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  1. Introduction

EPC contracts is the shortened version of Engineering, Procurement and Construction. EPC contracts are used in construction works. The firm of constructor is responsible of every stage of the project from design, construction, building-up and deliver and the employer is responsible for the payment. EPC contracts are standard contracts for Turnkey contracts. These kinds of contracts involve predictable and negotiable principle and help to decrease the risk in the construction sector. The EPC contracts contain everything from preparation the contract, construction till the delivery to the employer. EPC contracts usually apply for power plants, industrial and process plant construction and other highly complex plants and facilities. EPC contracts usually use for complex design contracts with construction subcontracts and purchase order agreements for complex plant equipment. Such as power plant, food processing equipment, water filtration systems.

  1. Scope of EPC Contracts

EPC contracts provide to the employer many facilities; For example, the employer receives the construction with finished work and expense, therefore EPC contracts are sometimes called turnkey construction contracts. On the EPC contracts which are prepared for turnkey projects the contractor is responsible for the designing and construction. All the responsibility is on the shoulder of contractor for a certain sum. The main purpose is for employer to turn the key and activate the plant after completing and handing over the construction. The liabilities of the contractor is finalised after testing of the delivered plant, providing the staff needed and educating them.  

One of the most immense advantage of the EPC contracts is the constructor is the only person who is legally responsible of everything about the contract in front of employer. The general rule is the contractor’s obligations are with the scope of EPC contracts and every stage of the work about every negligence, mistake and defect. The whole project’s responsibility is on the contractor therefore when some inaccuracy occurs there is no need to investigate is the negligence from project or construction of the building. The employer does not liable to engage in subcontractors’ liabilities to engage with just contractor besides the contractor is obligated to manage all the relations with subcontractors. Be able to do every scope of the work gives to the constructor to control efficiently construction costs.

The employer is responsible to pay the contract price but employer’s obligation is not just to pay contract price. These kinds of contracts are usually about construction of plant therefor employer has other obligations before the beginning and after completion of construction. Such as obtaining the building license, obtaining permissions from the administration to bring the necessary water, energy or gas to the construction zone and making the contracts and if it is a production plant meet the raw material requirement.

EPC contracts have the following stages as:                                                                                                                                              

–1st stage is: To make plans and projects about the construction; Provide the supplies and to deliver the completed plant. The contractor can provide the plans and project or can use an architect. Also in these contracts employer can provide the design and plans if the parties agree. Contractors have full control on design, procurement and construction of the project from beginning till the end.

At this stage contractor must plan the construction and provide all the production required such as machines and other operating vehicles and all the construction materials. Thus, constructor should identify all the management and engineering work, all the necessary construction materials, the personnel requirement for the construction for the establishment of the relations of purchase and sale. The contractor should also provide necessary infrastructure for the construction; water and electric installation for the plant.

The employer is obligated to get all the permissions from authorities before starting the construction and to make the all the arrangements needed for the requirements.

–2nd stage is: To make trial to test the plant and procure the staff for to work at the plant, and educate the staff. If the contractor guarantees the plant will acquire product, contractor will be able to entitle the contract price after these stages.

 In the situation where the EPC contract requires contraction of massive plant, the contractor should provide needed personnel and their education after the completion of plant. The contractor not just provide the personnel, who will be used to operate the plant, but with a clause on the contract also provide the education of them with seminars.

– 3rd stage: Contractor will be able to entitle the contract price after these stages. The employer is not obligated to pay the contract price if the the plant is not completed or is not working properly.  

EPC contracts provide:

– Responsibility: With EPC contracts the problems like in the decomposed contract to identify the responsible one between the supplier, sub-contractor and engineer can be avoid and reduce the risk to lose money and time. The contractor is the only person who is responsible for everything of the scope of work.

– Contract price: The contract price is fixed so like the other decomposed contracts the constructor can not increase the price. The risk of exceedance of budget will be disappeared addition EPC contracts bring an economical confidence to the employer.

– Completion date: With the EPC contracts the completion date is guaranteed. If the work is not done on the time the contractor is liable for all the damages rising out of such an action. The damages determine by the contract.  

– Performance: If the parties decide to put a clause into contract about the efficiency and performance, the constructor will be liable for all the damages caused after the plant was delivered and began to work.

– Security: If the contractor does not comply his obligation EPC contract provides a guarantee as:

  • Advance payment guarantee, if an advance payment is made.
  • A bank guarantee for a percentage, normally in the range of 5–15%, of the contract price.
  • A parent company: If the contractor does not fulfil its obligations the parent company will perform instead.
  • A penalty: If parties are agreed on and putted a clause in the contract.
  • A lump sum indemnity

– Intellectual property: The contractor must have all the licenses needed for the construction. If some damage occurs about licenses the contractor company guarantees recompense all the damages.

