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A Legal Analysis of the Impacts of Administrative Court Decisions on the Validity of Private Law Contracts In Turkish Law

By Vedat Buz and Cagdas Evrim Ergün, Published on March 18, 2007

by Assoc. Prof. Vedat Buz, Associate Professor of Civil Law at the Law Faculty of the University of Ankara, and Çağdaş Evrim Ergün, Associate in Çakmak Law Firm and Ph.D candidate at the University of Ankara.

I.          INTRODUCTION

The question of impacts of the cancellation decisions rendered by administrative courts on the validity of private law contracts, to which the administration is a party, constitutes a point of intersection between the administrative law and private law. The main question that emerges in that regard is which rules would be applicable in the settlement of disputes regarding the impacts of administrative court decisions of private law contracts; administrative law rules or private law rules? Another question relates to the judicial body that would have a jurisdiction to settle such disputes; administrative courts or civil courts? The court which has the jurisdiction to settle such disputes would have the authority to determine if the private law contract, to which the administration is a party, remains valid despite the cancellation decision of an administrative court.

II.        COMPARATIVE LAW

It would be worth explaining the position in comparative law before analyzing the matter under Turkish law.

A.        SWISS LAW

Due to the fact that the Turkish Code of Obligations has been adopted from the Swiss Code of Obligations, it is useful to analyze the Swiss legal literature and the court precedents on this subject. The Turkish Supreme Court of Appeals also refers to the Swiss legal literature and case law in a number of its decisions.[1]

Under Swiss law, the “two-stage theory” (Zweistufentheorie) applies to determine the legal regime which would apply to the private law contract executed for the performance of some services of the administration by private law persons.[2] The first stage takes place before the execution of the relevant contract with the private law entity. This  stage consists of the commencement of a bid or similar process, principles to be followed in this regard, realization, and finalization of bidding procedures. All sorts of acts and procedures carried out by the Administration during this first stage have an “administrative” nature and are subject to the rules of administrative law.

The second stage is, however, is framed by the execution stage of the administrative act which is completed in the first stage. Following the completion of the first stage, which is subject to the rules of administrative law, a private law contract would be executed. This second stage, namely the private law contract so executed, will entirely be subject to private law and the necessary legal forum for the settlement of disputes in this context would be the civil courts, or the arbitration tribunal if the parties’ contract contains an arbitration clause.

As for the consequences that may result from the “two-stage theory”: all problems related to the private law contract executed at the second stage, for instance, whether such contract is valid or terminated or other similar matters, would be exclusively subject to the Code of Obligations. Consequently, any invalidity that might occur at the administrative act stage or cancellation of some or all of the administrative acts regarding that stage shall never affect the validity of the private law contract. The validity of the contract shall be decided only on the basis of the rules of the Code of Obligations to which the contract is subject.

Firstly, it is worth mentioning some recent rulings of the Swiss Federal Court on this subject:

In a Swiss Federal Court ruling dated January 28, 2004, the subject-matter of the case was a public tender issued by the Basel Canton for underground construction works that constituted the first stage within the framework of a project concerning the rearrangement of a street. The tender was awarded to “Consortium Z”, which made an offer of 666,343.85 Swiss Francs after which the work contract related to the subject work was signed. “Consortium X”, the other company that submitted a bid, filed a lawsuit for the cancellation of the mentioned administrative procedure; however, this case was dismissed by the Court. Subsequently, “Consortium X” applied to the Federal Court for the cancellation of the tender decision claiming that the prohibition of arbitrary actions in bidding procedures, the rule of fairness and honesty, the principle of equality and some other tender provisions were violated. The Swiss Federal Court ruled that it would be possible to request the cancellation of a tender decision after the signing of a contract with the company to which the contract was awarded; however, even if this request was accepted, the validity of the private law contract previously executed would not be affected, because the determination of contradictions with the law during the bidding process would be important only in terms of the damages to be claimed by the company, which requested the cancellation, from the Administration[3].

In another Swiss Federal Court ruling dated January 21, 2004, the subject-matter of the case was a public tender issued by the Zug Canton for the underground and road construction works that constituted the second stage within the framework of the reconstruction of the national highway. The tender was awarded to “Consortium B”, with an offer of approximately 37.7 million Swiss Francs. “Consortium L”, the other company that participated in the bidding process, filed a lawsuit at the administrative court for the cancellation of the mentioned administrative procedure; however, this case was dismissed. In the meantime, the contract was signed with “Consortium B”. Upon such signing, “Consortium L” applied to the Federal Court for the decision of the administrative court to be overruled and the tender decision to be cancelled on grounds that the prohibition of discretionary actions in bidding procedures, the rule of fairness and honesty, the principle of equality and some other tender provisions were violated. The Federal Court ruled that it would be possible to cancel a tender decision even after the signing of a contract with the company to which the contract was awarded; however, this would not affect the validity of the private law contract previously executed, and it would only be important in terms of the damages to be claimed by the company, which was not awarded with the contract[4].

