Turkey: Construction force majeure and alternative relief

Force majeure and alternative relief under standard form construction contracts and local law

Publication May 2020

What is the most commonly used standard form construction contract used in the country?

Private projects

Party autonomy applies to private projects. The employer usually drafts the construction contract and negotiates the terms and conditions with the contractor in due course. In local projects, standard contract forms available under the public procurement legislation are also taken as basis and modified as necessary.

In international projects, the most common standard form construction contracts used are the International Federation of Consulting Engineers (“FIDIC”) forms of contract. The predominant forms are the first editions (published in 1999) of the:

  • Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (also known as the Construction Contract or the “Red Book”);
  • Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor (also known as the Plant and Design-Build Contract or the “Yellow Book”); and
  • Conditions of Contract for EPC/Turnkey Projects (also known as the EPC/Turnkey Contract or the “Silver Book”).

The FIDIC Red, Yellow and Silver Books are collectively referred to as the “Rainbow Suite”.  Clause references and capitalised terms in this section refer to those used in the Rainbow Suite (1999 editions), unless specifically stated otherwise.

Public projects

Turkish public procurement legislation provides a standard form contract regarding the procurement of construction works. This standard form draft is included in tender documents in public projects.

Standard form contracts are usually negotiated and modified by parties in accordance with project requirements. In public projects, there is less room for contract negotiations as the owner is a public authority. In private projects, lender requests also play a major role in finalizing the contract.

Does the contract include provisions on force majeure?

Force majeure provisions are commonly included in construction contracts and are material especially in relation to consequences of delay; e.g. extension of time, damages, etc.

Private projects

The FIDIC Red, Yellow and Silver Books all include provisions on Force Majeure at Clause 19. 

Sub-Clause 19.1 defines “Force Majeure” as “an exceptional event or circumstance:

(a)which is beyond a Party's control;

(b) which such Party could not reasonably have provided against before entering into the Contract;

(c) which, having arisen, such Party could not reasonably have avoided or overcome, and

(d) which is not substantially attributable to the other Party.

The definition of Force Majeure does not require that the event or circumstance be unforeseeable.  Accordingly, contracts entered into post the Covid-19 pandemic would not be precluded from citing Covid-19 as being an event of Force Majeure, even though it was existing and known to the parties at the time of entering into the contract.

Sub-Clause 19.1 includes a non-exhaustive list of events (including, among others: (i) war; (ii) rebellion; (iii) riot; (iv) munitions of war; and (v) natural catastrophes) that may constitute Force Majeure, subject to conditions (a)-(d) above being satisfied.  Epidemic, pandemic and/or plague are not included in the non-exhaustive list of Force Majeure events in Sub-Clause 19.1. Notwithstanding, the Covid-19 outbreak could arguably be construed as a “natural catastrophe” and would likely satisfy conditions (a)-(d).

Sub-Clause 19.2 states that if “a Party is or will be prevented from performing any of its obligations” by Force Majeure then it shall give notice “within 14 days after the Party became aware, or should have become aware, of the…Force Majeure”.  The Party shall then be excused performance of such obligation, although payment obligations shall not be excused.  A party seeking to rely on Force Majeure relief must be able to show that it is actually “prevented” from performing its obligations under the Contract – it is not sufficient for such obligations simply to be disrupted or made more expensive to perform. In the context of the Covid-19 outbreak, prevention could arguably include government measures imposed to limit the spread of Covid-19, including lockdown and quarantine measures and the suspension of issuing certain permits and visas.

Under Sub-Clause 19.3 both Parties have a duty to “use all reasonable endeavours to minimise any delay”.  In the context of the Covid-19 outbreak, mitigation could include adjustments to the programme and resource management to minimise delay to the works.  Also, the sourcing of alternative suppliers for goods, equipment and materials to mitigate against disruption to the supply chain.

Sub-Clause 19.4 provides that, if Sub-Clauses 19.1-19.3 (above) are satisfied and subject to the Contractor’s claims procedure and notice requirements set out in Sub-Clause 20.1, a Contractor will be entitled to an extension of time and, in certain circumstances, Cost. Cost would only be available in case of events “of the kind” described in sub-paragraphs (i) to (iv) above, where events (ii) to (iv) must occur in the country where the Works are being executed.  Natural catastrophe is thus excluded as an event of Force Majeure that entitles a claim for Cost.  As mentioned above, even though epidemic, pandemic and/or plague are not included in the non-exhaustive list of Force Majeure events in Sub-Clause 19.1, Covid-19 could arguably be construed as a “natural catastrophe”.  In such case, a contractor would be entitled to claim for time but not Cost.