CONTRACT OF WORK

            The contract of work is defined in the article 470 of the Turkish Code of Obligation numbered 6098 dated 11 November 2011(the “TCO”)  as a contract which contractor undertakes to create a work and the employer undertakes to pay the contract price. The context of contract of work is not just about creation or constraction of an ordered object but also it’s about maintenance and repair of an object or an instrument or a motor vehicle or maintenance and repair of electrical, water and heating installations in buildings production of a project and plan; it contains all the works which can perform independent, without the command of the employer. The contract of work is a contract that imposes a debt on two parties. The contractor can fulfill his obligation without supervision of employer.

The price of the worked referred within the contract is a fundemantal part of the contract. The parties can decide on the price as lump-sum fee or approximate price. In the judgement of Supreme Court in 2017 from the term “approximately” must be understood to make the calculation according to the current market rates of the year. ( 5th Civil Chamber of the Supreme Court’s decision dated 07.03.2017 and numbered 2016/883 case numbered 2017/986 )                                  

WHAT DOES THE CONTRACTOR AND SUBCONTRACTOR MEAN?

The obligor is not obliged to fulfill the o in person unless the creditor has interest in the execution of the debt by the debtor himself. With this rule 3rd party can fulfill the debt in place of the debtor[1]. The parties may add to the contract that the debt shall be fulfilled by the debtor himself. If there is a clause on the TCO which the debtor must fulfill the debt himself also parties can add to the contract contrary clause. In contract of work

The contractor’s personal performance debt occurs when the creation of the work is strictly dependent on the contractor’s ability or dexterity. It is clear that the contractor is personally responsible for the performance of the work contracts, which are made considering the special professional knowledge of the contractor, his confidence in his personality and his reputation.[2] In the work contract, the contractor’s artifact in the form of the creation of the debt as a rule of the debtor has accepted the nature of the person.[3]

The work can be made to 3rd party under supervision of contractor. On the other hand, in cases where the personal qualities of the contractor do not matter, the work can be made to a 3rd party. This person whom the contractor makes an agreement on his own name and account is called subcontractor. Subcontractor is an independent and self-emploeyed assistant in which the work was partly or wholly transferred.

Subcontracting contracts are seen in the construction sector in general and in the realization of large construction projects. The expertise of different persons may be needed to properly execute construction contracts, which require large areas of expertise, such as metro, stadiums, dams, shopping centers and hotels. For the contractor it is impossible to finish the work alone. For this reason, the contractors choose to have some or all of the work to get done by other persons who are experts in their field with a subconracting agreement.

If the principal contractor has transferred the work to the subcontractor without authorization, this behavior is considered as a positive violation of the contract and also due to the damages caused by the subcontractor to the principal business owner.[4] In this situation the contractor is in an employer position of the subcontractor.

  1. RESPONSIBILITY OF CONTRACTOR AND SUBCONTRACTOR

The contractor is obliged to do the work with loyalty and care. If the material is provided by the employer, the contractor is obliged to use them with due diligence and therefore return the account and surplus.In the event that the contractor acts in contradiction with the loyalty debt, compensation of the damages arising from this reason may be requested even if the contract is executed and delivered. If it is clear that the contractor will not be able to finish the work at the agreed time because of the failure of the contractor to start the work in time or to delay the work contrary to the provisions of the contract the employer may return from the contract without having to wait for the day specified for delivery.

It is contrary to the TCO to hand over of all the construction work which is undertaken by the principal contractor to a general subcontractor. The employer choose the contractor base on certain peculiarities; in that reason it would be unfair to have the contractor transfer all the work to a single subcontractor despite this will of the business owner. Therefore if the main contractor leaves some or all of the production of the work to the subcontractor, the business owner shall therefore have the right to terminate the work contract.

If the employer is authorized to give orders and instructions to the contractor to control and supervise the work, the employer is responsible for damages. Therefore if the employer is not authorized, can not be held responsile because the relation between the employer and the contractor is independent. The contractor is obligated to finish and hand over the work. The contractor does not give order just makes an agreement for construction and waits its to be done.

The contractor ( For the employees whom works for him. It’s a service contract) is obliged to take all the precautions in the workplace and to ensure the supervision in this regard according to the labor health and safety legislation. The contractor is not responsible for the damages which occured to the employees or to the 3rd party.

If the contractor makes the work done by the assistants under his supervision, the contractor is responsible for the actions of his assistants. Subcontractor is independent but also an assistant person. Therefore, the main contractor is responsible for the actions of the sub-contractor and his staff. The subcontractor does the work in the service works on behalf of and under the contractor but between them rule of contract of work is valid.

