of Guarantees
  8. Letters of Guarantee and Statutes of Limitation

IV. PROVISIONS OF THE STATE BID TENDERS COMMUNIQUE (2003/2)

*******************************************************************************************************************

MEMORANDUM ON THE COMMUNIQUE OF THE MINISTRY OF FINANCE REGARDING THE LETTERS OF GUARANTEE

I. SUBJECT:

Accounting General Directorate General Communiqué – No. 15" of the Republic of Turkey, the Ministry of Finance has been published in the 1st Repeated Official Gazette on 20 February 2004 and the Communiqué dated 14 January 2003 has been repealed. The Communiqué sets down the principles of Letters of Guarantee to be used for the State-related issues.

In this Memorandum, we are going to summarize the principles of the Communiqué with a general emphasis on the letters of guarantee.

II. GENERAL INFORMATION ABOUT LETTERS OF GUARANTEE:

Letter of guarantee has not been specifically arranged in the Turkish law*, and has been put in practice by contracts signed between the contract parties in reliance upon the freedom of will granted by the Turkish Law of Obligations.

1. Types of Bank Letters of Guarantee:

Depending on the payment terms, the bank letters of guarantee may be classified in two different categories as (i) letters of guarantee payable upon first demand, and (ii) conditional letters of guarantee, or to put it differently, letters of guarantee payable against submission of certain documents. Depending on the coverage of guarantee, the bank letters of guarantee may be classified in different categories as (i) bid bonds (temporary letters of guarantee), (ii) advance payment letters of guarantee and (iii) performance bonds (final letters of guarantee). In addition, the letters of guarantee are used in the market under various names such as "under direct bank guarantee", "under indirect bank guarantee", "letters of guarantee for payment purposes", "letters of guarantee securing shortage of documents" or "counter-guarantees".

2. Legal Status of Letters of Guarantee:

Legal status of the letters of guarantee is open to debate. For this reason, we hereby only refer to different definitions about legal status of the letters of guarantee:

  • a surety contract

  • a guarantee contract

  • a mixed contract

  • a sui generis contract

III. PROVISIONS OF THE COMMUNIQUE:

1. Purpose of the Communiqué:

In its Communiqué, the Ministry of Finance explains its motive and purpose as "to clarify and eliminate doubts on some issues and points in the practice regarding the application of, letters of guarantee issued by banks in tenders to be held by public entities and Article 10 of the Law Regarding the Collection of the Public Receivables".

2. Explanations About Relevant Laws and About Documents Acceptable as Guarantee:

According to the Ministry of Finance:

- Assets and means acceptable as "guarantee" in various transactions and dealings are shown and named in the legislation pertaining thereto.

- Furthermore, the Budget laws also contain provisions about guarantees. Pursuant to the Budget laws:

  • INCOME SHARING CERTIFICATES and other SECURITIES, based on refund of principal, issued by operation of special laws; and

  • STATE INTERNAL BORROWING NOTES and TREASURY BONDS; and

  • LETTERS OF GUARANTEE issued by the Special Financial Institutions

are acceptable as a "Guarantee" in the BID TENDERS and CONTRACTS of public administrations, and for the purposes of Article 10 of the Law 6183 About Method of Collection of Public Debts.

Shortly, assets and means acceptable as a guarantee are named and listed in the yearly budget laws, customs laws and Article 10 of the Law 6183 with regard to bid tenders and contracts of the public entities and administrations.

3. Status of Checks:

Our laws do not contain any clause verifying that checks are acceptable as a guarantee. The Communiqué expressly rules that checks may not be accepted as cash guarantees.

4. Compliance of Letters of Guarantee With the Laws:

Letters of guarantee to be issued and granted by banks for use in such bid tenders are required to be prepared in the format shown in the tender legislation (State Bid Tenders Circular published in the Official Gazette on 07.03.2002) (Exhibit: Formats of Letters of Guarantee).

5. Control of the Letters of Guarantee of the Public Entities:

The issues of:

- whether the letters of guarantee to be issued to entities are prepared in accordance with the principles in the tender legislation, and

- whether the letters of guarantee issued in foreign currency have been included in the accounts by conversion into Turkish Lira by the entity over the foreign currency purchase rate of the Central Bank of the Republic of Turkey on the date of its receipt,

shall be controlled by public entities.

