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RICS COBRA 201823 – 24 April 2018RICS HQ, London, UK

In association with

RICS COBRA 2018The Construction, Building and Real Estate Research Conference of the Royal Institution of Chartered Surveyors

Held in London, UK in association with University College London

23 – 24 April 2018RICS HQ, London, UK

© RICS, 2018ISBN: 978-1-78321-275-0ISSN: 2398-8614

Royal Institution of Chartered Surveyors Parliament SquareLondonSW1P 3ADUnited Kingdom


The papers in this proceeding are intended for knowledge sharing, stimulate debate, and research findings only. This publication does not necessarily represent the views of RICS or University College London.

129 Public construction procurements: current practice in Turkey


COBRA 2018

PUBLIC CONSTRUCTION PROCUREMENT: CURRENT PRACTICE IN TURKEY

Pinar Irlayici Cakmak1

1 Faculty of Architecture, Istanbul Technical University, Istanbul, Turkey.

ABSTRACT

In Turkey, public expenditure annually constitutes about 12% of GDP. This public expenditure on goods, services, construction and consultancy services is carried out as public procurement within the scope of the Public Procurement Law. Under this law, construction procurement is specifically performed within the Regulation on Implementation of Construction Works Procurement. When the 2016 statistics are examined, it is shown that in the year 2016 a total amount of 80.5 billion TL public procurement w a s made and, 30 billion TL of them were construction procurements. Thus, t h e c o n t r i b u t i o n o f construction procurement to the country’s economy is very important as it has a 37.2% share in public procurement. This paper examines the existing legislation and current practice of public procurement in Turkey, construction procurement specifically. The paper presents useful information by giving necessary definitions, explaining principles and procedures, and providing related statistics.

Keywords: construction, law, public procurement, Turkey.

INTRODUCTION

The Public procurement is the procurement of goods, services or constructions on behalf of a public authority, such as a government agency. It includes much that supports the work of government and ranges from routine items (e.g. stationery, temporary office staff, furniture or printed forms), to complex spend areas (e.g. construction, Private Finance Initiative projects, aircraft carriers or support to major change initiatives) (OGC, 2017). Public procurement systems share several objectives, including value for money, integrity, accountability, fair treatment, and social/industrial development, all of which must be implemented through a cost-efficient process (Arrowsmith, 2004). As public procurement accounts for a substantial portion of the taxpayers’ money (approximately 12% of GDP and 29% of government expenditure in OECD member countries), governments are expected to carry it out efficiently and with high standards of conduct in order to ensure high quality of service delivery and safeguard the public interest (OECD, 2017).

There are rules and procedures which set out the legal framework for public procurement. They apply when public authorities and utilities seek to acquire supplies, services, or works (e.g. civil engineering or building). They set out procedures which must be followed before awarding a contract when its value exceeds set thresholds, unless it qualifies for a specific exclusion (OGC, 2008). According to European Union

1 [email protected]


