Introduction
Termination of public procurement contracts in Turkey is one of the most serious legal risks for contractors, suppliers, service providers, construction companies and foreign companies performing contracts with Turkish public authorities. Public procurement contracts are not ordinary private commercial agreements. They are governed by a special statutory framework, strict tender documents, administrative specifications, technical specifications, standard contracts, performance bond rules, public-interest principles and sanction mechanisms.
The main legislation governing contract performance and termination is Public Procurement Contracts Law No. 4735. This law applies to contracts signed as a result of tenders conducted under Public Procurement Law No. 4734. Law No. 4735 expressly provides that public procurement contracts cannot contain clauses contrary to tender documents, that contract provisions cannot be changed except in legally permitted cases, and that the parties to public procurement contracts have equal rights and obligations in the implementation of the contract.
Termination may arise for many reasons: contractor financial incapacity, failure to perform the contract, delay despite warning, prohibited acts during contract performance, prohibited conduct discovered after contract signing, unauthorized assignment, bankruptcy, death or incapacity of the contractor, force majeure, disappearance of public need, or special temporary statutory regimes. Each ground has different legal consequences.
For contractors, termination may lead to forfeiture of performance bond, additional performance bond loss, index-based updating of forfeited guarantees, compensation liability, liquidation of accounts, debarment from public tenders and reputational damage. For contracting authorities, unlawful or poorly documented termination may create litigation risk, project delay, public service disruption and financial loss. Therefore, termination must be handled with careful legal analysis.
Legal Framework of Termination Under Law No. 4735
Law No. 4735 regulates the preparation and implementation of public procurement contracts. Its purpose is to determine the principles and procedures applicable to contracts arising from tenders conducted under the Public Procurement Law. It covers contracts made by institutions subject to Law No. 4734 following tenders under that law.
The termination regime appears mainly in Articles 16 to 24 of Law No. 4735. These provisions regulate assignment of contracts, death, bankruptcy, severe illness, imprisonment or conviction of the contractor, special rules for joint ventures, termination by the contractor, termination by the administration, termination due to prohibited acts before contract signing, procedural rules for termination, force majeure termination, additional works, work decrease and liquidation.
This statutory framework should be read together with the signed contract, administrative specification, technical specification, standard contract, guarantee documents, progress payment records, inspection and acceptance minutes, written warnings, force majeure correspondence and Public Procurement Authority guidance. Termination is rarely decided by looking at a single clause. It requires a full review of the contract file.
Public Procurement Contracts Cannot Be Freely Renegotiated
A central principle of Law No. 4735 is that public procurement contracts must reflect the tender documents. Article 4 provides that contracts cannot include provisions contrary to the tender documents and that, except for cases stated in the law, contract provisions cannot be changed and additional contracts cannot be executed. The same article also states that parties have equal rights and obligations in contract implementation.
This principle is important in termination disputes. A contractor cannot usually avoid termination by arguing that the parties informally agreed to different performance terms after contract signing. A public authority also cannot impose obligations that are inconsistent with the tender documents unless the law permits the change.
Before termination, both parties should therefore return to the original contract documents. The legal question is not only whether performance became difficult. The question is whether the contractor failed to perform according to the contract and tender documents, whether the administration followed the statutory warning and termination procedure, and whether any lawful excuse such as force majeure exists.
Mandatory Termination Clauses in Public Procurement Contracts
Article 7 of Law No. 4735 lists mandatory matters that must be included in public procurement contracts. These include the contract price, payment terms, support services, performance bond, guarantee conditions, delivery and acceptance rules, delay penalties, force majeure and time extension conditions, inspection and acceptance procedures, contract amendment rules, termination conditions, personnel responsibilities, occupational health and safety obligations, and dispute resolution.
This means termination is not an external issue. It is part of the required contractual architecture. The contractor should review termination conditions before bidding and again before signing. A company that signs a public procurement contract without understanding delay penalties, warning procedure, force majeure requirements, inspection standards and guarantee forfeiture risks may face severe consequences later.
Termination by the Contractor Due to Financial Incapacity
Article 19 regulates termination initiated by the contractor. If, after the contract is signed, the contractor notifies the administration in writing that it cannot fulfil its commitment due to financial incapacity, except in force majeure cases, the contract is terminated without the need for a separate protest. In that case, the performance bond and any additional performance bond are recorded as revenue, and the account is liquidated according to general rules.
