Deadline for Liquidation Applications in Public Procurement Contracts Approaches 13 March 2019
Due to the economic difficulties experienced in recent years in our country and the unexpected increase in the price of manufacturing inputs as a result of the change in the exchange rates, the contractors who have difficulties to continue the public procurement contracts that they have executed were granted the right to liquidate or transfer the existing contracts.
Under the Provisional Article 4 of the Law No. 4735 on Public Procurement Contracts (“Law No. 4735”) added by Law No. 7161 on the Amendment of Tax Laws and Certain Laws and Decree Laws published and enacted in the Official Gazette dated 18.01.2019 and numbered 30659, it has become possible for the contractors which have filed a written application to the administration until 18.03.2019 in the contracts executed according to the Public Procurement Law numbered 4734, to liquidate or transfer their contracts in the presence of certain conditions.
Accordingly, due to unexpected increases in the prices of manufacturing inputs, the contractor who cannot be expected to perform its contractual obligations may request from the administration the liquidation or transfer of the public procurement contract to a third party within 60 days as of 18.01.2019.
In order such application to be accepted, first of all, the public procurement contracts are required to be executed before 31.08.2018 and to be still in force as of 18.01.2019.
Another requirement of benefiting from the right foreseen in accordance with the Provisional Article 4 of Law No. 4735 is the approval of the application of contractor by the administration. Although the regulation states that the opinion of the Ministry of Treasury and Finance will be received in the examination to be made by the administration, it does not have any clarity regarding the principles of the evaluation to be performed by both the administration and the Ministry of Treasury and Finance.
However, considering that the aforementioned arrangement was made due to the increase in the contractor costs, the impact of the unexpected price increases on the construction work shall be considered as the main point both for the approval of the contracting authority and the opinion of the Ministry of Treasury and Finance.
On the other hand, when the public procurement contract is liquidated or transferred under Provisional Article 4 of Law No. 4735, the public procurement contractor can only claim the manufacturing carried out up to the date of the liquidation or the transfer.
In this context, both for the approval of the application for the liquidation or the transfer by the administration and in order to be able to demand the manufacturing costs that have been realized up to that date in the event of liquidation or transfer, it is important to submit a calculation together with the application to be made to the administration which clearly demonstrates the cost of the works completed by the contractor until the application date, the production items which are not yet completed and the effect of the increase in manufacturing input prices on the uncompleted works.
Such calculation must be made for the procurement carried out on turn-key lump-sum basis and on unit price basis separately. Since each item, unit and amount of the work is stated in the unit price chart prepared by the administration for the unit price basis procurements, the manufacturing costs that have been realized up to that date in the event of liquidation or transfer and the impact of the increases in the prices of manufacturing inputs on the uncompleted works shall be calculated according to the unit price chart.
As for the turn-key lump-sum price works, since the contractor undertakes to realize the work on the total price, the calculation for each manufacturing item listed in the application projects, site lists and percentage rates should be made separately for the completed and uncompleted works and submitted with the application for the liquidation or transfer.
Finally, in cases where the transfer of the contract to the third party is requested, since the conditions in the first tender must be provided by the transferee, this issue must be examined separately for the approval of the transfer request. However, if a tender is submitted by a joint venture, the terms of the first tender shall not be required for the transfers to be made between the partners.
In conclusion, due to the unexpected changes in market conditions, contractors who have difficulties to continue the construction contracts are required to submit the liquidation or transfer request to the relevant administration until 18.03.2019.
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