(EU) rules, public sector procurement must follow transparent open procedures ensuring fair conditions of competition for suppliers. Accordingly, public procurement in EU is ruled by primary provisions deriving from EU Treaty as well as secondary provisions such as directives and regulations (Bianchi and Guidi, 2010). Directive 2004/18/EC (on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts) is the EU public procurement rules seek to ensure that public sector bodies award contracts in an efficient and non-discriminatory manner (OJEU, 2004). A study by Public Procurement Network Presidency aimed at providing to all operators involved in public procurement an updated overview of the public procurement system in Europe, represented a significant report by analyzing and comparing the various systems European-wide in the field of public procurement (Bianchi and Guidi, 2010). According to that study, in Austria, Belgium and Germany, public procurement is a matter of concurrent legislative power allocated between the federation and federal countries. In Italy, public procurement is related to competition, which is a matter of state exclusive legislative power. In Poland, the institution responsible for drafting acts or regulations on public procurement is a specific body. In Belgium, the Public Procurement Commission is responsible for proposing draft law in order to transpose the EU public procurement directives. In United Kingdom, stakeholders are consulted on a draft law for transposing an EU directive. In Turkey, the Public Procurement Law no 4734 (PPL) regulates the public expenditures on goods, services, construction and consultancy services which are carried out as public procurements. As Turkey is a candidate country for EU membership, PPL, which entered into force on January 1, 2003, was revised and further harmonized with the EU Acquis. It has been primarily prepared with a view to further enhance the principles of transparency, competition, equality of treatment, impartiality, accountability, economic efficiency, predictability stated in generally accepted international procurement texts and codes such EU treaties and procurement directives. In this regard, this paper aims to examine the current practice of the public procurement in Turkey, construction procurements specifically. In order to reach this aim, public procurement system in Turkey is explained by analyzing existing legislation on public procurement. Current public procurement law and regulations associated with construction procurements are presented by giving necessary definitions, explaining principles and procedures, and providing related statistics. PUBLIC PROCUREMENT IN TURKEY A large number of procurement legislation has been issued in Turkey to meet the needs of public institutions and organizations. Chronologically, four different procurement laws have been enacted regarding public procurement practices. Among these laws, the first one is the "Auction, Consultation and Importation Law no 661" ratified on 22.04.1925. This law shall be binding on all acts of procurement, sale, leasing, construction, repair, reconnaissance, transport and similar works to be carried out on behalf of the government in respect of closed envelopes, auctions and decrees, negotiations and trust. The second law issued to regulate public procurement practices is "Increase, Reduction and Tender Law no 2490" ratified on 10.06.1934. Law no.


2490 was prepared according to the requirements and needs of the first ten years of the republic but; had been inadequate in regulating relations which were required by the time-growing economy. Therefore, after 50 years, "Public Tender Law no 2886" ratified on 08.09.1983 was enforced. Public Tender Law was in force and formed the public procurement system in Turkey within the period of 1983-2003. Throughout those years no updating was performed in parallel to the international developments; and as a result, the system was the main obstacle in effectively distributing public resources (Ocal et al., 2006). Moreover, the system had many drawbacks such as inappropriateness for international and modern developments and corruptions that affected public (Gunduz and Karacan, 2009). There was a need of a new procurement system because of the problems encountered in implementation within the framework of Law no 2886 and the need of changes and innovations to align with the EU Acquis under the "Turkey's National Program for the Adoption of the EU Acquis". A new procurement law has been enforced in 2003 based on EU standards and UNCITRAL (United Nations Commission on International Trade Law) principles. "Public Procurement Law no 4734" (PPL) was adopted by the Parliament on 4th January 2002 and published in the Official Gazette on 22nd January 2002. Since 1st January 2003, PPL has been in force and has set out the legal framework for public procurement in Turkey. Public Procurement Law PPL aims to establish the principles and procedures to be applied in any procurement held by public authorities and institutions governed by public law or under public control or using public funds (PPA, 2017a). PPL's Article 5 defines the basic principles of PPL. These basic principles are as follows (PPA, 2017a): § the contracting authorities are liable for ensuring transparency, competition, equal

treatment, reliability, confidentiality, public supervision, and fulfilment of needs appropriately, promptly, and efficient use of resources.

§ unless there is an acceptable natural connection between them purchase of goods, services and works cannot be consolidated in the same procurement.

§ procurement of goods, services or works cannot be divided into lots with the intention of avoiding threshold values.

§ for the procurements to be held in accordance with PPL, the principal procurement methods are open and restricted procedures. The other methods may be used under the special conditions set out in the PPL.

§ the procurement proceedings shall not be initiated unless there is a sufficient budget allocation.

§ where the related legislation requires an Environmental Impact Assessment (EIA) report for a construction project, a positive EIA report must be obtained before the initiation of procurement proceedings. However, in construction procurements to be made urgently due to natural disasters, EIA report shall not be asked.