The ruling of the Federal Court dated June 26, 2000 related to Basel Canton awarding to a consortium the construction work of a tunnel (Chienbergtunnel), at a length of 1735 meters on a motorway, with an approximate contractual value of 105 million of Swiss Francs. Upon a cancellation request lodged by the other participant companies  in the tender on the grounds that the tender decision was in contradiction with law, the matter was brought before the Federal Court.  The High Court ruled that it is possible to file a lawsuit for the cancellation of the administrative decision after the administration had signed a contract with the company to which the contract was awarded;  however, the validity of the private law contract previously executed would be maintained even if the tender decision of the administration was ultimately cancelled.[5]

There are several other Swiss Court decisions in which the same principles are accepted.[6] The common feature of all of these decisions is that they contain determinations that cancellations related to the tendering stage of an act would never affect the validity of the private law contract executed by the administration at the second stage.

The same approach is also accepted in the Swiss legal literature. The famous Swiss scholar, GAUCH, in his well-known book titled “Construction Contract” makes the following comments with relation to private law contracts to which the administration is a party:

“It is necessary to emphasize from the point of view of private law that a contract once executed (second stage) cannot be dismissed by the cancellation of the administrative act (first stage) that forms the basis of the matter.  In addition, as provided by Art. 20 of the Code of Obligations, even the execution of such contract in violation of the rules of the public bid is not grounds for invalidation. The existence of a contract is only affected by the cancellation of the tender decision if the matter is agreed by the contractual parties to as a condition (both in overruling and delaying nature).”[7]

Almost identical statements are included in the author’s book entitled “Swiss Code of Obligations, General Provisions” [8]. This author in various other studies on the matter indicated that the basis of the “stabilitas contracti” would be valid; put another way, the cancellation of an administrative act would not eliminate the validity of an already signed private law contract, and that a breach of administrative law at the tendering stage would not invalidate the private law contract already executed according to Art. 20 of the Code of Obligations, and further emphasized that it might be possible for the administration to envisage a probable cancellation decision to be made at an administrative court as an overruling or delaying condition in the private law contract.[9].

Almost identical statements are included in the author’s book entitled “Swiss Code of Obligations, General Provisions” . This author in various other studies on the matter indicated that the basis of the “stabilitas contracti” would be valid; put another way, the cancellation of an administrative act would not eliminate the validity of an already signed private law contract, and that a breach of administrative law at the tendering stage would not invalidate the private law contract already executed according to Art. 20 of the Code of Obligations, and further emphasized that it might be possible for the administration to envisage a probable cancellation decision to be made at an administrative court as an overruling or delaying condition in the private law contract

Other Swiss lawyers, STÖCKLİ[10] and GALLİ/MOSER/LANG[11], pointed out that private law contracts would not be affected by cancellation decisions rendered by the administrative courts, and that problems related to whether the contract was set up as a valid contract, its form, amendment or termination would be determined according to private law.

The same principles have been pointed out by WOLF, another Swiss lawyer, in his study where he investigated the ways to object to tender decisions. This writer has also stated that the cancellation of the tender decision in the cancellation lawsuits to be filed after the private law contract is signed would not lead to the invalidity of the contract and the court would only determine the points where the bidding process that was cancelled contradicted with the law[12].

The legal basis of the two-stage theory in Swiss Law is provided by the second paragraph[13] of Article 32 of the Federal Law related to public tenders (Bundesgesetz über das öffentliche Beschaffungswesen- BoeB) and the 3rd paragraph of Article 9 of the “Federal Law on Domestic Market”[14] (Bundesgesetz über den Binnenmarkt). In both of these provisions, the authorities of the objection commission in the cases where bidding processes are objected to are limited with the period prior to the execution of the contract, and it is stated that the authority of the objection commission are limited to determine the state of contradiction with the law if a contract was already signed. A similar provision is set forth in the 5th paragraph of article 56 of the Turkish Public Tender Law. The position in Turkish law will be separately analyzed below.

It is also accepted in Swiss law that the concession (administrative) contracts cannot be considered invalid due to contradictions to the law during the stage of bidding, but this situation would only provide the opportunity for those who participated in the bidding and were left out to file indemnification cases against the administration.[15]

B.        GERMAN LAW

The above-explained approach is also valid from the point of view of German law. According to principles acceptable under German Law, a private law contract to which the administration is a party can only be invalidated due to reasons of invalidity in that contract itself. The contract cannot be terminated as a result of a matter not within the scope of the contract. Cancellation decisions of administrative courts concerning the tendering stage do not affect the validity of the private law contract executed subsequent to such tender.[16] In addition, it has also been stated in the second paragraph of sub-clause 114 of the “Law Against Restriction of Competition” (Gesetz gegen Wettbewerbsbeschränkungen) that a contract concluded upon a tender decision could not be invalidated afterwards. Increasingly more scholars are supporting the view that goes beyond the two-stage theory in German Law. According to this view, in a private law contract where the administration is a party, it is not only the stage that starts with the establishment of the contract, but also the stage prior to same that is subject to the private law.[17]

C.        AUSTRIAN LAW

It is also accepted in Austrian law that a private law contract cannot be deemed invalid because of an irregularity committed at the tender stage. Irregularities at the tender stage can render the contract invalid only if the provision which is violated expressly states that the contract is invalid.[18] Articles 132 and 273 of the Federal Tender Law (Bundesgesetz über die Vergabe von Aufträgen) dated 31 January 2006 enumerate the events which would render a private law contract invalid.  

