The "Temporary Article 5" provision of the Public Procurement Contracts Law No. 4735, which entered into force on January 22, 2022, and regulates the principles related to the implementation of this provision, was published in the Official Gazette No. 31760 dated February 24, 2022, as Presidential Decree No. 5203 and entered into force. This decree, regulating the principles related to the implementation of Temporary Article 5, determined the procedures and principles regarding the calculation of additional price differences, the transfer of contracts, and the extension of contract durations and provision of price differences in contracts of the Housing Development Administration under the Law.

The negative effects caused by inflation and fluctuations in exchange rates, which have created price instability, have led to an uncertain environment in which contractors face difficulties in continuing their existing contracts and bidding for new tenders. The improvement and regulation of price differences have long been awaited by the parties involved as a solution to reduce or prevent these fluctuations. Therefore, the main objective of these regulations is to protect the parties from the risks caused by inflation and currency fluctuations and to balance the costs incurred within the contract period with the amount proposed by the contractor on the tender date. These regulations, designed to protect contractors from the adverse effects of inflation and exchange rates, will also ensure that the needs of the contracting authority, the other party to the contract, are met.

The provisions for additional price differences and contract transfer conditions under Temporary Article 5 of the mentioned Law are as follows:

"Due to disruptions in raw material supply and supply chains and unexpected increases in input prices, for contracts concluded in Turkish lira before December 1, 2021, under Law No. 4734, and those ongoing or accepted before the date this article comes into force, or made without termination or liquidation before the date this article comes into force, additional price differences may be given for parts of work performed between July 1, 2021, and December 31, 2021, including these dates, regardless of whether the tender documents contain a provision on price differences or not. For contracts concluded between July 1, 2021, and November 30, 2021, including these dates, the index for the month within which the last submission date of the tender falls will be considered as the basic index. For contracts concluded before July 1, 2021, the June 2021 index will be considered as the basic index. Additionally, additional price differences can be added to the price difference calculated based on the contractor's application according to the contract."

Additionally, contracts within this scope can be transferred by the contractor upon application and approval by the contracting authority. In transferred contracts, the conditions of the initial tender will apply to the transferees as of the transfer date, and no restrictions or penalties arising from the transfer will be imposed. For contracts executed by a joint venture, the eligibility conditions of the initial tender will not apply in the case of transfer or share transfers among the partners. The guarantee of the contractor transferring the contract will be refunded. No stamp tax will be applied on contracts transferred under this scope.

If the contract is transferred under this provision, the contractor cannot make any financial claims to the authority other than the work or production completed until the transfer date, unless otherwise stated in the first paragraph.

The decree, published in line with the provisions of Temporary Article 5, also stipulated that the types of purchases, product inputs, application periods for the contracting authority’s application, and the duration for completing the transfer procedures of the contract, among other principles, will be regulated by the President. The following provisions have been specified for contractors in the decree.

Article 8 of the Decree regulates the "Application Principles for Additional Price Differences". According to the relevant article;

• For contracts concluded in Turkish lira before December 2021, and ongoing as of the date the Law entered into force, additional price differences may be applied for parts of the work performed during the second half of 2021, and it has been foreseen that the existing contracts can also be transferred.
• In order to apply for additional price differences, the contractor must apply in writing to the contracting authority within 30 days from the date this decree came into force.
• If the calculation results in a negative [-] additional price difference, no deductions will be made from the contractor's payment.
• The calculation of additional price differences will not affect the provisions for price differences in the tender documents.
• In contracts where the work or delivery period ended before July 1, 2021, but continued with delay penalties after this date, additional price differences will not be calculated.
• For purchases of electricity, pharmaceuticals, petroleum products, and liquefied petroleum gas, where the price difference was included in the tender document, no additional price difference will be calculated.

No additional price difference will be calculated for short-term services such as market research, promotion, meetings, organizations, professional training, photography, film, and services of an insurance, accounting, financial, or legal nature.

Article 9 of the Decree regulates the "Application Principles for Contract Transfer". According to the relevant article;

• The contractor wishing to transfer the contract must apply in writing to the contracting authority within 60 days from the date this decree came into force. The contracting authority must make a decision within 30 days of the application. If the contracting authority approves the transfer, the contractor must complete the transfer procedures within 30 days following the approval date.
• The contractor’s application does not eliminate the obligations arising from the contract.
• Applying for additional price differences does not affect the transfer of the contract.
• In contract transfers, no restrictions or penalties arising from the transfer will be applied.
• In transferred contracts, no stamp tax will be applied, and the guarantee of the contractor transferring the contract will be refunded.

The Public Procurement Authority has been authorized to resolve any doubts arising from the implementation of these provisions.

• Ultimately, in order for the contractor to benefit from the additional price difference, the contractor must submit a written application to the contracting authority by March 28, 2022. If the contractor fails to apply by the specified date, the right to request an additional price difference will be forfeited.
• Similarly, the contractor wishing to transfer the contract must submit a written application to the contracting authority by April 25, 2022. If the contractor does not apply within this period, the right to transfer the contract will be lost.

To access the relevant Presidential Decree, click here.

Intern Attorney Elif DİLMEN

Attorney Özlem TÜRKÖĞLU, LL.M.