Last month, the Ministry of Health ("Ministry") issued a Communiqué on Industry Cooperation Program Practices in the Field of Healthcare Services1 ("Communiqué") to determine on the methods and principles of the activities to be carried out under the Healthcare Industry Cooperation Program ("Program") practices.
The Communiqué will be applicable on the Program implementations of renewal, localization and/or providing technology transfer; should the value of the main supply contract for one project exceeds ten million U.S. Dollars (USD 10,000,000.00). The Communiqué will only affect the overseas transactions taking place between private entities and Turkish public authorities.
This Communiqué uses the terminology "Healthcare Industrial Cooperation Program", instead of the term "offset" and the new Communiqué mandates the Program simply as a tool for purposes of (i) providing localization, innovation and technology transfer in the industry; (ii) improving production and technology capability in Turkey; (iii) renewing and increasing the quality of products and services and (iv) ensuring international mutual cooperation and investment opportunities through public procurements.
What are the procedural steps?
All the activities relating to the subjects within the scope of the Communiqué will be performed, coordinated and administered by the Healthcare Commission of Industrial Development (the "Commission") under the Ministry. Under the Communiqué, authorities2 in need will send the list of products or service purchases that they need, including a need forecast of at least five (5) years, having a value of at least ten million U.S. Dollars (USD 10,000,000.00) to the General Directorate of the Authority is affiliated. This list and other related documents will be submitted to the Commission for approval. Following the evaluation of the Commission, the respective authority in need, will prepare investment project proposals listing the needed items, the purchase of which are considered within the scope of the Communiqué. Investment project proposals will then be submitted to the Ministry of Development. The Projects, whose budgets are approved, can be initiated following the approval of the Commission as per the written request of the authority.
Procurement and procedures set forth under the Communiqué
The procurement which will be made within the scope of this Communiqué will be subject to procedures of procurement to predetermined bidders. The bidders must provide all of the following security deposits to Authority, in order to participate in the procurement:
- a provisional security deposit to be calculated over the subject bid price and which can be at a rate of at least three percent (3%) of the same;
- a fixed security deposit, which can be at a rate of at least six percent (6%) of the value of the subject main supply contract; and
- a fixed security deposit to be calculated over price providing for the Program commitment rate and which can be at least at a rate of four percent (4%) of the same.
The foregoing fixed security deposits will not be released by the relevant public authorities for a period of at least one (1) year until the satisfaction of all of the relevant Programs commitments.
With respect to the Program commitment rates, in the event that the value of a main supply contract is increased or decreased (within the upper limit of twenty percent (20%) for both cases) due to a reason as determined under such contract, then the value of the Program commitment of the contractor will also be increased or decreased at same rates.
Program Commitments: Introduction of Four Different Categories.
The bidders of investment projects, in parallel with the purpose of the Program implementations, must commit that they will satisfy the minimum rates as contemplated under their respective main supply contract. Program commitments of the bidders must be performed within the scope of the below categories and the commitments stated in the Category C and D can only be given together with the commitments stated in Category A and/or B.
Category A (Local Production Contribution) is the production of a product or a part of the same in Turkey by the contractor with a certain commitment to be determined for the local content to be involved and by utilizing the existing facilities (in Turkey) within the scope of the Program, with a minimum local added value of thirty percent (30%). Category B (Investment) is the production of a product or a part of the same in Turkey by the contractor with a certain commitment to be determined for the local content to be involved and by building a new production facility in Turkey with the guide on the Program, with a minimum local added value of thirty percent (30%).
Category C (Technological Cooperation) is bringing in technological sufficiency to the local industry by the contractors by establishing research and development or technology facilities in Turkey and committing that the Turkish engineers or specialists working in those facilities will not be less than ¾ of the foreign engineers or specialists and that the at least ninety percent (90%) of the educated personnel on management, service, maintenance and repair will be Turkish citizens, by means of commitments to be realized in accordance with the guide on the Program. Category D (Exportation) is the exportation from Turkey by the contractors by means of commitments to be realized in accordance with the guide on the Program.
Sanctions that can be applied
If the contractor fails to fulfil its Program commitments within the relevant program year, in accordance with the term, amount and the conditions as stated in the Healthcare Industrial Cooperation Program Agreement or main supply contract, a remedy period of at least sixty (60) days in order for such contractor to fulfil its obligations will be given to such contractor.
If the contractor fails to fulfil its foregoing obligations within the remedy period, then the contractor will be subject to penalty clause with ten percent (10%) of the sum of its commitments in the relevant program year. Even if the contractor pays the penalty clause, the Program commitments of such contractor will survive. If the contractor fails to pay the penalty in due time, the penalty amount will be covered from the security deposit as collected from such contractor.
Public opinion about the Communiqué
Since the Communiqué will affect the overseas transactions only which will take place between Turkish public entities and private entities, the Program can be considered as it is designated to contribute to national economy and also support domestic goods. However, according to another opinion that we also share, these practices are against the equal treatment principle especially for foreign companies. In order to eliminate any potential obstacles that foreign entities may face due to such legislation, foreign entities who are closely involved in public procurement procedures should establish their own subsidiaries in Turkey. By doing so, such companies may either bid for the procurements as a local entity through that Turkish subsidiary or at least aim to attend to the procurements with their own affiliates.
Footnotes
1. Communique on Industry Cooperation Program Practices in the Field of Healthcare Services (Saglik Hizmetleri Alaninda Sanayi Isbirligi Programi Uygulamalari Hakkinda Teblig) as issued by Ministry of Health and published in the Official Gazette dated December 20, 2015 and numbered 29568.
2. Under the Communiqué, the term Authority in need means the unit of the relevant administration that needs the purchase of product or service.
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.