PPL covers 6 chapters and 70 articles. The first chapter is the general provisions and it explains implementation principles and rules on participation in tenders. The second chapter deals with the tender process by clarifying tender procedures and implementation, notice of tender and prequalification, issuance of tender documents, submission of bids, evaluation of bids and special provisions on procurement of


consulting services. The third chapter represents Public Procurement Authority, review of complaints and settlement of disputes. Prohibition from participation in tenders is explained in the forth chapter. Various provisions and final provisions are included in the fifth and sixth chapters respectively. Public Procurement Authority (PPA) is responsible for the supervision and control of procurements which are carried out under PPL. PPA is an administrative and financially autonomous body and is assigned and authorized for the accurate implementation of the principles, procedures and proceedings specified in PPL. The duties and authorities of the PPA are as follows: (1) to prepare, develop and guide the implementation of all the legislation concerning PPL, (2) to evaluate and conclude complaints, (3) to provide training on procurement legislation, (4) to compile and publish statistics related to procurements and contracts, (5) to keep records of those prohibited from participating in tenders, (6) to carry out research and development activities. Current Practice of Public Procurement Public procurements carried out according to the provisions of PPL are basically divided into four main groups. These are goods procurements, construction procurements, services procurements, and consultancy services procurements. PPA compiles the statistics associated with these procurements and publishes them in its Public Procurement Monitoring Report. Table 1 presents the distribution of public procurements within the first six months of 2016. Table 1. The distribution of public procurements in 2016 Procurement type Quantity Amount

Number % 1000 TL % Goods procurements 18,757 40.61 16,163,644 20.07 Construction procurements 7,601 16.45 29,962,999 37.21 Services procurements 19,704 42.66 34,082,689 42.33 Consultancy services procurements 131 0.28 316,291 0.39 Total 46,193 100.0 80,525,623 100.0 Public Procurement Monitoring Report (PPA, 2016) demonstrates that a total amount of 80.5 billion TL procurements were made and %20.07 of them are goods procurements, % 37.21of them are construction procurements, %42.33 of them are services procurements and %0.39 of them are consultancy services procurements within the first six months of 2016. In procurement of goods, services and construction by contracting authorities, one of the following tendering procedures can be applied: (1) open procedure, (2) restricted procedure, and (3) negotiated procedure. Open procedure is a procedure where all bidders may submit their bids to the tender. Restricted procedure is a procedure in which bidders, who are invited following pre-qualification by the contracting authority, can submit their bids to the tender. Procurement of goods, services or construction may be conducted by restricted procedure only if open procedure is not applicable as the nature of the work requires specialty and/or high technology and in construction procurements where estimated costs exceed the half of threshold value. Negotiated procedure may be applied, where; (1) no bid is submitted in open or restricted procedures, (2) it is inevitable to conduct the tender procedures immediately,


due to unexpected and unforeseen events such as natural disasters, epidemics, risk of losing lives or properties or events that could not be predicted by the contracting authority, (3) it is inevitable to conduct the tender procedures immediately, due to occurrence of specific events relating to defense and security, (4) the procurement requires a research and development process, and not subject to mass production, (5) due to specific and complex characteristics of the construction, goods or services to be procured, it is impossible to define the technical and financial aspects clearly, (6) product good, material and services procurements by contracting authorities with estimated costs of up to fifty billion TL. Table 2 presents the distribution of tendering procedures within the first six months of 2016. Table 2. The distribution of tendering procedures in 2016 Tendering procedure Quantity Amount

Number % Number % Open procedure 34,930 75.62 70,708,466 87.81 Restricted procedure 150 0.32 3,711,970 4.61 Negotiated procedure 11,113 24.06 6,105,187 7.58 Total 46,193 100.0 80,525,623 100.0 According to the Public Procurement Monitoring Report (PPA, 2016) a total of 46,193 tenders were conducted and %75.62 of them are conducted with open procedure, %4.61 of them are conducted with restricted procedure and %7.58 of them are conducted with negotiated procedure within the first six months of 2016. Table 1 and Table 2 are evaluated together and summarized in Table 3. Accordingly, Table 3 shows the distribution of procurements in terms of tendering procedures and procurement types within the first six months of 2016. Table 3. The distribution of procurements in terms of tendering procedures and procurement types in 2016 Tendering procedure Procurement type Quantity Amount