This provision is important because a contractor cannot simply walk away from a public procurement contract without consequences. Financial difficulty is treated as contractor-side risk unless it falls within a legally recognized force majeure or special statutory regime. Inflation, exchange-rate losses, financing problems or supplier price increases do not automatically excuse performance.
A contractor considering a written financial incapacity notice should understand the consequences. Such notice may trigger termination, forfeiture of guarantees and further sanctions. It should not be sent casually. Before taking this step, the contractor should evaluate price difference rights, time extension possibilities, force majeure, special temporary regulations, progress payment disputes, administrative delays and possible restructuring of performance within legal limits.
Termination by the Administration Due to Non-Performance or Delay
Article 20 is one of the most important provisions on administrative termination. The administration must terminate the contract if the contractor fails to fulfil its commitment in accordance with the tender documents and contract provisions, or fails to complete the work on time, and the same situation continues despite a written warning of at least ten days stating the reasons and applying delay penalties at the rate specified in the tender documents. In such cases, the performance bond and additional performance bond are recorded as revenue, the contract is terminated, and the account is liquidated according to general rules.
This rule creates both a substantive and procedural framework. Substantively, the contractor must have failed to perform according to the contract or failed to complete on time. Procedurally, for Article 20(a), the administration must issue a warning of at least ten days, clearly stating the reasons. If the administration terminates without proper warning where warning is required, the termination may be legally vulnerable.
For contractors, the warning letter is a critical document. It should not be ignored. The contractor should respond immediately, explain performance status, contest incorrect allegations, request time extension if justified, submit force majeure evidence if applicable, correct deficiencies where possible and preserve all correspondence.
Termination Due to Prohibited Acts During Performance
Article 20 also requires termination if, during contract performance, it is determined that the contractor engaged in prohibited acts listed in Article 25. Article 25 prohibits conduct such as interfering with contract-related transactions through fraud, promises, threats, influence, benefit, collusion, corruption or bribery; preparing or using forged documents; using fraudulent materials, tools or methods; making defective or faulty works contrary to technical rules; damaging the administration; misusing knowledge and experience to the administration’s detriment; failing to perform the commitment outside force majeure; and assigning or taking over the contract contrary to Article 16.
This category is more serious than ordinary delay. It may lead not only to termination and guarantee forfeiture, but also to debarment and possible criminal consequences. Law No. 4735 provides that those found to have committed Article 25 acts may be prohibited from participating in public tenders for a period of not less than one year and up to two years, depending on the nature of the conduct.
Companies should therefore maintain strict public procurement compliance systems. False documents, defective materials, unauthorized assignment, collusive conduct, bribery and intentional non-performance can have consequences far beyond one contract.
Termination Due to Prohibited Acts Before Contract Signing
Article 21 regulates a special situation: after the contract is signed, it is discovered that the contractor engaged in prohibited acts during the tender process under the Public Procurement Law. In that case, the performance bond and additional performance bond are recorded as revenue, the contract is terminated, and the account is liquidated according to general rules.
However, Article 21 also contains a public-interest exception. If at least 80% of the commitment has been completed and there is public interest in completing the work, the administration may require the contractor to complete the remaining part instead of terminating, provided that urgent re-tendering is not possible, performance by another contractor is impossible, and the prohibited act does not prevent the contractor from completing the commitment. In that case, debarment proceedings still apply, and a penalty equal to the amount of the performance bond and additional performance bond is collected from the contractor.
This rule shows that public procurement termination law balances sanction and public interest. The administration may avoid termination where the public project is nearly complete and immediate completion is necessary, but the contractor does not escape sanctions.
Procedural Rules for Termination
Article 22 regulates when termination is deemed to occur and how the administration must act. For termination under Article 19, the termination date is the date when the contractor’s termination request reaches the administration. For Article 20(a), it is the expiry of the warning period. For Article 20(b) and Article 21, it is the date of determination. The administration must issue the termination decision within seven days following these dates and notify the contractor within five days after the decision.
This procedural timeline matters. Termination is not simply an internal opinion of the administration. The file should show the relevant trigger date, warning if required, determination of prohibited conduct if applicable, termination decision and notification to the contractor.
For contractors, the notification date is important for legal remedies, accounting, liquidation, guarantee consequences and possible litigation. The contractor should immediately request the full basis of termination if the decision is unclear.