D.        ENGLISH LAW

The position in English law is not different from German or Austrian laws on this subject. It is also accepted in English law that the invalidity of a private law contract cannot be claimed because of irregularities committed at the tender stage. Especially in cases where a bid contrary to tender legislation is accepted and a contract is executed with such bidder, the contract so executed would not become invalid even if the tender decision is cancelled based on a challenge brought by the other bidders whose bids were rejected contrary to law. It is accepted that, in such a case, only a compensation may be awarded in favor of the other bidders. (The Public Works Contracts Regulations 1991, art. 32/7).[19]

E.        FRENCH LAW

It is mostly accepted in French law and increasingly more supported by French scholars that a contract subject to private law concluded between the administration and a private law person remains valid despite the annulment of the decree authorizing the conclusion of such private law contract.

The French Council of State established for the first time in 1905 in the Martin Decision that “the lawsuit filed with the request of annulment of a separable administrative act cannot result in the annulment of the contract, but can only result in the annulment of the separable act, if it is illegal.”[20]

The recent precedents of the French Council of State also support this approach.  In the Société Le Yatch Club de Bormes-les-Mimosas dated 1993, the French Council of State held that “… the authority to determine the invalidity of a contract because of the annulment of an administrative act separable from such contract belongs to the judge of the contract…”[21] Also, the French Council of State stated in the M. et Mme Lopez Decision in 1994 that “in contractual relationships, in cases where an administrative act, which authorizes the conclusion of a contract and which is separable from that contract, is annulled, only the parties to that contract can decide to submit that contract to the judicial review of [another judge, namely] the judge of contract [le judge du contrat] for the annulment of the contract itself.”[22] […] “The judge of the contract must appreciate the solidity of the contractual relations and the mutual obligations of the parties.” [...] “the annulment of a separable administrative act does not necessarily force the judge of the contract [le juge du contrat] to automatically declare the nullity of the contract [...] In case of a contract subject to private law, it is difficult to predict the attitude of the private law judge.”

French administrative law authorities also agree with this approach.  POUYAUD pointed out in his book dated 1991 that “the administrative judge which hears a lawsuit for the annulment of an administrative act [le juge de l’excès de pouvoir] cannot annul a contract, but only the administrative act which can be separated from a contract.”[23]  POUYAUD also stated in one of his articles dated 1998 that “the annulment of a separable act by its own does not have any automatic effect on the validity of the contract (Opinion of the French Council of State: EDCE 1989, p. 127). The effect of the annulment on the contract depends on the application of the parties to the judge of the contract.  It is only the judge of contract who can decide upon the invalidity of the contract.”[24]

GAUDEMET also wrote that “the annulment of an administrative act which can be separated from a contract does not have any direct effect on the contract which would remain as a law laid down by the parties [despite the annulment of the separable administrative act].”[25]

G.        DECISIONS OF THE EUROPEAN COURT OF JUSTICE

It is also established by the decisions of the European Court of Justice that the European Union law allows private law contracts to remain valid despite the determination of some irregularities at the tender stage preceding such contract.[26]

III.       TURKISH LAW

The two-stage theory is also applicable in Turkish law. One of the most important indications that the two-stage theory is also accepted in Turkish law is set forth in the Public Tender Law which entered into force on 1 January 2003.

The Turkish public tender system separates the stages before and after the establishment of a contract:  The procedures and principles related to the bidding stage before the conclusion of a contract have been regulated in the “Public Tender Law” no 4734.[27] The stage following the signing of a contract (including the execution stage), on the other hand, has been regulated in another law, namely the “Public Tender Contracts Law” No 4735.[28]  The Public Tender Contracts Law includes principles related to the establishment and contents of the contract. 

The Public Tender Contracts Law is completely based on private law principles. For example, it has been stipulated in the third paragraph of Article 4 of the Public Tender Contracts Law, "The parties to public sector procurement contracts as made under this Law shall have equal rights and obligations.  Any articles contrary to this principle shall not be included in provisions of either the bidding documents or contracts. This principle shall be taken into consideration in any interpretation of this Law as well as its implementation.” In addition, Article 36 of the Public Tender Contracts Law includes the provision,  "Where this Law does not contain relevant provisions, the provisions of the Code of Obligations shall apply.”

As can be seen, the new Turkish Tender Law adopts the two-stage theory. The stage of bidding which is subject to administrative law has been regulated in the Public Tender Law No. 4734, whereas the stage, which starts with the signing of the contract and is subject to the Code of Obligations, is regulated in the Public Tender Contracts Law No. 4735.