Number % Number %

Open procedure

Goods procurements 14,847 32.14 15,474,379 19.22 Construction procurements 7,187 15.56 24,195,875 30.05 Services procurements 12,896 27.92 31,038,211 38.54 Total 34,930 75.62 70,708,466 87.81

Restricted procedure

Goods procurements 1 0.00 1,575 0.00 Construction procurements 17 0.04 3,393,827 4.21 Services procurements 1 0.00 277 0.00 Consultancy services procurements 131 0.28 316,292 0.39

Total 150 0.32 3,711,970 4.61

Negotiated procedure

Goods procurements 3,909 8.46 687,690 0.85 Construction procurements 397 0.86 2,373,296 2.95 Services procurements 6,807 14.74 3,044,201 3.78 Total 11,113 24.06 6,105,187 758

Total

Goods procurements 18,757 40.61 16,163,644 20.07 Construction procurements 7,601 16.45 29,962,999 37.21 Services procurements 19,704 42.66 34,082,689 42.33 Consultancy services procurements 131 0.28 316,292 0.39

Total 46,193 100.0 80,525,623 100.0


Public Construction Procurement For public construction procurements, "Regulation on Implementation of Construction Works Procurements" is the legislation which governs the principles and procedures to be applied by the contracting entities within the scope of PPL. The Regulation has been in force since 11th November 2003 and; public sector entities have to follow this specific regulation for their construction works. Basic principles of the Regulation is defined as "The Contracting Entities shall be obliged to ensure transparency, competition, equal treatment, reliability, confidentiality, supervision by public opinion, and that the needs are met at appropriate conditions and in a timely manner, and that the resources are efficiently used" (PPA, 2017b). The Regulation includes 4 chapters and 73 articles. The first chapter is the general provisions and it covers (1) aim, scope, legal basis and definitions, (2) implementation principles and approximate cost, (3) determination of the tendering procedure, tender and prequalification document, (4) approval of the tender, tender commission and tender implementation file, (5) notice of tender, tender regulations, and issues associated with tender and prequalification document. The second chapter deals with the prequalification for the participation in tenders and it explains (1) mutual terms, (2) joint ventures, (3) documents concerning the economic and financial qualification, (4) documents concerning professional and technical qualification, (5) work experience, (6) evaluation of work experience certificates, (7) disqualification from tenders and those that cannot participate in tenders. The third chapter explains (1) application, bids, letter of credits, (2) receiving and opening the contractor's bids, (3) determination of the most cost advantageous bid and approval of the tender. Various provisions and final provisions are included in the last chapter. Figure 1 shows the ratio of public construction procurements between 2010 and 2016. When the figure is examined, it is shown that construction procurements constitute a majority of public procurements. Thus, construction procurements contribution in the country’s economy is very important as they have a big share in public procurements.

Figure 1. Public construction procurements Under the scope of the Regulation, construction procurements are carried out in order to award the most cost advantageous bid and to complete the construction project within the budgeted cost, scheduled time and accepted quality. In order to achieve this, the contractor bidder who submits the lowest bid price is awarded the contract. According to the Regulation, three different types of construction contracts are used. These contract types are lump sum contract, unit price contract and mixed contract. In

34,47%

52,51%57,16% 59,48%

40,50% 41,96%37,21%

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

2010 2011 2012 2013 2014 2015 2016


lump sum contract, there is an agreed amount for a described extent of work, based upon complete or partially complete construction documents. Unit price contracts are based on the unit price for each parties of the construction and; the payment is made at a stipulated rate multiplied by the quantity completed. Mixed contracts are the contracts where the payment is made by using lump sum and unit price procedures are used together in the same contract. According to the Regulation, in construction procurements, it is not allowed to initiate the tender without obtaining building site, without completing ownership, expropriation and without preparing construction projects. Where the technical and financial characteristics cannot be precisely determined due to the originality and complexity of the construction work, the tender may be carried out through preliminary or final project. In construction procurements where application projects exist, it is obligatory the tender be awarded with a lump sum contract. However, for construction works except building construction, which have no sufficient time to prepare construction projects due to natural disasters, repair works and works which the construction projects cannot be prepared before the tender since land and soil surveys are required in some certain stages during construction; the tender may be conducted with preliminary or final projects. In those works, the tender may be awarded with unit price contract. Besides, mixed contracts may be used in construction procurements with lump sum basis for the parts of works where the construction project can be implemented, and with unit price basis for each item of construction for the parts where the construction project cannot be implemented. Figure 2 shows the ratio of construction contract types between 2010 and 2016. According to the figure, lump sum contracts have been widely used for the award of public construction procurements.