Performance Bond Forfeiture After Termination
The financial consequence of termination is severe. Under Articles 19, 20 and 21, the performance bond and any additional performance bond are recorded as revenue. Article 22 further provides that, in terminations under Articles 19, 20 and 21, performance bonds and additional performance bonds are updated from the date they were received until the date they are recorded as revenue according to the relevant monthly wholesale price index, and the difference between the updated amount and the guarantee amount is collected from the contractor.
Article 22 also states that forfeited guarantees cannot be set off against the contractor’s debt. In addition, for terminations under Articles 19, 20 and 21, proceedings under Article 26 apply, and damages suffered by the administration due to termination are compensated by the contractor.
This is why termination risk should be priced and managed from the beginning. The contractor may lose the bond, owe index-updated differences, face compensation claims and suffer debarment.
Debarment Consequences of Termination
Article 26 provides that persons found to have engaged in prohibited acts listed in Article 25 may be prohibited from participating in public tenders for at least one year and up to two years. The debarment decision applies broadly to public institutions and may also affect shareholders depending on the legal form and ownership structure of the contractor.
Termination under Articles 19, 20 and 21 may trigger Article 26 consequences according to Article 22. This means that termination is not merely a financial issue. It may affect the contractor’s future ability to participate in public tenders in Turkey.
For foreign companies, debarment risk is particularly serious. A foreign company may lose not only the contract but also future Turkish public-sector opportunities. Local subsidiaries, joint ventures and group companies may also be affected depending on ownership and statutory rules.
Termination Due to Force Majeure
Article 23 regulates termination due to force majeure. If the contract is terminated because of force majeure, the account is liquidated according to general rules, and the performance bond and additional performance bond are returned to the contractor.
This is a critical distinction. In default-based termination, guarantees are generally forfeited. In force-majeure termination, guarantees are returned after liquidation. Therefore, the legal classification of termination can determine millions of lira in financial consequences.
Article 10 defines force majeure events and conditions. Natural disasters, lawful strikes, general epidemics, partial or general mobilization and similar events determined by the Public Procurement Authority may qualify. However, for the administration to accept an event as force majeure for time extension or termination, the event must not arise from contractor fault, must prevent performance, must be beyond the contractor’s ability to remove, must be notified in writing within twenty days, and must be documented by competent authorities.
Earthquake-Related Force Majeure and Termination
After the 6 February 2023 earthquakes, the Public Procurement Authority announced practical guidance for public procurement contracts affected by the disaster. The Authority stated that, for contracts carried out in affected provinces or contracts affected because the contractor operated in those provinces, contractors did not need to apply separately to the Authority for force majeure recognition. If contractors applied to the contracting administration, the administration could decide according to the concrete case whether to grant time extension, terminate the contract or reject the application.
This announcement is important because it demonstrates how force majeure termination works in large-scale disasters. Even where a disaster is generally recognized, the administration must still assess the specific contract. The possible outcomes are not limited to termination. The administration may grant time extension, reject the request or terminate depending on the actual impact.
Special emergency measures also addressed contracts in earthquake-affected provinces. Under the announced measures, certain ongoing contracts in provinces under state of emergency could be terminated without sanctions by the administration if performance became impossible due to earthquake-related force majeure or if the contract subject was no longer needed.
Unauthorized Assignment and Termination
Article 16 regulates assignment of public procurement contracts. A contract may be assigned only in compulsory cases and with written approval of the contracting officer. The assignee must satisfy the original tender conditions. Except for assignments due to name or status changes, a contractor that assigns a contract cannot assign or take over another contract for three years. Unauthorized assignments, prohibited assignments or assignments contrary to the three-year rule result in termination, and Articles 20, 22 and 26 apply to the assignor and assignee.
This rule is highly relevant in corporate transactions, group restructurings, subcontracting arrangements and foreign investor projects. Contractors should not treat public contracts like freely transferable private contracts. A sale of business, internal group transfer or replacement of operational entity may trigger assignment rules.
If performance difficulties arise, contractors may consider assignment as an alternative to termination, but this must be done within Article 16 and with prior written approval.
Death, Bankruptcy, Severe Illness, Imprisonment or Conviction of the Contractor
Article 17 regulates termination in cases involving the contractor’s death, bankruptcy, severe illness, imprisonment or conviction. If the contractor dies, the contract is terminated and the account is liquidated according to general rules, with the performance bond and receivables given to heirs. However, if heirs with the same qualifications request continuation and the administration approves, the contract may be assigned to them within thirty days, provided that necessary guarantees are supplied.
