ARBITRATION PROCEDURE FOR DISPUTES ARISING FROM PUBLIC PROCUREMENT CONTRACTS

24.12.2018

 

In recent years, considerable developments have been taking place in development of Arbitration in Turkey, the most important of which is undoubtedly the establishment of the Istanbul Arbitration Center in 2015.

ISTAC, which is an independent and impartial institution providing dispute resolution services for both international and domestic parties, was established with the aim of being the  “international centre for the resolution of commercial disputes between European, Asian and Middle Eastern countries”.

For the sake of this ultimate aim both the commercial business sector and also the public authorities includig law-makers have been making their great efforts to support the operations of ISTAC

As a very important improvement, Turkish Public Procurement Authority has amended its standard contracts to bring them in compliance with “the arbitration”  in order to motive the public authorities to apply the  ISTAC Arbitration, as an alternative to the Turkish courts.

Within this scope, one of the most important development have been taken so far is obviosly to make the Arbitration An Applicable Way For Disputes Arising From “public procurement contracts”

“The amendment” which significantly regulated the Communique on Application of Consulting Service Procurement Tenders, Communique of Application of Service Procurement Tenders, Goods Purchase Tenders, Communique on Application of Construction Works Tenders, Communique on Framework Agreements  Tenders was published in  the Official Gazette dated 30th December 2017.

It has been regulated by the Amendment that ;  For the  “Communique on Applicatiion of Public Procurements” specified as above, the contracting authority has the right to choose arbitration as an altternative to Turkish Courts for the settlement of the disputes arising between the parties out of the contract being signed on the basis o the Public procurement.

Before leading  in the details of the issue, we will briefly explain  the “arbitration” and “court procedures,” which are two main methods of dispute resolution in Turkish law.

Accordingly, jurisdiction in Turkish law as a rule belongs to the courts, However, as a result of the principle of “ freedom of contract” the parties have also an option to choose “arbitration” as the alternative of the court procedures.

Within this scope, if there is a “foreign element” in the contract, the arbitration shall be applied in accordiance with the rules of   International Arbitration Act No. 4686, or if the parties are Turkish the Arbitration Rules of Turkish Civil Procedural law No. 6100 shall be applicable.

In addition to this,  with the establishment of ISTAC in 2015, the “institutional arbitration mechanism”  was established for the first time in Turkey.

However, in principle,  without prejudice to prohibited situations Turkish law allows the parties to sign an “arbitration clause” for the private law relations , especially for commercial matters. The parties are usually  not allowed to make an “arbitration agreement” on the matters which are related to public relations and / or public order.

Therefore  the abovementioned “Amendment” providing the parties with the right to choose the arbitration in public procurement contracts is an important innovation for Turkish Law.

Within the scope of this amendment, during the execution stage of the public procurement agreements, as for the resolution of disputes which may arise between the parties, the authorities shall choose either Turkish Courts or arbitration. Therefore, the parties should insert one of these two alternatives into their agreements. In case an arbitration is preferred, and if a dispute consists of a foreignness element, Arbitration Rules of Istanbul Arbitration Center or International Arbitration Act No. 4686 shall be chosen and the dispute shall be resolved in this manner. As for disputes not having the foreignness element, Rules of Istanbul Arbitration Center shall be directly applied.

With this amendment , unlike the previous regulations which considers the arbitration  as an exceptional way to applied only in exceptional circumstances, the  arbitration becomes a usual dispute resolution mechanism, or disputes arising from Public Procurement Contracts regardless of whether the contractor party is a  Turkish citizen or not. 

Besides, in case the arbitration is preferred in the Public Procurement Contract and there is no foreignness element in (if the contractor is a Turkish citizen/company) ISTAC shall be entitled to conduct the arbitration.

However, in case the contractor is a foreign citizen/company;  the parties have an alternative to  choose ISTAC or an ad hoc arbitration under the provisions of International Arbitration Act No. 4686. In this case,, if the ad hoc arbitration is prefered ,  the arbitration shall be conducted by a three-membered arbitral tribunal in accordance with the provisions of International Arbitration Act No. 4686 will apply.

As is seen, by means of the amendment of 30 December 2017, in public procurement agreements signed with both Turkish and foreign bidders, they may choose an arbitration to be heard before Istanbul Arbitration Center which is a mechanism of institutional arbitration. In this way, disputes arising out of public procurement agreements will be easily resolved by experts in the quickest way, and domestic/foreign investors’ needs for efficient resolution will be fulfilled promptly.