6. The Notification to be made by the Customs Authority to the Treasury Offices:

It is obligatory that a written notification, in TWO COUNTERPARTS, regarding the compliance of the letters of guarantee with the legislation and the absence of any issues preventing them to be acceptable must be sent by the Customs Administration to the Treasury Offices for the acceptance by the Treasury Offices of the letters of guarantee taken against customs taxes and duties. For this reason the letter of guarantee to be thoroughly inspected by both entities must be prepared in accordance with the legislation in all aspects.

It must be noted that the bank letters of guarantee duly issued and granted directly "TO THE NAME OF THE BIDDER" are converted by the related Treasury Offices of the authorities into TL over the "foreign exchange buying rate" of the Turkish Central Bank current as of the date of receipt of the bank letter of guarantee. Therefore, the contract signed with the customer must, as a precaution, clearly show the customer’s debt in foreign currency, before a letter of guarantee is issued.

7. Replacement of Guarantees:

Guarantees delivered to the Treasury Offices for the State bid tenders may be fully or partially replaced by other acceptable guarantees of the same value. Accordingly, such demands about the letters of guarantees may be fulfilled by banks pursuant to the related contract provisions.

8. Letters of Guarantee and Statues of Limitation:

According to the Regulation, the banks issuing the letters of guarantee are not relieved of their liability in connection therewith, because the risk guarantee thereunder may occur at any time, as long as "the obligations covered by the letter of guarantee issued by the bank with a payment guarantee" ARE NOT DULY PERFORMED by the contractor in accordance with the related contract and specifications. The following clause of the Regulation is important: "BANK’S LIABILITY CONTINUES AND REMAINS IN EFFECT, EVEN IF A LETTER OF GUARANTEE HAS BEEN WRITTEN OFF BY THE BANK AT THE END OF THE TEN-YEARS’ STATUTE OF LIMITATIONS PERIOD FOR LETTERS OF GUARANTEE."

Here, we would like to point out an obligation imposed by the Regulation on the banks. According to the Regulation: "... in order to avoid any mistake, ‘before writing off’ a letter of guarantee at the end of the statute of limitations period of ten years starting from the date of issuance thereof, the bank MUST CHECK with the related authorities whether the subject PROJECT WORKS ARE CONTINUING, and the bank must proceed ACCORDING TO THE RESULT OF SUCH INQUIRY..."

IV. PROVISIONS OF THE STATE BID TENDERS COMMUNIQUE (2003/2):

The State Bid Tenders Communiqué (2003/2), published in the Official Gazette on 18 January 2003, clarifies for the purpose of the State Bid Tenders Law 4734 that letters of guarantee issued by the "special financial institutions" are also acceptable as a letter of guarantee issued BY BANKS.

With my best regards,

Vural Günal

Legal Advisor

* Assoc. Prof. Vahit Doğan; Banka Teminat Mektupları (Bank Letters of Guarantee), 1999, Ankara, page 56

************************************************************************************************************

TEMPORARY LETTER OF GUARANTEE

(BID BOND)

…………

Date

:

…………

Number

:

Whereas our Bank* stands as a guarantor for TL ............ (only .................. TL), being the amount of bid bond which the bidder ............., wishing to bid for the ...... project let for contract by your Administration, is required to submit in accordance with the conditions of this bid tender and the provisions of the relevant laws and specifications, now and therefore, we, the undersigned, acting as and in the capacity of the responsible officers and the authorized signatories of our Bank*, hereby agree, undertake and declare in the name and account of our Bank* that if and when the contract is duly awarded to the bidder with a notice and the bidder is requested to submit a performance bond and to sign the contract, but the bidder fails to submit a performance bond and to sign the contract and to comply with the proviso of the relevant laws and specifications of the project works, our Bank will pay to your Administration or to your order the above cited amount of guarantee, plus legal interests to be accrued from the date of demand to the date of actual payment, in full, in cash and promptly upon your first written demand, without any protest, court judgment or consent of the said bidder and irrespective of any dispute that may arise between your Administration and the bidder, and irrespective of the legal results and consequences of such disputes.

    • Total sum of temporary, final and advance payment letters of guarantee issued by our Branch, that are still valid and in force, also including the amount of this letter: TL ........
    • Limit of our Branch: TL. ..........
    • Limit transferred from the reserve fund of our General Management: TL. ..........
    • Total limit of our Branch: TL. ..........