There exist a number of provisions that support the two-stage theory in both laws. According to Article 21 of the Public Tender Contracts Law No. 4735, for example, in case it is discovered that a contractor has committed some prohibited actions and behaviors at the tendering stage which is subject to the Public Tender Law No. 4734, this will be considered a reason for termination of the contract at the option of the administration. It even provides the administration with the opportunity, subject to certain conditions, to continue with the work rather than terminating the contract, in spite of such contradiction with the law.[29] This provision clearly demonstrates that not all kinds of contradiction with the law during the bidding stage would invalidate the contract because, even if a lawsuit for cancellation is filed at the administrative court based on these contradictions and the tender is cancelled, this cancellation decision would not automatically lead to the invalidation of the contract. Otherwise, the provision of Article 21 of the Public Tender Law, which has stipulated such legal contradictions as a reason for termination, would not have any sense. In addition, if a cancellation decision made by an administrative court based on such contradictions were to invalidate the private law contract, it would not be possible for the administration to continue with the work even if the conditions stated in Article 21 of the Public Tender Contracts Law existed, since the performance of an invalid contract would not be possible.

A second and more important provision regarding the two-stage theory is provided by the Public Tender Law No. 4734. As examined above in detail, the provisions (Boeb Art 32/2 and Binnenmarktgesetz Art.9/3 in Switzerland; GWB § 114/2 in Germany) which limit the investigative authority of the institutions that decide on the objections to bidding processes at the moment of the establishment of the contract constitute the legal basis for the two-stage theory in Swiss and German legal systems. Similar provisions are also included in the Public Tender Law that regulates the stage before the establishment of a contract: According to Article 55 of the Public Tender Law, the primary authority for addressing the objections regarding the bidding processes before the signing of the contract is the administration that has issued the tender. The placement of such an objection, as a rule, stops the bidding processes and the private law contract cannot be signed before this objection being finalized; if it is signed before the finalization of an objection then such contract would be invalid. In the event this objection is rejected, then an application shall be made to the Public Tender Board. According to Article 56 of the Public Tender Law, “Complaints for objection that are placed after the contract is signed, shall not be taken into consideration by the Public Tender Board.”

By this provision of the Public Tender Law, the legislator has on the one hand provided protection for those participating in the public tender and on the other hand aimed to ensure that disputes related to the bidding process are resolved before the signing of a contract and prevent this issue from being made a subject of dispute after the establishment of a contract to the extent possible. To put it more clearly, the Turkish legislator has clearly separated the stages before and after the establishment of a contract.

The Public Tender Law No. 4734 has stipulated only one incident by which a contract would be considered invalid:  As also stated above, objection to bidding processes stops the process of bidding as a rule according to Article 55 of the Public Tender Law, and the contract cannot be signed before this objection is finalized; if it is signed, then this contract will be invalid.[30]. Apart from this, in order for an irregularity in the bidding processes to lead to the invalidity of the private law contract after the contract is signed, the subject contradiction with the law should constitute a reason for invalidity in terms of the Code of Obligations as well. This is clearly understood from Article 36 of the Public Tender Contracts Law, which has stipulated that “Where this Law is silent on a matter, the provisions of the Code of Obligations shall apply.” The reasons for invalidity according to the Code of Obligations will be examined separately below.

There are also certain scholars who accept that the same principle should be applied to the administrative contracts. Prof. Dr. Metin GUNDAY, in his book entitled “Administrative Law”, makes the following statements with regard to the legal regime that private law contracts executed by the Administration are subject to:

                  “The stage up until the execution of the contract will entirely be subject to Administrative Law. Therefore, the legal forum for the settlement of disputes in this connection would be the administrative courts.

                  ... However, as for the settlement forum of the disputes that may arise at the subsequent stage of the execution of the contract: The area of application of administrative contracts in our country, as we have mentioned above, has narrowed considerably, and since contracts of the administration, apart from public concession contracts and administrative service contracts, are not regarded as administrative contracts, the venue for the legal process and settlement of disputes arising from the implementation of these contracts is accepted to be the civil courts.”[31]

We are not aware of any Turkish Civil Supreme Court of Appeals decision which deals directly with the impacts of an injunction relief or cancellation decision of an administrative court on the validity of a private law contract. However, there are several decisions of the Turkish Civil Supreme Court of Appeals which determine the legal regime applicable to the private law contracts to which the administration is a party. For example, the General Assembly of the Civil Chambers of the Turkish Supreme Court of Appeals, in its decision No. 2001/19-257 E., 2001/285 K. dated March 21, 2001, assessed the validity of a contract, which was executed by the Administration and was subject to private law, on the basis of the provisions of the Code of Obligations[32].