Sub-Clause 19.6 provides that either Party may terminate the Contract if “the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of Force Majeureor for multiple periods which total more than 140 days due to the same notified Force Majeure”.  This entitlement to terminate only arises if the Contractor is prevented from executing substantially all of the Works in progress, which is a high threshold to satisfy.

Public projects

In public projects, standard form construction contracts do not include provisions on force majeure but provisions on force majeure are available under General Specifications of Construction Works (Yapım İşleri Genel Şartnamesi), which is a standard form tender document available under the applicable legislations and incorporated into the contract by reference.

Article 29 of General Specifications of Construction Works states that “(2) The following may be considered force majeure events:

  • Natural disasters (doğal afetler)
  • Legal strike (kanuni grev)
  • Epidemic (genel salgın hastalık)
  • Announcement of partial or general mobilization (kısmî veya genel seferberlik ilânı)
  • Other similar events to be determined by the [Public Procurement] Authority as necessary.

(3) For the contracting entity to consider the above mentioned as a force majeure event and to grant the Contractor time extension, the following criteria must be met:

  • the event shall not be attributable to the Contractor;
  • the event shall prevent the performance of the Contractor’s obligations;
  • The contractor shall not have been able to overcome the event;
  • The contractor shall have notified the Administration in writing within twenty days following the occurrence of the force majeure event;
  • The event shall be documented by competent authorities.” 

Does the contract include provisions for alternative relief that may be relevant to projects impacted by COVID-19?

Private projects:

Sub-Clauses 8.4 provides the Contractor is entitled to claim an extension of time, subject to the claims procedure at Clause 20, if completion of the Works is or will be delayed by, among other things, “Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions”.  In the context of the Covid-19 outbreak, Contractors, whose supply chains are impacted by the pandemic, could seek to claim time relief under this clause. However, such relief may not be applicable for contracts entered into post-the Covid-19 outbreak, as the shortages must be “Unforeseeable” (i.e. “not reasonably foreseeable by an experienced contractor by the date of submission of the Tender”).

Sub-Clause 8.5 provides that, if the Contractor has “diligently followed” procedures laid down by public authorities and such public authorities cause “Unforeseeable” delay or disruption, the Contractor may claim an extension of time under Sub-Clause 8.4.  In the context of the Covid-19 outbreak, the lockdown and quarantine measures and the suspension of issuing certain permits and visas could arguably constitute delay or disruption caused by public authorities.  Again, relief is only available if such delay or disruption is “Unforeseeable” (see above).

Sub-Clause 13.7 provides the Contractor is entitled to claim an extension of time and Cost, subject to the claims procedure at Clause 20, in relation to any “change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws)…made after the Base Date, which affect the Contractor in the performance of obligations under the Contract.”  “Laws” means “all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority”.  Given the relatively wide definition of Laws, the introduction of quarantine and lockdown measures relating to Covid-19 could arguably entitle the Contractor to claim time and Cost.  Such change in Laws must occur after the “Base Date”, being “28 days prior to the latest date for submission of the Tender”.

Sub-Clause 17.4 provides the Contractor is entitled to claim an extension of time and Cost, subject to the claims procedure at Clause 20, in relation to Employer’s risks set out in Sub-Clause 17.3.  Such risks include, at sub-paragraph (h), “any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions”.  If the Covid-19 pandemic is deemed a force of nature, then relief may be available to a contractor that suffers related loss or damage that is “Unforeseeable” (see above) or that could not reasonably have been prevented against.  This second limb could allow contractors to claim for foreseeable loss related to Covid-19 (i.e. under contracts entered into after the pandemic outbreak).

Public projects

Article 29 of General Specifications of Construction Works states that “(2) The following may be considered force majeure events:

(a) Natural disasters (doğal afetler)

(b) Legal strike (kanuni grev)

(c) Epidemic (genel salgın hastalık)

(d) Announcement of partial or general mobilization (kısmî veya genel seferberlik ilânı)

(e) Other similar events to be determined by the [Public Procurement] Authority as necessary.

