Turkey: The Procurement Principles In Turkish Defense Industry

Last Updated: 17 September 2014
Article by Safak Herdem

In Turkey, many of the governmental authorities shall apply to procurement of goods, services or works under Public Procurement Law #4734 (PPL). In the same manner, the contracts in public purchase of goods, services and works refer to this law's "contract principles" indicated in the Public Procurement Contract Law (#4735) (PPCL). But it had better to lay emphasis on an exception for defense issues under law#4734.

Exception in PPL#4734 stipulates that the procurement for defense, security or intelligence related goods, services and works decided by the relevant ministry and require to be treated confidential, and procurements requiring special security measures during the performance of the contract pursuant to related legislation or those concerning the cases in which the basic interests of the state's security needs to be protected shall not be governed by this Law except prohibition and criminal provisions.

Within the framework PPL#4734 as mentioned above, some principles and procedures for goods, services and works related to a decree was promulgated by Ministry of Defense (MoD) in 2009 and having amendments and annexes in 2011 and 2012. In this context, this decree (As part of the decision about implementation of annexed principles and procedures related to Public Procurement Law No. 4734 of Article 3 of paragraph (b)) and the Public Procurement Contract Law (#4735) serve as basis of contracts of MoD.

As the legislation refers so there are five contract types under PPCL#4735 as follows;

  • In procurement of works; turnkey lump-sum contracts shall be made over the total tender price for the entire work proposed by the tenderer on the basis of application projects and site lists thereof.
  • In procurement of goods or services; lump-sum contracts shall be made over the total tender price proposed by the tenderer for the entire work, the detailed specifications and quantities of which are pre-determined by the contracting entity.
  • Unit price contracts shall be made over the total price calculated by multiplying the quantity for each work of item specified in the schedule prepared by the contracting entity, with unit prices proposed by the tenderer for each corresponding work of item, on the basis of the preliminary or final projects and site lists thereof along with unit price definitions in procurement of works whereas on the basis of detailed specifications of the work involved in procurement of goods or services.
  • In procurement of works, mixed contracts can be formed together with turnkey lump-sum contracts for some parts of work items and unit price contracts for the other parts.
  • Separate contracts can be signed between administration and contractor as based on a framework agreement.

It shall be mandatory to cover the issues listed below in the contracts to be made under this law: (The governmental institutions are authorized for indicating the compulsory matters in mixed contracts and separate contracts)

  • Title, specification, category and quantity of work; description of work in procurement of services. 
  • Name and address of the contracting entity. Name or business title and address for notification of the contractor. 
  • Information on sub-contractors, if any, and their obligations.
  • Price, category and duration of contract.  
  • Terms and place of payment; amount and place of advance payment, if any.
  • Method of payment of price difference, if any, for business under contract.
  • Statement of cost items that are to be included in the contract price from among transportation, insurance, taxes, duties and charges payable.
  • Statement of the parties that would pay for cost items from among taxes, duties, and charges payable and other expenses under the contract.
  • Terms and conditions concerning such auxiliary services as installation, commissioning, training, repair-maintenance, and spare parts.
  • Amount of performance security and conditions pertaining to returning of it.
  • Guarantee periods, where any is required, and any conditions pertaining to such guarantee.
  • The place of performance, and procedure and conditions of delivery and receiving.
  • Penalties applicable in case of delays.
  • (Amendment: 4964/Article 43) Force majeure and conditions for granting time extensions, mutual obligations in work increases and decreases which may be made under the scope of the contract.
  • Conditions pertaining to control, inspection and acceptance procedures.   
  • In procurement of works; conditions pertaining to insurance coverage of works and works site along with control of works and construction liability.
  • Conditions pertaining to amendments of contract.
  • Conditions pertaining to termination of contract.
  • Contractor's liability pertaining to personnel in which the contractor would   employ under the contract.
  • Statements that all documents included in the tender documents are attachment to contract.
  • Resolution of disputes.

According to Decree No. 2009/14973 dated 20.04.2009, the following principles are applied in the contracts for procurement of goods, services and works held by the Ministry Defense

Contract Types for Tender/Procurements in MoD

All tenders / procurements are initiated with negotiations on prices, or if they are specified in the tender documents, is carried out without the price negotiations. As a result of the assessment, a total lump sum contracts are applied over the total tender price for the entire work which of the detailed specs and amounts determined by the administration.