.......... Branch Office

Name, Position and Signature of Authorized Officer(s) of the Bank*

NOTE: In the letters of guarantee issued upon a counter-guarantee of foreign banks or similar credit institutions, name of the foreign bank or credit institution issuing that counter-guarantee will be given, and the related foreign currency will be inserted in stead of "TL" or "lira", and no figure will be written in the sections relating to limits. However, it will be separately stated that the letter of guarantee is issued against a counter-guarantee.

* Special financial institutions will use the word "institution" in place of the word "bank".

***************************************************************************************************

FINAL LETTER OF GUARANTEE

(PERFORMANCE BOND)

…………

Date

:

…………

Number

:

Whereas our Bank* stands as a guarantor for TL ............ (only .................. TL), being the amount of performance bond which the contractor/customer ............., who was awarded the contract for the ...... project as a result of the bid tender organized by your Administration, is required to submit in accordance with the provisions of the relevant laws and specifications, now and therefore, we, the undersigned, acting as and in the capacity of the responsible officers and the authorized signatories of our Bank*, hereby agree, undertake and declare in the name and account of our Bank* that if and when the said contractor fails to perform its contractual obligations in accordance with the contract and the relevant laws and specifications, our Bank will pay the above cited amount of guarantee, plus legal interests to be accrued from the date of demand to the date of actual payment, in full, in cash and promptly upon your first written demand, without any protest, court judgment or consent of the said contractor and irrespective of any dispute that may arise between your Administration and the contractor, and irrespective of the legal results and consequences of such disputes.

    • Total sum of temporary, final and advance payment letters of guarantee issued by our Branch, that are still valid and in force, also including the amount of this letter: TL ........
    • Limit of our Branch: TL. ..........
    • Limit transferred from the reserve fund of our General Management: TL. ..........
    • Total limit of our Branch: TL. ..........

.......... Branch Office

Name, Position and Signature of Authorized Officer(s) of the Bank*

NOTE: In the letters of guarantee issued upon a counter-guarantee of foreign banks or similar credit institutions, name of the foreign bank or credit institution issuing that counter-guarantee will be given, and the related foreign currency will be inserted in stead of "TL" or "lira", and no figure will be written in the sections relating to limits. However, it will be separately stated that the letter of guarantee is issued against a counter-guarantee.

* Special financial institutions will use the word "institution" in place of the word "bank".

***************************************************************************************************

ADVANCE PAYMENT LETTER OF GUARANTEE

…………

Date

:

…………

Number

:

Whereas our Bank* stands as a guarantor for TL ............ (only .................. TL) to be paid by your Administration to the contractor/customer, who has assumed the .............. project works as a result of the bid tender organized by your Administration, in accordance with the provisions of the contract and the relevant laws and specifications, now and therefore, we, the undersigned, acting as and in the capacity of the responsible officers and the authorized signatories of our Bank*, hereby agree, undertake and declare in the name and account of our Bank* that if and when this advance payment is requested to be repaid for any reason whatsoever, our Bank will pay the above cited amount of guarantee, plus legal interests to be accrued from the date of demand to the date of actual payment, in full, in cash and promptly upon your first written demand, without any protest, court judgment or consent of the said contractor and irrespective of any dispute that may arise between your Administration and the contractor, and irrespective of the legal results and consequences of such disputes.

    • Total sum of temporary, final and advance payment letters of guarantee issued by our Branch, that are still valid and in force, also including the amount of this letter: TL ........
    • Limit of our Branch: TL. ..........
    • Limit transferred from the reserve fund of our General Management: TL. ..........
    • Total limit of our Branch: TL. ..........

.......... Branch Office

Name, Position and Signature of Authorized Officer(s) of the Bank*

NOTE: In the letters of guarantee issued upon a counter-guarantee of foreign banks or similar credit institutions, name of the foreign bank or credit institution issuing that counter-guarantee will be given, and the related foreign currency will be inserted in stead of "TL" or "lira", and no figure will be written in the sections relating to limits. However, it will be separately stated that the letter of guarantee is issued against a counter-guarantee.

* Special financial institutions will use the word "institution" in place of the word "bank".

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions