Introduction
Public tenders in which real or legal persons participate in order to meet the public needs for goods or services are conducted by the administration through the application of the public procurement procedure.
It is not rare to see that contractors bidding in public tenders fail to meet the standards set by the relevant legislation. Similarly, after the tender, the Contractors sometimes fail to fulfil the conditions agreed in the contract.
In cases such as fraud or wilful misconduct, the acts of the contractors are normally subject to penal sanctions. However, the Turkish public procurement legislation also regulates the administrative consequences of such acts. Foremost of these consequences is the prohibition from participating public tenders for a certain period. In what follows, the legal basis, the procedure and consequences of this administrative measure, as well as the rights of recourse against it are examined in light of the relevant legislation and case law.
Applicable Law
There are two main statutes in Turkish Law regulating the public procurement processes. The first of these regulations is Law No. 4734 on Public Tenders[1], which provides the administrative law provisions applied until the establishment of the contract. (hereinafter the “tender process”) The second one is Law No. 4735 on Public Procurement Contracts[2], which includes private law provisions that apply to the enforcement and termination of the contract (hereinafter the “contract process”).
In both of the statutes mentioned above, the prohibition of the companies from participating in public tenders are regulated. This legislative choice makes sense, since the prohibited acts may be carried out both in tender and contract processes.
Extent and Content of The Prohibition From The Tenders in Turkey
Prohibited Conduct
The prohibition from participating in public tenders due to unlawful conduct during the tender process is regulated in Article 58 of the Law No. 4734, while the same mechanism is regulated in Article 26 of the Law Nr. 4735. The only difference between these two regulations is the relevant prohibited conduct.
According to said articles, those who are determined to have been involved in acts and conducts listed in the Law shall be prohibited from participation in any tender carried out by all public institutions and authorities.
– Prohibited conduct – Tender phase:
The prohibited conduct during tenders is listed in Article 17 of the Law Nr. 4734 as follows:
- to commit or attempt to commit procurement fraud utilizing fraudulent and corrupt acts, promises, threats, unlawful influence, undue interest, agreement, malversation, bribery or other actions,
- to cause confusion among tenderers, to prevent participation, to offer agreement to tenderers or to encourage tenderers to accept such offers, to engage in actions which may affect competition or tender decision[3],
- to forge or attempt to forge documents or securities, to use or attempt to use forged documents or securities[4],
- to submit more than one tender by a tenderer on his account or behalf of others, directly or indirectly, as the principal person or as representative of others, apart from where submitting alternative tenders is allowed[5],
- to participate in procurement proceedings although prohibited[6],
- not to sign a contract in accordance with the procedures, except for force majeure, although the tender has been awarded to them (six months and up to one year).
– Prohibited conduct – Contract phase: The prohibited conduct during tenders is listed in Article 25 of the Law Nr. 4735 as,
- Corrupting any transactions pertaining to the contract through fraud, intrigue, promises, threats, using influence, seeking of personal interest, agreement arranging, malversation, bribery or through other means or attempting to those[7],
- Drawing up or using forged documents or attempting thereto[8],
- Using adulterated materials, means, or methods or engaging in production contrary to rules of science or the trade or (otherwise) deficient or faulty in the process of carrying out business under the contract or making deliveries thereof,
- Causing damage to the contracting entity in the process of performing its obligations under the contract,
- Using its knowledge and experience to the detriment of the contracting entity or acting in violation of the provisions of Article 29,
- Failing to perform its obligations under the provisions of the contract and tender documents, except for force majeure[9],
- Assigning or taking over a contract in violation of provisions of Article 16.
The Procedure of Prohibition
– The relevant authorities: The administrative authority with the power to decide about the prohibition from the public tenders may vary based on the “tender”, the conditions of which are violated. The general principle is that the prohibition decisions shall be taken by the Ministry implementing the contract or by the Ministry to which the contracting authority is subordinate or with which it is associated with.
In case the contracting authority is not subordinate or related to a Ministry, tender officials of the relevant contracting authorities are authorized to impose the prohibition decision.
In the tenders that are being carried out by the special provincial administrations and their affiliated associations, institutions, and undertakings, the Ministry of Interior is authorized to take the prohibition decision.
Lastly, for the tenders made by the municipalities and their affiliated associations, institutions, and undertakings, the Ministry of Environment and Urbanisation is authorized.[10]
– The procedure: The relevant authority is to render its decision regarding the prohibition within 45 days following the day the prohibited conduct was transmitted to the relevant authority for prohibition. The decisions regarding the prohibition must be published in the Official Gazette. [11]
However, until this procedure is completed “those who are determined to have been involved in these acts and conducts during or after the tender proceedings are not allowed by the contracting authority to participate in the tender during/before which the prohibited conduct has occurred as well the subsequent tenders to be carried out by the same contracting authority. [12]
-The time period: The prohibition period is foreseen as at least one year and up to two years depending on the nature of the acts and conduct committed.[13]
– The extent of the prohibition: As the general principle, the prohibition decisions are taken for the legal entity/real person which/who carried out the prohibited conduct.
However, in cases specified by the Law, the prohibition decision also extends to certain shareholders of the companies. In particular, if the prohibited entity is a sole proprietorship, the prohibition extends to all shareholders of the company, whereas in companies with a shared capital, the prohibition extends only to shareholders whose capital share is more than 50% (hereinafter “prohibited partners”).[14]
In addition to an extension to the shareholders themselves, the prohibition decisions are also applied for the other companies in which said shareholders have shares. With a similar methodology, it is regulated that the sole proprietorships in which the prohibited partners are shareholders, and companies with a shared capital where the prohibited partners own more than 50% of the shares fall within the scope of the prohibition decision.[15]
Legal Remedies
As per Article 125 of the Constitution of the Republic of Turkey every administrative action is subject to judicial supervision. In line with this general principle, the prohibition decisions of the authorities are also subject to the supervision of the administrative courts. This is consistently confirmed by established case law as well:
“The Public Procurement Board does not have any authority to evaluate the lawfulness of the procedures regarding the initiation of prohibition from the tender and the decisions to prohibition.” (Council of State 13th Circuit, E. 2016/4413- K. 2017/358, 14.2.2017)
The court that has jurisdiction in this regard is the administrative court of the place of the administrative authority that has rendered the decision of prohibition[16].
The time limit for filing the case is 60 days following the service of the decision (or publication thereof in the Official Gazette)[17].
[1] The Public Tenders Law
In Turkish : Kamu İhale Kanunu
See the official text: https://www.mevzuat.gov.tr/mevzuat?MevzuatNo=4734&MevzuatTur=1&MevzuatTertip=5
[2] The Public Procurement Contracts Law
In Turkish: Kamu İhale Sözleşmeleri Kanunu
See the official text: “https://www.mevzuat.gov.tr/MevzuatMetin/1.5.4735.pdf”
[3] In case law, the Council of State ruled e.g. in a 2015 judgment as follows:
“The fact that the Claimant, the participant of the tender, carries out its activities in the same address with Ahmet S., who is another tender participant; and that the provisional tender guarantees of both participants issued from the same bank consecutively; and that the bidding letters include similar phrases are considered sufficient for the Administrative Court that the said participants carried out activities to cause confusion among tenderers, to prevent participation, to offer agreement to tenderers or to encourage tenderers to accept such offers, to conduct actions which may influence competition or tender decision.” (Council of State 13th Circuit, E. 2015/3287 – K. 2015/3194, 17.9.2015). In another case, the Court ruled:
“It has been concluded that the existence of false information in a document that is required to be submitted and issued by a certified public accountant, is behavior directed to affect the outcome of the tender by using a false document, and therefore the said conduct falls within the scope of the prohibition.” (Council of State 13th Circuit, E. 2015/4042- K. 2015/3805, 10.11.2015)
[4] See the Council of State 13th Circuit’s ruling in E. 2015/4042- K. 2015/3805, 10.11.2015 (“It has been concluded that the existence of false information in a document that is required to be submitted and issued by a certified public accountant, is behavior directed to affect the outcome of the tender by using a false document, and therefore the said conduct falls within the scope of the prohibition.”).
[5] See the Council of State 13th Circuit’s ruling in E. 2018/1465 – K. 2018/2345, 10.7.2018 (“Considering that there is a kinship relationship between the participants, that the letters of guarantee submitted by the tenderers are issued by the same bank branch on the same date and document numbers are given consecutively (…); there is a strong presumption that there is an organic bond between the participants and that the said participants have the knowledge of the prices of each other and that the competition, confidentiality and reliability principles in Article 5 of the Law No 4734”).
[6] See the Council of State 13th Circuit’s ruling in E. 2015/6312- K. 2016/547, 2.3.2016 (“It is understood that in this case, since those who are prohibited from participating in public tenders according to the provisions of the Law cannot participate in the tenders in any way, directly or indirectly or as a subcontractor, on behalf of themselves or others, the conduct of the prohibited Claimant company which is bidding for the tender indirectly through their attorney falls within the ambit of the prohibited conduct and the decision to prohibit the said company for 1 year from participating public tenders complies with law”).
[7] In case law see Council of State 13th Circuit judgment, E. 2011/2976- K. 2011/5364, 28.11.2011: “It is understood from the case file that the tender was awarded to the plaintiff company, the contract was signed on 28.05.2009, and following that the Respondent administration initiated an investigation regarding the tender process, in the investigation report dated 13.04.2010 and numbered 153/01, numbered 119/1, it is determined that many of the productions within the scope of the tender were carried out by the plaintiff company before the date of 22.05.2009, irregular tender documents were issued during the tender process, fraudulent actions were taken in favor of a single company in the tender, material benefits were provided to the company in question, and that it was understood that the issues that were done before the admission were determined and it was suggested that the relevant public officials be punished with various disciplinary penalties”.
[8] See Council of State 13th Circuit judgment, E. 2015/3961- K. 2015/3264, 30.9.2015: “Considering that the Claimant should have been aware of these falsifications in the documents as a prudent merchant, and that he used falsified reports, and that this conduct gives rise to “the act of arranging, using or attempting to use forged documents” as expressed in Article 25/1-b of Law numbered 4735 and necessitating a prohibition from tenders. Considering the facts, it has been decided that there is no contradiction in the transaction regarding the prohibition of the Claimant company from participating tenders for two years with law”.
[9] See Council of State 13th Circuit judgments, E. 2014/3370- K. 2020/2609, 14.10.2020: “In this case, since it was determined in the decision of Ankara 7th Commercial Court of First Instance dated 07/04/2015 and numbered E: 2014/861 K: 2015/161 that the termination of the Contract by the administrative authority is unjust and the court decision in question was finalized through appeal, it has been concluded that a prohibition procedure based on Article 25 / f of the Public Procurement Contracts Law cannot be established”; E. 2013/1573- K. 2019/733, 12.3.2019: “In this respect, considering that the Claimant company should have been notified and given at least 10 days to remedy the deficiencies determined by the contract signed between the parties regarding the work in question, and these issues should have been duly notified to the Claimant company; the action of administration regarding the prohibition of the Claimant company from participating in the tenders of all public institutions and organizations for 1 (one) year on the grounds that the act specified in Article 25 / f of the Law No.4735”; and E. 2008/196- K. 2010/1729, 1.3.2010: “It was decided to annul the transaction subject to the case on the grounds that there was a significant procedural deficiency in the preparatory process, which is the basis of the transaction, which was established on the grounds that the plaintiff company did not fulfill its commitment in accordance with the provisions of the contract”.
[10] Art. 58/1 of the Law Nr. 4734, Art. 26/1 of the Law Nr. 4735
[11] Art. 58/4 of the Law Nr. 4734, Art. 26/4 of the Law Nr. 4735
[12] Art. 58/3 of the Law Nr. 4734, Art. 26/3 of the Law Nr. 4735
[13] Save for the conduct “not to sign a contract in accordance with the procedures, except for force majeure, although the tender has been awarded to them”, which may result in prohibition from six months up to one year.
[14] Art. 58/2 of the Law Nr. 4734, Art. 26/2 of the Law Nr. 4735
[15] Art. 58/2 of the Law Nr. 4734, Art. 26/2 of the Law Nr. 4735
[16] See the Council of State 13th Circuit judgment, E. 2017/656- K. 2017/980, 11.4.2017, where the court found: “The dispute must be resolved by the Ankara Administrative Court, which is the administrative court of the place of the administrative authority that established the transaction”.
[17] See the Council of State 13th Circuit judgment, E. 2008/14146 – K. 2009/8646, 25.9.2009: “In this case, since it was notified by an announcement on 14.07.2007, it is necessary to file a lawsuit against the prohibition process, which is accepted to be learned on that date, within 60 days from this date, until 12.09.2007 at the latest”.