Turkey: An Outlook On Government Contracts In Turkey: Special Focus On Aerospace And Defense

A recent report published by the Public Procurement Authority of Turkey providing statistics as to the public procurements in Turkey took place between 01.01.2018 and 30.06.2018. This article reviews Public Procurement Report 2018 (the "Report") to provide an overview as to the public procurements with a special focus on debarment statistics and defense industry.

I. General

The main laws that apply to public procurements in Turkey are Law No. 4734 (Public Procurement Law) and Law No. 4735 (Public Procurements Contract Law). According to Article 18 of the Law No. 4734, open procedure, restricted procedure or negotiated procedure are the three kinds of procurements that can be used in procurement of goods, services, and works. In certain cases, the administration may also use methods of direct procurement or design contests. However, several exceptions including but not limited to defense, security and offsets, are regulated within 3rd Article of the same Law for particular procurements based on their content and these exceptions shall not be governed by the Law No. 4734. The administration may pursue different procedures in terms of procurement of goods, services and work that are in the scope of the exceptions.

Turkish Government has spent TRY 112.089.955.000 on various types of public procurements within the first six months of 2018. Even though there is no official data about the second term of 2018 yet, considering the fact that total amount of public procurements in 2017 reached TRY 230 billion, this number is very likely to double. After all, public procurement expenses have never decreased for the last five years. (See below)

Contract numbers with foreign contractors constitute 0,15% of all, and their value reached TRY 2.696.714.000 which is 2,45% of the aggregate amount. The proportion is much higher than last year in which the ratio was 1,53%. Moreover, this is the highest percentage in the first half of public procurements since 2013. The percentage of public procurements that were contracted with foreigners was slightly higher during the first term of 2013 with 2,48%.

In addition to that, 64.59% of procurements were open to foreign contractors. However, there were price advantage in favor of local contractor/product in 42.49% of these procurements. The majority of foreign contractors were from EU countries with TRY 2.642.008.000 procurement value, which is reasonable considering that Turkey is an EU member candidate and makes effort to synchronize its public procurement procedure with EU Directives. The EU origin contractors are followed by the US contractors with public procurements in value of TRY 12.041.000.

It is also necessary to review the statistics of debarment in public tenders which aims to protect public entities by ensuring that transparent and uncorrupt procurements take place. By the end of 30.06.2018, there were 8.235 active debarment decisions in total including 2.807 that have been taken during the first term of 2018. Almost all of these debarment decisions originated from the Laws No. 4734 and 4735 respectively, which regulates public procurement procedure while a slight percentage arose from the Turkish Criminal Code. Although debarment decisions arose from different Laws, their reasoning are mostly same or at least highly similar. According to the related articles of the mentioned Laws, most common causes of debarments are fraud, forgery, corruption or breach of the covenant without a force majeure.

As indicated by the Report, while a minority of decisions debarred contractors from procurements with specific authority(s), most of the debarment decisions debarred the contractors from all public procurements. Generally, contractors debarred for less than two years. Only 24 of the foreign contractors were debarred which is equal to 0,29% of all debarments. Although it differs year by year, the number of active debarments stayed between 7.845 and 8.546. In conclusion, debarment decisions are quite exceptional within Turkish procurement and no extraordinary change could be monitored during last term.

II. Aerospace and Defense Industry

Turkish government has adopted decisive policies in defense industry to increase domestic production. This approach has stimulated defense industry and also created opportunities for both domestic and foreign actors.

The Ministry of National Defense had 2250 public procurements in the first term of 2018 which amounted to TRY 3.774.918.000. This amount is equal to 3.36% of total public procurement spending in the same period. The share of the Ministry of National Defense increased compared to 2017. In terms of debarment decisions, the Ministry of National Defense comes fifth among other ministries with 492 debarment decisions. Besides, the Ministry debarred fewer individuals and entities than the previous year.

Nevertheless, it is important that not all procurements under this segment are directly related to the defense industry. Moreover, other state institutions may initiate tenders concerning the defense industry. The main government organ that focuses on defense industry is the Presidency of Defense Industries. Unfortunately, PDI has not updated its facts and figures since 2016. As far as we know, public procurements on defense industry amounted TRY Turkish Lira in total. (For a year basis categorization please see below.)

Even though there is no available data about the contribution of foreign contractors on public procurements regarding defense industry, it is not restricted for foreign contractors to make bids. However, foreign contractors may be required to transfer certain technologies to increase local capabilities considering that Turkish government mostly prefers local procurements or co-procurement. The government may require Industrial Participation and Offset Plan which aims to enable local contractors to develop or adopt advanced technologies in the related field.

As a consequence, the total public procurement expenses seem to be higher than last year. On the other hand, the procurements related defense industry decreased. However, it is still attractive and promising.

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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