The same principles have been explained as follows in the decision of the 13th Chamber of the Supreme Court of Appeals, dated 9.6.1998 (No. 1998/4614 E. 1998/5241 K.):

“On the other hand, the contract under dispute is a contract that has been concluded according to the build-operate-transfer model as commonly known, that requires the construction of facilities by the respondent on the land that belongs to the claimant, the transfer of these facilities after they are used for a certain period of time and the payment of a rent during this period; rather than being a purely rental contract, it is a joint contract with certain other legal dimensions, which is totally subject to private law provisions from the very moment it is signed. For this reason, it is clearly apparent that the claimant administration would not have the right to unilaterally terminate such a contract and for the same reason, administrative courts could not have jurisdiction related to the disputes arising from this contract. In this situation, there should be no doubt and hesitation that the decision taken by the claimant administration for the cancellation of the bid would not cause any legal consequences to arise in relation to the contract under dispute. In fact, the filing of this law suit for the cancellation of the contract by the claimant in spite of the termination decision is an indication that the claimant also accepts the fact that the termination decision cannot legally terminate this contract between the parties. The grounds of the court claiming that the contract between the parties has been automatically invalidated since the respondent has not applied to administrative courts against the termination decision taken by the claimant is not appropriate for this reason.

Finally, withdrawal from this contract with this case that is filed after the bidding procedure was realized and the contract in dispute was signed between the parties and after a period of almost two years has passed is both against the principle of good faith expressed in Article 2 of the Civil Law and in the true nature of violating the principle of the continuity of the administration. Reliance of people on the implementation of the contracts signed with administrative organs until the end under the terms and conditions that were valid during the time of their signing without being affected by the administrative changes that could arise later on is one of the primary requirements of the state of law principle that is provided in the Constitution. A state governed by rule of law makes laws and ensures that these rules are obeyed, but beyond that, it primarily obeys these rules itself with great care. The request of the cancellation of a contract, which was signed in compliance with the law by the administrative organs of the administration at a certain time, by the persons and organs who have taken over the duty afterwards, leaving aside the dominating principle in our legal system that contracts are binding (pacta sund servanda), is against this very principle. In the current matter under dispute, the request for cancellation based on inconsistencies which are claimed to be caused by the respondent during the processes before the contract, and the existence of which is claimed to be known or required to be known by the respondent and which cannot be proved, after the respondent started the construction in compliance with the contract and its project believing that the contract signed would be executed with all its requirements and 35 % of the construction of the facilities have been completed and a certain amount of expenses have been made as stated in the expert report prepared as a result of the investigation, is against the principles of good faith and state governed by rule of law explained above[33]

It was stated in the summary section of the decision of the 15th Civil Chamber of the Supreme Court of Appeals, dated 17 June 1997, “Even if the cancellation lawsuits regarding the tenders realized according to the Public Tender Law are resolved in administrative courts; the disputes arising from the work contracts signed as a result of the bidding procedures are settled in the civil courts” and the following statements were provided:

 “At the stage before the work contract is signed, the place of settlement of the disputes related to the cancellation of a tender, between the administration and those who have participated in the bidding process is the administrative court.

However, in the current matter under dispute, there is a work contract, which was signed according to the provisions of private law between the parties after the bidding process. The place for the settlement of all disputes arising from work contracts is the civil court.[34]

The decision of the 15th Civil Chamber of the Supreme Court of Appeals dated 22 December 1994 stated as follows:

 “Following the signing of the contract by the parties at the notary public, it has been decided that the contract is terminated by the Municipality based on the irregularities during the realization of the bidding process. No other causes attributed to the contractor have been claimed. In addition, no warnings have been notified claiming the default of the claimant. In this situation, it has been accepted that the Municipality is in default in the cancellation of the contract, and therefore, a decision regarding the loss of profit request of the claimant must be made.[35].

The Court of Jurisdictional Disputes, which is a supreme court embodied with the duty of settling the conflicts of jurisdiction arising between the civil and administrative courts in the Turkish legal system also stated the following with respect to the legal regime, which the private law contracts where the administration is a party are subject to, in its decision dated 21.6.1999 No. 1999/8 E. 1999/17K.:

“Just as the administration can make private law contracts as private legal personalities, it can also make contracts that are different from private law contracts in terms of their subjects, provisions and conditions, based on the superiority and privileges given due to its public authority and these contracts based on administrative law principles are named as “administrative contracts”. Even though the contracts made by the administration by using its general capacity and observing the freedom to enter into contracts and the equality of the parties are completely subject to private law provisions and therefore their judiciary review is realized by civil courts; as stated in article 2/1-c of Law no 2577, where types of administrative cases have been listed, administrative courts will be assigned to hear to and settle the disputes arising from administrative contracts made with the aim of “the performance of one of the general services” and based on the superior public rights and authorities.[36]

