COVID-19 – Force majeure in public procurement contracts?

Turkey

On 2 April 2020, Circular no. 2020/5 on the effect of the coronavirus (COVID-19) outbreak on Turkish public procurement contracts (the “Circular”) was passed with presidential decree and published in Official Gazette no. 31087.

According to the Circular, contractors, which won tenders have the right to claim impossibility of performance due to the coronavirus pandemic. In response to such claim, the relevant public body may provide the contractor with a time extension or contract termination. To ensure service continuity during and after the pandemic, relevant public bodies will evaluate each claim on a case by case basis and the relevant public bodies will provide further guidance.

Based on our experience this legal development will be crucial for contractors that recently won government tenders that may now have to reconsider their budgets.

Who can claim force majeure?

All contractors who signed a contract as stated under Article 2 and Article 3 of the Public Procurement Code (the ”Law no. 4734”) with a public body for the procurement of goods, services or work (the costs of which are paid from any resources at the disposal of the contracting public body) can apply.

Are there any exemptions?

No, no category has been excluded from the scope of the Circular.

However, urgent public needs will continue to be provided (i.e. supplies of protective equipment such as face masks and protective gloves, medical devices, ventilators, other medical supplies and equipment for hospital and IT infrastructure). The relevant public body will examine each application individually at its sole discretion.

How to apply?

Applications claiming that the fulfilment of contracted work due to the COVID-19 outbreak has become temporarily or permanently, partially or entirely impossible should be submitted to the contracting public body in writing within twenty (20) days of the date when the force majeure event occurred. The applicant shall prove when the performance became impossible due to the force majeure event.

The applicant contractor will have the burden of proving that the COVID-19 outbreak caused the impossibility of performance.

How will the public body examine the application?

The relevant public body will examine these applications in line with Article 10 of the Public Tender Contracts Code (the “Law no. 4735”), regulating force majeure and other applicable provisions.

In order to apply Article 10 of the Law no. 4735, the following conditions need to be fulfilled cumulatively: (i) the concerned case did not arise from the contractor’s fault; (ii) the event constituted an obstacle in fulfilling the contractual obligations; and (iii) the contractor could not afford to remove the obstacle.

The relevant public body will also consider the evaluation of the Ministry of Treasury and Finance before making its final decision. The evaluation of the Ministry is not obligatory, and the relevant public body will examine each application individually at its sole discretion.

What is a force majeure event under Law no. 4735?

According to Article 10 of the Law no. 4735, the circumstances that may be considered force majeure include natural disasters; legal strikes; epidemics; announcement of partial or general mobilisation; and other similar circumstances that may be determined by the relevant public body when necessary.

Furthermore, the Circular determines that the COVID-19 outbreak shall be considered a force majeure event under this law.

What happens if the authority accepts the application?

After the process is completed, if all conditions are satisfied, the relevant public body may provide the contractor with a time extension or contract termination.

Conclusion and possible effects for clients

Companies may be unable to perform or fulfil their obligations under public procurement contracts in a timely manner which triggers the risk of default. As a result, the Circular will have a significant effect on many companies that are doing business with authorities and public law entities and may provide relief to some of these companies.

The Circular does not regulate the force majeure other than the Law no. 4735. On the contrary, it clarifies that the application of Article 10 of the Law no. 4735 on force majeure for COVID-19 outbreak is not against public order. In other words the relevant public bodies shall not refrain from applying Article 10 of the Law due to this clarification. If you are a contractor involved in the public procurement of any goods, services or works, you may also be entitled to claim force majeure in order to be released from obligations that are causing financial difficulty for your business.

For information on how we can assist you on applying the force majeure provisions due to COVID-19 in public procurement contracts, contact your regular CMS advisor or our local experts Dr. Döne Yalçin or Dr. Levent Bilgi.