Contracts between Foreign Companies and the Government in Turkey: Types and Dispute Resolution Mechanisms

Introduction

Foreign companies operating in Turkey engage in various types of contracts with government authorities, which are critical for sectors like infrastructure, energy, technology, and public services. These agreements can be subject to complex legal frameworks, considering both local regulations and international standards. This article explores the types of contracts entered into between foreign companies and the Turkish government, along with the potential legal disputes that arise and the mechanisms available for resolving them.

Types of Contracts with Government Authorities

1. Public-Private Partnership (PPP) Agreements
   • PPPs are widely used in Turkey for large infrastructure projects such as airports, hospitals, highways, and energy plants. In these arrangements, foreign investors collaborate with the government to finance, build, and operate projects.
   • Key Examples: Build-Operate-Transfer (BOT) and Build-Operate (BO) models.
   • Legal Framework: Governed by the Public Procurement Law (No. 4734) and specific laws regulating PPPs in various sectors.
2. Concession Agreements
   • Concession contracts involve the delegation of public services to private entities, granting foreign companies the right to operate public utilities, such as water or electricity services, for a specific period.
   • These contracts usually contain extensive provisions about performance standards and tariffs.
3. Public Procurement Contracts
   • Foreign companies frequently participate in government tenders under Turkey’s public procurement regime. Contracts for goods, services, and works are regulated by the Public Procurement Law.
   • Disputes related to procurement often concern the bidding process, performance conditions, or payment disputes.
4. Investment Incentive Contracts
   • Turkey provides various incentives to foreign investors through agreements offering tax exemptions, customs duty relief, and land allocations. These contracts are subject to the Investment Incentive Program and often contain clauses on dispute resolution.

Dispute Resolution Mechanisms

1. National Courts
   • When disputes arise, parties may seek recourse in Turkish administrative or commercial courts, depending on the nature of the contract. For public procurement and concession agreements, administrative courts handle disputes.
2. Arbitration
   • Arbitration is a preferred method for resolving disputes involving foreign investors due to its neutrality.
   • Istanbul Arbitration Center (ISTAC): Provides arbitration services governed by its own rules and aligned with international standards.
   • International Arbitration: Foreign companies may opt for arbitration under the International Chamber of Commerce (ICC) or other arbitral institutions. This method offers faster resolution compared to domestic courts.
3. Mediation
   • Mediation has gained importance in Turkey, especially after the introduction of the Law on Mediation in Civil Disputes (No. 6325). Some public procurement and PPP agreements encourage or require mediation before arbitration or court proceedings.
4. Investment Treaties and ICSID
   • Turkey is a party to numerous Bilateral Investment Treaties (BITs), which often include provisions allowing foreign investors to pursue claims through the International Centre for Settlement of Investment Disputes (ICSID). This option is available when the dispute involves expropriation, discrimination, or other treaty violations.

Common Legal Disputes

1. Payment Delays and Contractual Performance Issues
   • These disputes often arise in PPP and procurement agreements where the government delays payments or fails to meet contractual obligations.
2. Regulatory Changes and Expropriation Claims
   • Foreign investors may face unexpected regulatory changes or expropriation, which may lead to disputes over compensation or breach of contract claims.
3. Termination and Renegotiation of Contracts
   • Long-term contracts such as concessions or PPPs may face renegotiation due to economic changes, often leading to disputes if parties cannot agree on revised terms.

Conclusion

Foreign companies operating in Turkey benefit from multiple opportunities through various contracts with government authorities. However, the legal landscape can be challenging, particularly in cases involving complex regulatory frameworks and public interest concerns. A clear understanding of both the contract types and dispute resolution mechanisms is essential for foreign investors to navigate potential conflicts effectively. Arbitration and investment treaty mechanisms provide additional layers of security, ensuring that disputes are resolved fairly and in line with international practices.

This legal framework demonstrates Turkey’s efforts to attract foreign investment while balancing public interest and legal predictability in its agreements with international entities.