It is worth mentioning that the two-stage theory does not mean that the stage before the establishment of a contract would not count at all in private law contracts where the administration is a party and that a contract would be valid whatever the type of the contradiction. Within the framework of the two-stage theory as well, the situations of contradiction with the law that could arise before the conclusion of a contract will also be taken into consideration when examining whether the private law contract is valid or not. While making this evaluation, it is possible for the judges to take into consideration the administrative court decisions taken with regard to the stage of bidding or make them subject to discussion again. However, the meaning of the two-stage theory is that the situation that arises due to the contradictions to law that occurred at the stage before the conclusion of a contract or because of the cancellation decisions taken by administrative courts will be assessed according to the rules of private law and in particular the provisions of the Code of Obligations. In order for a state of contradiction to the law that occurred before the conclusion of a contract or a cancellation decision taken to cause the invalidity of the private law contract, they should constitute a reason for invalidity in terms of Articles 19 and 20 of the Code of Obligations[37] as well. The meaning of qualifying a contract as a private law contract is that both the validity conditions and the execution and termination of such contract will be entirely subject to private law, i.e., the Code of Obligations. If it were accepted that a cancellation decision made by an administrative court would automatically invalidate the private law contract without any regard to whether it is a reason for nullification in compliance with Articles 19 and 20 of the Code of Obligations, the characterization of the subject contract as a private law contract would not make any sense.

A private law contract where the administration is a party does not have anything different from a normal private law contract;

“Procurements for public needs are always realized through a contract signed between the owner and the undertaker of the work. The condition that the conclusion stage of this contract is subject to public tender process will not change the fact that it is a private law contract. The title «Public» only stands to mean that the administration contracts the work and is a party of the tender contract. Especially the conclusion, form, amendment and termination of the procurement contract are realized according to the private law rules to be applied. Ordinary civil courts are authorized to settle the disputes related to the contract.” [38].

III.       CONCLUSION

There are two stages for the contracts where the administration is a party. The first is entirely subject to the rules of administrative law. A subsequent cancellation decision of an administrative court concerning this stage does not affect the second stage; namely, the validity of the private law contract. The retroactive effectiveness of a cancellation decision, which is a principle of administrative law, can only affect the tendering stage which is subject to administrative law. A private law contract cannot be invalidated based on a retroactive effect of the cancellation decision. To argue that a cancellation decision made in the administrative court causes the invalidation of a private law contract as a result of a retroactive effect is not compatible with the separation of public and private laws. The authorization to make a decision on the validity of a private law contract does only belong to the civil courts. Otherwise, by accepting that a private law contract shall become invalid by asserting the retroactive effect of the cancellation decisions, the administrative court authorities end up rendering binding decisions on private law relationships. However, there is full consensus both in doctrine and case law on the lack of authority of the administrative court in rendering decisions on the validity of private law contracts.

As a consequence, the administration’s being one of the parties of a private law contract does not change the characteristic of such contract as a private law contract or the legal regime it will be subject to.[39] In cases where the administration makes contracts with private law persons, only the bidding process prior to the signing of such contract is subject to administrative law. The conclusion, implementation and termination of such contract, however, are subject to the private law rules, in particular, the Code of Obligations, similar to any other private law contract.

 

[1] Examples of decisions in this regard may be seen in the decisions of the Supreme Court of Appeals General Assembly of the Unification of Jurisprudence: Decision 1950/10, Case 1950/5 dated 20 September 1950; Decision 1955/2, Case 1952/22 dated 9 March 1955; and Decision 1957/3, Case 1957/1 dated 27.3.1957.

[2] Zuleeg, M., Zweistufige Rechtsverhältnisse bei der Vergabe öffentlicher Aufträge?, NJW 1962, p. 2231 vd.; Gauch, P., Der Werkvertrag, 4.Aufl., Zurich 1996, Nr.512: Gauch/Schluep/Schmidt, Schweizerisches Obligationenrecht, Allgemeiner Teil, Bd.I, 8.Aufl., Zürich 2003, Nr. 1072.

[6] For example, Decisions of the Swiss Federal Court dated November 30, 2006 (Dosiernr. 2P.136/2006 /zga), ground 1.2; dated February 6, 2006 (Dosiernr. Dosiernr.: 2P.202/2005 /vje), ground 1.2; dated December 8, 2005 (Dosiernr. 2P.184/2005/bie), ground 1.1; dated February 11, 2005 (Dosiernr. 2P.189/2004 /ast), ground 1.1;dated July 13, 2004 (Dosiernr. 2P.11/2004), ground 1.2; dated July 12, 2004 (Dosiernr. 2P.14/2004), ground 1.2; dated July 7, 2004 (Dosiernr. 2P.1/2004), ground 1.2; dated February 25, 2004 (Dosiernr. 2P.214/2003), ground 1.2; dated February 6, 2004 (Dosiernr. 2P.176/2003), ground 1.1; dated October 29, 2003 (Dosiernr. 2P.161/2003), ground 1.2; dated September 9, 2003 (Dosiernr. 2P.47/2003), ground 1.2; dated July 11, 2003 (Dosiernr. 2P.282/2002), ground 1.2; dated February 20, 2003 (Dosiernr. 2P.226/2002), ground 1.1; dated May 30, 2000 (Dosiernr. 2P.151/1999), ground 2.b; and dated March 3, 2000 (Dosiernr. 2P.222/1999), ground 2.b. The full texts of such decisions are available at http://www.bger.ch/index/jurisdiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm.  