Figure 2. Construction contract types CONCLUSIONS Public procurement is one of the most important activities in countries' economy. Especially in many developing countries like Turkey, public expenditures constitute an important part of the country’s economic activities. When the public procurement statistics are analyzed, a majority of public procurements are construction procurements. Thus, public construction procurements contribution in the country’s economy is very important as they have a big share in public procurements.

60,24% 59,17% 58,70% 57,04%59,19%

53,50%

46,68%39,76% 40,36%

40,80% 42,45% 40,35% 45,93%

52,53%

0,00% 0,46% 0,50% 0,51% 0,46% 0,57% 0,79%0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

2010 2011 2012 2013 2014 2015 2016

Lump Sum

Unit Price

Mixed


In this paper, the current practice of the public procurement in Turkey was examined. Construction procurements were given more emphasis as they constitute an important part of the public procurements. "Public Procurement Law" and "Regulation on Implementation of Construction Works Procurements" were analyzed, necessary definitions were given, principles and procedures were explained and related statistics were provided. The study is limited as it is only examined the current practice of public procurements in Turkey. As Turkey has been in the process of EU membership, further research can be made on the subject of required amendments in the public construction procurement regulations in accordance with the EU Directives. Besides, the problem areas on Turkish public construction procurements can be presented and the effects of EU directives on the solution of these problems can also be examined. REFERENCES Arrowsmith, S. (2004). Public procurement: an appraisal of the UNCITRAL model

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Bianchi, T. and Guidi, V. (2010). The comparative survey on the national public procurement systems across the PPN. Authority for the Supervision of Public Contracts, Department for the Co-ordination of European Union Policies, PPN Presidency.

Gunduz, M. and Karacan, V. (2009). Damage to treasury: abnormally low tenders in public construction works. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 1(3), 130-136.

Office of Government Commerce (OGC). (2008). Introduction to the EU procurement rules: OGC guidance March 2008. Available at: https://www.rbkc.gov.uk/pdf/ Introduction%20to%20EU%20procurement%20rules.pdf (Accessed: 2017, January 20).

Office of Government Commerce (OGC). (2017). An introduction to public procurement. Available at: http:/www.ogc.gov.uk/documents/Introduction_to_Public_ Procurement.pdf (Accessed: 2017, January 20).

Official Journal of the European Union (OJEU). (2004). Directive 2004/18/EC Of The European Parliament And Of The Council on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts. Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32004 L0018&from=en (Accessed: 2017, January 25).

Ocal, M. E., Paydak, O. and Oral, E. L. (2006). Public procurement law in Turkey. Journal of Professional Issues in Engineering Education and Practice, 132(2), 153-155.

Organisation for Economic Co-operation and Development (OECD). (2017). Available at: http://www.oecd.org/gov/ethics/public-procurement.htm (Accessed: 2017, January 20).

Public Procurement Authority (PPA). (2016). Public Procurement Monitoring Report. Available at: http://www2.ihale.gov.tr/Duyurular2012/Kamu_al%C4%B1mlari_izleme_raporu_ 2016_alti_ay.pdf (Accessed: 2017, January 20).


Public Procurement Authority (PPA). (2017a). Public Procurement Law no 4734. Available at: http://www.ihale.gov.tr /Mevzuat.aspx (Accessed: 2017, January 12).

Public Procurement Authority (PPA). (2017b). Regulation on Implementation of Construction Works Procurements. Available at: http://www.ihale.gov.tr/Mevzuat. aspx. (Accessed: 2017, January 12).

Turkish Statistical Institute. (2016). Available at: http://www.turkstat.gov.tr (Accessed: 2017, January 30).

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