Similarly, based on the detailed characteristics of the work; Unit price contracts are issued over the total tender price calculated by multiplying the amount of each item on the administrative schedule with the unit prices determined for each of these items.

The contracting officer will decide whether to perform the procurements to be made under these principles. This point is indicated in the certificate. Unless otherwise stated, the notarization and the registration are not mandatory in the certificate of approval and administrative specifications of contracts to be made as a result of the tender and procurement.

In procurement of works, mixed contracts can be formed together with turnkey lump-sum contracts for some parts of work items and unit price contracts for the other parts.

In procurement of goods and/or services, total lump sum contracts or unit price contracts of which details specified in the tender documents are applied not to exceed the funds allocated by administration due to the nature of subject matter of supply. This principle is valid where it is not possible to pre-determine the place and time of supplying quantity.

In research and development projects, different types of contracts which details specified in the tender documents can be arranged not exceeding the budget allocated by administration due to the nature of subject matter of supply.

The Mandatory Considerations Included in the Contracts

In accordance with the mandatory matters to cover the issues listed above, additional considerations can be added or removed from the contracts. Likewise, the contracts may be arranged in another language in addition to Turkish. In this case, the Turkish version prevails in the interpretation of the contract by law. However, any foreign language is acceptable in the annexes.

The Increase and Decrease of Works to be Implemented in the Frame of Contracts

In the contracts performed within these principles, the goods and services can be procured more or less up to the ratios 20% of their contract prices provided that specified in the administrative specifications. Except the price difference given in the contract, the implementation of this ratio can be performed with the approval of contracting officer without changing the contract unit price and issuing an additional contract. Besides, in procurement of works, excessive procurement up to the ratios 20% of their contract prices can be performed under the provisions of the contract and tender documents (excluding the time) without arranging any additional contract.

Regulations on Domestic Bidders

The provisions providing up to 15% price advantage points can be placed in the tender document providing that;

  • In favour of all domestic bidders in the procurements of services and works,
  • In favour of the bidders who offer goods determined by Ministry of Industry and Trade Ministry as domestic goods he procurement of goods taking the opinion of the Ministry of Industry and Trade Ministry determined by the domestic goods

However, the local bidders participating through joint ventures with foreign bidders in the tender cannot benefit from these provisions.

According to the NATO security investment program, the price advantage to local bidders in procurements of works held under Law No. 6095(The Law of Construction and Installation Works Held in Turkey pursuant to NATO Infrastructure Joint Program) cannot be applied in the context of NATO principles and procedures.

Force Majeure

The circumstances considered as force majeure are as follows:

  • Natural Disasters
  • Legal Strike
  • Epidemic Cases
  • Announcement of partial or general mobilization
  • Other similar circumstances that may be determined by the authority when necessary

For the contracting entity to be able to accept any of the circumstances stated above as force majeure, including cases of time extension and contract termination; it shall be absolutely necessary that the concerned case does not raised out of the contractor's failure, that constitutes an obstacle in fulfilling the contractual obligations. 

According to the properties of the goods / services and works, different arrangements can be done for the duration of notice and / or certification provided that specified in the tender documents.

Termination of the contract due to force majeure or administrative issues such as impunity for extension of time can be arranged by the administration providing those are specified.

The principles of;

  • Duties and responsibilities of administration and tenderer for arranging the contract,
  • The contract binding of procurement / purchase,
  • Invitation to contract,
  • Investigation of complaints by the administration,
  • Arrangement of additional contracts,
  • The procurements which must be conducted in secrecy,
  • Audit-inspection, acceptance procedures and works

are arranged by ministry in the tender / procurement. The principles and procedures of decisions related to defense, security and intelligence or the decisions granted by the Ministry which should be carried out in secrecy is determined by the MoD. As a result, the principles and procedures set forth herein were arranged as a guide by considering the relevant laws, decrees and the other documents specifically related to Turkish MoD.

This article contains data from SSM Website and the article "The Undersecretariat for Defense Industries (SSM) Procurement Operations And Legal Framework-2010".

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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Authors
Safak Herdem
 
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