(3) For the contracting entity to consider the above mentioned as a force majeure event and to grant the Contractor time extension, the following criteria must be met:

(a) the event shall not be attributable to the Contractor;

(b) the event shall prevent the performance of the Contractor’s obligations;

(c) The contractor shall not have been able to overcome the event;

(d) The contractor shall have notified the Administration in writing within twenty days following the occurrence of the force majeure event;

The event shall be documented by competent authorities.”

Do the laws of the country provide for force majeure relief?

Private projects

There is no catch-all statutory definition of force majeure under Turkish law. In the absence of a tailored, detailed force majeure contract provision, the existence of a force majeure event largely depends on court discretion.

Article 136.(1) of the Turkish Code of Obligations No. 6098 (“TCO”) states that “If the performance of an obligation becomes impossible due to events that are not attributable to the obligor, such obligation shall cease.”

Article 137.(1) of the TCO states that “If the performance of an obligation becomes partially impossible, the obligor shall be released from his/her partial obligation which has become impossible. If it is clearly understood that parties would not have concluded the contract had they foreseen the partial impossibility, then all obligations shall cease.”

Criteria generally taken into account in court precedents in the determination of whether an event constitutes a force majeure event notably include, without limitation, assessment of whether the event was unforeseeable at the time of execution of the contract, was otherwise unavoidable, and whether it occurred externally/outside the parties' control.

In relation to the COVID-19 outbreak related disputes in private projects, the court or the arbitral tribunal will evaluate each claim based on the specific facts presented in case.

In relation to the COVID-19 outbreak related disputes in public projects where the PPCL applies, the contractor must notify/must have notified the contracting authority within the 20-day window in order for COVID-19 outbreak to constitute a force majeure event, among other requirements stated under the PPCL and the Circular, and for the contracting authority to grant an extension of time or terminate the contract due to the COVID-19 outbreak.

Public projects

Article 10 of the Public Procurement Contract Law No. 4735 (“PPCL”) states that “The following may be considered force majeure events:

(a) Natural disasters (doğal afetler)

(b) Legal strike (kanuni grev)

(c) Epidemic (genel salgın hastalık)

(d) Announcement of partial or general mobilization (kısmî veya genel seferberlik ilân

(e) Other similar events to be determined by the [Public Procurement] Authority as necessary.

For the contracting entity to consider the above mentioned as a force majeure event as well as other issues such as extension of time, termination of contract, etc., the event shall not be attributable to the contractor and shall prevent the performance of the contractor’s obligations, the contractor shall not have been able to overcome the event and the contractor shall have notified the contracting authority in writing within twenty days following the occurrence of the force majeure event and shall be documented by competent authorities.”

Pursuant to the Circular on the Effect of COVID-19 Pandemic on Public Procurement Contracts numbered 2020/05 published on the Official Gazette on April 2, 2020, in relation to contracts concluded under the public procurement legislation, contractors must apply to the contracting public authority in case their obligations become temporarily or permanently, partially or wholly impossible. Upon such application, the contracting authority will evaluate the claim and may grant an extension of time or terminate the contract. 

Do the laws of the country provide for alternative relief that may be relevant to projects impacted by COVID-19? 

Private projects

Article 138 of the TCO states that “A party, which has not performed his/her obligations at all or has performed his/her obligations by reserving the right to seek this relief, may apply to the courts and request the adaptation of the contract terms in view of the new circumstances if an extraordinary event, which was not and could not have been anticipated by the parties at the time of the contract occurs due to reasons not attributable to the party seeking relief, alters the conditions present at the time of the contract to the detriment of such party in so far that requesting performance of the contract will no longer be in good faith. If adaption is not available, the party seeking relief may terminate the contract.”

In contrast to Article 136 (see above), the event must render performance onerous, not impossible. Also, rather than the contract being terminated, a court or arbitral tribunal can adjust the contractual obligations. In the context of the COVID-19 outbreak, a contractor could claim, for instance, that resulting onerous price escalations entitle it, under Article 138 to renegotiate the contract price.

Public projects

There is no explicit provision under the PPCL regarding the adaptation of the contract terms due to hardship. That said, contractors can resort to the courts to request adaptation of the contract due to hardship in accordance with the Article 138 of the TCO above as Article 36 of the PPCL refers to the TCO in cases where the PPCL is silent. 



Contact

Head of Cross-Border Practices; Partner-in-Charge, Istanbul

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