[7] Gauch, P., Der Werkvertrag, 4. Aufl., Zürich 1996, Nr.512.

[8] Gauch/Schluep/Schmidt,  Schweizerisches Obligationenrecht, Allgemeiner Teil, Bd.I, 8. Aufl., Zürich 2003, Nr. 1072.

[9] See Gauch, P., Das neue Beschaffungsgesetz des Bundes,  ZSR 114, 1995 I, p.330-332; Gauch, P, Das öffentliche Beschaffungsrecht der Schweiz, Ein Beitrag zum neuen Vergaberecht,  recht 1997, p. 173; Gauch, P, Vergabeverfahren und Vergabegrundsätze nach dem neuen Vergaberecht des Bundes, Baurecht 1996, p.104-105.

[10] See. Stöckli, H., Bundesgericht und Vergaberecht, Baurecht 1/2002, p.4.

[11] Galli/Moser/Lang,  Praxis des öffentlichen Beschaffungsrechts, Zürich 2003, Nr. 529.

[12] Wolf, R., Die Beschwerde gegen Vergabeentscheide - Eine Übersicht über die Rechtsprechung zu den neuen Rechtsmitteln, ZBL(Schweizerisches Zentralblatt für Staats- und Verwaltungsrecht)  104/2003, p.16 and 28.

[13] The original German version of this provision is as follows: “Erweist sich die Beschwerde als begründet und ist der Vertrag mit dem Anbieter oder der Anbieterin bereits abgeschlossen worden, so stellt die Rekurskommission lediglich fest, inwiefern die angefochtene Verfügung Bundesrecht verletzt.”

[14] The original German version of this provision is as follows: “Erweist sich ein kantonales Rechtsmittel oder eine staatsrechtliche Beschwerde im Bereich des öffentlichen Beschaffungswesens als begründet und ist mit der Anbieterin oder dem Anbieter bereits ein Vertrag abgeschlossen worden, so stellt die kantonale Rekursinstanz oder das Bundesgericht lediglich fest, inwiefern die angefochtene Verfügung Bundesrecht verletzt”.

[15] Kunz, D., Verfahren und Rechtsschutz bei der Vergabe von Konzessionen, Bern 2004, p. 349 and p. 367/368.

[16] See Boesen, A., Vergaberecht, Kommentar zum 4. Teil des GWB, 1. Aufl., Bonn 2000, p. 24; Lötzsch/Bornheim, Zivilrechtliche  Rechtsfolgen bei Nichtbeachtung der neuen Vergabevorschriften der VOB/A durch private Auftraggeber, NJW 1995, p. 2136; Vygen, K. Einleitung zur Verdingungsordnung für Bauleistungen (VOB), in: Heinz Ingenstau /  Hermann Korbion VOB- Teile A und B, Kommentar, Herausgegeben von Horst Locher und Klaus Vygen 15., völlig neu bearbeitete und erweiterte Auflage 2004, Nr.46.

[17] Boesen, Einl. Rnr. 3 (p. 24) and other writers referred to therein in dn.2; Vygen, Nr.35;  Kunert, O,  Vergaberecht und öffentliches Recht, Köln/Berlin/Bonn/München  2003, p. 6 and other writers referred to therein in dn.41; Pietzcker, J., Die Zweiteilung des Vergaberechts, 1. Aufl., Baden-Baden 2001, ps 18;  Pietzcker, J., Die neue Gestalt des Vergaberechts, ZHR 162 (1998), p. 456/457;  Pietzcker, J., Änderungen des Rechtsschutzes bei der Auftragsvergabe, Festschrift für Redeker, München 1993, p. 505

 [18] Priess, H. J., Handbuch des europäischen Vergaberechts, Köln/Berlin/München 2005, p.464.

 [19]  İbid., p.75.

[20] C.E., 4 August 1905, Martin, A.J.D.A., Rec., p. 749.

[21] C.E., 1 October 1993, Société Le Yatch Club de Bormes-les-Mimosas, A.J.D.A., 1993, p. 810.

[22] C.E., 7 October 1994, M. et Mme Lopez, A.J.D.A., 1994, p. 867.

[23] Pouyaud, Dominique, La Nullité des Contrats Administratifs (The Nullity of Administrative Contracts), Paris 1991, p. 321.

[24] Pouyaud, Dominique, La Sanction de l’irregularite dans la passation d’un marché, Juris-Classeur, Droit administrative, Chroniques, No 7, Avril 1998, p. 4-7.  The Opinion of the French Council of State referred to in that article of POUYAUD states that: “the annulment of  separable administrative act does not have any direct effect on the contract which remains as a law laid down by the parties.” Opinion C.E. 25 January 1989, EDCE 1989, p. 127.

[25] Gaudemet, Yves, Traité de Droit Administrative (Analysis of Administrative Law), Paris 2001, 16th Edition, Vol. 1, p. 477.