If the contractor becomes bankrupt, the contract is terminated and Articles 20 and 22 apply, excluding debarment. In cases of severe illness, imprisonment or conviction preventing performance, the contract may continue if the contractor appoints a representative acceptable to the administration within thirty days; otherwise, termination follows, again excluding debarment.
These provisions show that termination law distinguishes personal incapacity from culpable non-performance. Not every termination results in debarment, but guarantees, liquidation and account settlement still require careful handling.
Joint Ventures and Termination
Article 18 regulates joint ventures. In commitments performed by joint ventures, the death, bankruptcy, severe illness, imprisonment, conviction or dissolution of one partner does not automatically prevent continuation. However, if the affected partner is the pilot or coordinator partner, termination may occur unless other partners propose continuation within thirty days and the administration approves, with assumption of the pilot/coordinator partner’s responsibilities including guarantees. If the affected partner is not the pilot or coordinator partner, the other partners must perform the commitment by assuming that partner’s responsibilities, including guarantee obligations.
This rule is critical for construction and infrastructure projects where joint ventures are common. Joint venture agreements should clearly allocate risk, guarantee responsibility, substitution obligations and communication with the administration. A problem with one partner may become a contract-wide termination risk.
Termination, Additional Works, Work Decrease and Liquidation
Article 24 regulates additional works, work decrease and liquidation. In goods, services and construction contracts, additional works may be performed by the same contractor within certain legal percentage limits if unforeseen circumstances make the increase necessary, the work remains within the main project, and separating it from the original work is technically or economically impossible without burdening the administration. The statutory limits are generally 10% for turnkey lump-sum construction works and 20% for unit price goods, services and works contracts, with special authority for unit price construction works.
If the work cannot be completed within these limits, the account is liquidated according to general rules without making the increase. Article 24 also provides a rule for contracts that will be completed below 80% of the contract price: the contractor must finish the work, and a specific payment is made for actual expenses and contractor profit based on the difference between the 80% threshold and the work performed at contract prices.
This is not exactly default termination, but it is closely connected to termination and liquidation risk. Contractors should understand whether the issue is true termination, lawful work decrease, additional work, or liquidation because financial consequences differ.
Temporary Statutory Termination Regimes
Turkey has occasionally adopted temporary statutory mechanisms allowing termination or liquidation of certain public procurement contracts under extraordinary economic or disaster conditions. For example, the Public Procurement Authority announced guidance on temporary Article 6 of Law No. 4735, added by Law No. 7394, concerning termination and liquidation of certain Turkish-lira goods, service and construction contracts tendered before 1 January 2022 and ongoing as of the effective date, where the realization rate was up to 15% of the original contract price. The Authority emphasized that contractors had to continue fulfilling contractual obligations until termination procedures were completed.
Similarly, the Authority announced the implementation of temporary Article 7 principles in 2024, especially for construction contracts tendered before 1 March 2023 and continuing as of 28 December 2023, including special price difference-related measures.
These examples show that contractors must check current temporary provisions before deciding strategy. A contract that would ordinarily expose the contractor to default termination may, under a special temporary regime, be eligible for lawful termination, transfer, additional price difference or time extension. However, these regimes usually have strict conditions, deadlines and application procedures.
Practical Checklist Before Termination by the Administration
Before terminating a public procurement contract, the administration should follow a structured legal checklist.
First, identify the legal ground for termination. Second, determine whether the issue is non-performance, delay, prohibited conduct, unauthorized assignment, bankruptcy, force majeure or another statutory ground. Third, check whether Article 20(a) requires a written warning of at least ten days. Fourth, make sure the warning clearly states reasons and gives the contractor an opportunity to cure where required. Fifth, document all technical, financial and administrative evidence. Sixth, evaluate any force majeure or time extension request submitted by the contractor. Seventh, calculate guarantee consequences and potential damages. Eighth, issue the termination decision within the statutory period. Ninth, notify the contractor within the required period. Tenth, begin liquidation and account settlement according to law.
A termination decision that is poorly reasoned, procedurally defective or unsupported by evidence may create litigation risk.
Practical Checklist for Contractors Facing Termination
A contractor receiving a warning or termination notice should act immediately.
First, record the notification date. Second, identify the alleged breach. Third, review the contract, administrative specification, technical specification and correspondence. Fourth, respond in writing within the warning period. Fifth, correct deficiencies where possible. Sixth, request time extension if delay is not attributable to the contractor. Seventh, submit force majeure evidence if applicable. Eighth, object to unlawful delay penalties or incorrect progress payment deductions. Ninth, preserve site records, delivery documents, inspection minutes and photographs. Tenth, prepare for liquidation and guarantee disputes if termination occurs.