[26] EuGH Rs. C-81/98, Alcatel Austria, Slg.199, I-7671, Nr.37; also see Priess, H. J., Handbuch des europäischen Vergaberechts,Köln/Berlin/München 2005,  p. 301.

[27] For full text of this law in English see http://www.kik.gov.tr/ihalemevzuat/english/english4734.htm 

[29] The full text of article 21 of the Public Tender Contracts Law is as follows:

“In case it is discovered after the contract is signed that the contractor committed actions and behaviors that are prohibited according to the Public Tender Law during the stage of the bidding, the performance bond and additional performance bonds, if there are any, shall be recorded as revenue, the contract shall be terminated and its accounts will be liquidated in compliance with the general provisions.

However, provided that at least 80 % of the commitment has been completed or if there is public interest in the completion of the commitment and on condition that;

a) There is not enough time for the re-tendering of the remaining part of the commitment due to its urgency,

b) It is not possible to contract the commitment to another contractor,

c) The prohibited action or behavior of the contractor is not in the nature of preventing him/her from completing the commitment,

The administration may request the completion of the commitment from the contractor, without terminating the contract and in this case, the contractor shall be obliged to complete the commitment. However, in this situation, legal proceedings shall be initiated against the contractor in compliance with the provision of article 26 and a fine at the amount of the performance bond and additional performance bonds, if there are any shall be collected from the contractor. This fine may also be collected by way of deducting from the deserved contract payments.”

[30] A provision in the same direction is also included in  § 13 of the Public Tender Contracts Law (“Verordnung über die Vergabe öffentlicher Aufträge”). In Swiss law, it has been stipulated in the second paragraph of article 28 of the Federal Law of Public tenders that the objection commission could decide to stop the bidding process upon the application of the party, which objected to the bidding processes, however, there is no provision regulating whether a contract made in spite of such a decision would be valid or not. This situation has led to conflicts in Swiss law.: St. Gallen Administrative Court has decided with the decisions dated 28.08.2003 and 30.10.2001 that if the administration makes a contract with one of the firms that participated in the tender in spite of the decision in the direction of stopping the bidding process, this contract would not be considered as invalid.; for these two decisions see, Vgr. SG 28.08.2003(B2003/67), BR 4/2003, p.160; Vgr. SG 30.10.2001; GVP SG 2001, paragraph 22, p.71; BR 4/2003, S.160. On the contrary, Gauch defends the idea that the contract made in spite of the stopping of the bidding process would be invalid for both parties and the subject contract would only become valid if an opportunity to make the contract arises; see, Gauch, P., Der verfrüht abgeschlossene Beschaffungsvertrag, BR, 1/2003, p.7; the same writer, Zuschlag und Verfügung, Ein Beitrag zum öffentlichen Vergaberecht, Festgabe Thomas Fleiner, Fribourg 2003, p.604/605.

[31]  Gunday, M., Administrative Law, Revised 5th Edition, Ankara  2002, p.191/192

[32] The Supreme Court has concluded that the dispute is not within the jurisdiction of the judicial court according to the provisions of the Code of Obligations because the contract was not concluded, see YKD [Journal of the Supreme Court Decisions] 2002/3, p.355 et seq.

[33] See the decision of the 13th Civil Chamber of the Supreme Court of Appeals dated 9.6.1998, File no. 1998/4614,  Decision no. 1998/5241 (see Kazanci Jurisprudence Data Bank for the decision)

[34] See the decision of the 15th Civil Chamber of the Supreme Court of Appeals dated 17.06.1997, File no. 1997/2847, Decision no. 1997/3122 (see Kazanci Jurisprudence Data Bank for the decision)

[35] See the decision of the 15th Civil Chamber of the Supreme Court of Appeals dated 22.12.1994, File no. 1994/2169, Decision no. 1994/7804 (see Kazanci Jurisprudence Data Bank for the decision)

[36]  Decision of the Legal Department of the Court of Jurisdictional Disputes dated 21 June 1999, File no. 1999/8,  Decision no. 1999/17 (see Kazanci Jurisprudence Data Bank for the decision)

[37] Articles 19 and 20 of the Code of Obligations read as follows: Determination of Contents - Article 19.  The contents of a contract shall be determined freely within the limits of the law.

Contracts containing arrangements differing from the legal provisions are only valid in cases where the law lays down no invariable rule, or if the differences do not offend against public policy, moral values or individual rights.

Nullity - Article 20.  Where the content of a contract is impossible or illegal or contradicts the moral values, such contract is null and void.

But if the objection applies only to single parts of the contract, then the invalidity only extends to those parts. But if it appears that the contract would not have been executed without these, contracts are considered to be null and void.”

[38] Stöckli, H., Das Vergaberecht der Schweiz, Überblick, Erlasse, Rechtsprechung, 6. Auflage, Zürich 2004, p..492; see also BGE 125 I  212/213.

[39] BGE 125 I  212/213.