The most dangerous response is silence. In public procurement contracts, written records determine the outcome.
Common Mistakes by Contractors
The first common mistake is treating financial difficulty as an excuse. Under Article 19, financial incapacity outside force majeure leads to termination and guarantee forfeiture.
The second mistake is ignoring a ten-day warning. Article 20(a) gives the contractor a final opportunity to cure or respond, and that opportunity must be used effectively.
The third mistake is relying on oral statements from public officials. Termination disputes require written evidence.
The fourth mistake is failing to notify force majeure within twenty days. Article 10 makes timely written notice and competent authority documentation mandatory.
The fifth mistake is assigning a contract or changing performance entity without written approval.
The sixth mistake is assuming that a special temporary termination regime applies without checking deadlines and conditions.
Legal Remedies Against Termination
The appropriate remedy depends on the nature of the contract, termination decision, contracting authority and dispute. Contractors may challenge unlawful termination, guarantee forfeiture, debarment, liquidation calculations, progress payment deductions, delay penalties or damages claims through administrative applications, civil or administrative litigation, and separate debarment challenges depending on the legal classification of the act.
Because termination may also trigger debarment under Article 26, the contractor must treat debarment as a separate urgent risk. Debarment decisions may affect future tenders and may require immediate court action and suspension of execution.
A contractor challenging termination should focus on precise legal defects: absence of valid warning, incorrect breach allegation, accepted force majeure, administrative delay, defective inspection, unlawful guarantee forfeiture, disproportionate termination, incorrect liquidation or lack of causation between alleged breach and contract failure.
Frequently Asked Questions
What law governs termination of public procurement contracts in Turkey?
Termination is mainly governed by Public Procurement Contracts Law No. 4735, especially Articles 16 to 24, together with the signed contract, tender documents and relevant secondary legislation.
Can the contractor terminate a public procurement contract because of financial difficulty?
If the contractor notifies the administration that it cannot perform due to financial incapacity, except for force majeure, Article 19 provides that the performance bond and additional performance bond are recorded as revenue, the contract is terminated, and the account is liquidated.
Can the administration terminate for delay?
Yes. Under Article 20(a), if the contractor fails to perform according to the tender documents and contract or fails to complete on time, and the situation continues despite a written warning of at least ten days, the administration terminates the contract and records the guarantees as revenue.
What happens to the performance bond after default-based termination?
In terminations under Articles 19, 20 and 21, the performance bond and additional performance bond are recorded as revenue, updated according to the statutory index mechanism, and the difference may be collected from the contractor.
Does termination always lead to debarment?
Not always, but Articles 22 and 26 may apply in default or prohibited-conduct situations. Some cases, such as death, bankruptcy or severe illness under Article 17, are treated differently and may exclude debarment.
What happens if the contract is terminated due to force majeure?
Under Article 23, if the contract is terminated due to force majeure, the account is liquidated according to general rules, and the performance bond and additional performance bond are returned.
Can an earthquake justify termination?
Yes, natural disasters are listed as force majeure under Article 10. After the 6 February 2023 earthquakes, the Public Procurement Authority announced that administrations could decide according to the concrete case whether to grant time extension, terminate the contract or reject force majeure applications for affected contracts.
Conclusion
Termination of public procurement contracts in Turkey is a high-risk legal process governed primarily by Law No. 4735. It may arise from contractor financial incapacity, non-performance, delay, prohibited acts, unauthorized assignment, bankruptcy, incapacity, joint venture problems, force majeure, special temporary regimes or liquidation rules.
The consequences differ sharply depending on the legal basis. In default-based termination, performance bonds and additional performance bonds are generally forfeited, updated amounts may be collected, damages may be claimed, and debarment may follow. In force majeure termination, the account is liquidated and guarantees are returned. In special temporary statutory regimes, termination or transfer may be possible under specific conditions.
For administrations, termination requires legal precision, evidence, proper warning where required, timely decision-making and correct notification. For contractors, the key is immediate written response, documentation, force majeure notice within the legal period, correction of deficiencies, preservation of evidence and careful challenge of unlawful termination.
In Turkish public procurement practice, termination is not merely the end of a contract. It may determine guarantee liability, future tender eligibility, project completion, damages exposure and commercial reputation. Companies that understand the termination regime before signing and manage performance with strong documentation can reduce risk and protect their rights.
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