  1. REFERENCES
  • Personal Performance Duty of the Contractor in Construction Contracts – Yard. Doç. Dr. Mehmet Özgür Avcı
  • Works Agreement (Construction, Maintenance, Repair And Contract Agreements) – Çelik Ahmet Çelik

Circumstances That The Employer Can Be Responsible With The Contractor In Articles Of Contract – Çelik Ahmet Çelik

  • Relation Between Employer Subcontractor Contractor – Burak Tuna
  • Subcontractor in Turkish Law – Burak Tuna
  • Work Contract and Adaptation of Work Contract – Özşen Law firm
  • The Obligation of Starting Work and Continuing of the Contractor According To the Article 358/1 of Law of Obligations – Özge Yücel
  • Evaluation of Personal Performance of the Contractor in the Construction Contract and the Exceptional of Personel Performance of the Contractor – Elce TUTAR

[1] In the Turkish Code of Obligations (Provisions of the Debt Relationship) (Execution of Obligations), TCO clause 83, it is regulated in which case it is not obligatory for the debtor to perform it personally.

[2] Article 83 of TBK

[3]“TCO” article 471/3: “The Contractor is obliged to make the work to be created directly or to have it done under his direction.

[4] “TCO” article 12

The most preferred corporate entity types, especially by the foreign investors, are joint stock corporations (“JSC”) and limited liability partnerships (“LLP”). 

 

Key features

JSCs

LLPs

 

Application and Registration

Competent       Trade    Registry

Offices

Competent       Trade      Registry

Offices

 

Term

Definite or Indefinite term

Definite or Indefinite term

 

Minimum Capital Requirement

Minimum TRY 50,000

Minimum TRY 10,000

 

Minimum/Maximum Number of Partners/Shareholders

 

Minimum one shareholder No limit for maximum number of shareholders[2]

Minimum one shareholder

Maximum 50 shareholders

 

Nationality of the Partners/Shareholders

No restriction on nationality

 

No restriction on nationality

 

 

Corporate Bodies

General assembly of shareholders and board of

directors

General           assembly          of

shareholders and managers

 

  

Managed by board of directors

Managed by managers

 

  

Represented by joint signatures of any two board members, unless otherwise is determined

Represented by joint signatures of any two managers, unless otherwise is determined

 

  

Delegation of representation authorities by board members is possible

Delegation of representation authorities by managers is possible

 

 

At least one board member must be authorized to represent and bind the company

At least one shareholder must be appointed as a manager and must be authorized to represent

and bind the company

 

  

No requirement to have a

Turkish citizen board member

No requirement to have a

Turkish citizen manager

 

 

Liability of Board of Directors/Managers

Liability regarding representation and management of the company

Joint and several liability for public receivables

Liability regarding representation and management of the company

Joint and several liability for public receivables

 

 

Liability of Shareholders/Partners

  

Limited to capital undertaking

Limited to capital undertaking, except for public debts (i.e. taxes, social security, etc.) for which the shareholders are liable pro rata to their shareholding percentages

 

 

Classes of Shares

Preferred share is allowed

Preferred share is allowed

 

 

Types of Shares

Registered shares and bearer shares

Only registered shares

 

 

Transferability of Shares

Unrestricted, unless otherwise determined under the articles of association

Unrestricted, unless otherwise determined under the articles of association

 

 

  

Share transfer process is simpler in JSCs compared to LLPs.

For registered shares, endorsement of share certificates and registration with the share ledger is required.

For bearer shares, delivery of the relevant share certificate suffices. However, the share transfer must be recorded in the company’s share ledger in order for it to be valid before the company.

A share transfer agreement must be signed before a Turkish Notary Public and a general assembly of shareholders resolution for the approval of the share transfer must be adopted.

The share transfer must be recorded in the company’s share ledger.

 

  

No need for registration with the trade registry

Must be registered with the

trade registry  

 

Profit Transfer and Taxation

Profits can be transferred abroad subject to certain tax implications

Profits can be transferred abroad subject to certain tax implications

 

Public Offering

Possible

Not Possible

 

The Presidency of the Republic of Turkey issued a new Presidential Decree, Amending Decree No. 32 on the Protection of the Value of Turkish Currency.
This Decree was published in the Official Gazette dated 13 September 2018 and has entered into force and introduced new regulations regarding the transactions over foreign currency between Turkish residents.
Pursuant to the Amendment, Turkish residents acting as party to below contracts with other Turkish residents are prohibited to use foreign currency:

  • All types of movable and real property lease agreements, including vehicle lease and financial lease, and leasing agreements, employment and service agreements and contracts of work and,
    all other payment obligations arising from above agreements.
  • The parties who have entered into an agreement falling into the scope of above prohibitions before the effective date of the Decree, are obliged to convert the foreign currency amounts into Turkish currency in 30 days starting from 13 September 2018.
    At this stage, it is expected that there will be a clearer picture in terms of the implementation of the Decree with the new regulations and clarifications in the coming days.Please bear in mind that fines stipulated in the Law on Protection of the Value Turkish Currency numbered 1567, may have implied to the one who fails to comply with the decree.

Branch Office;
• Closely associated with the principal company,
• May pursue commercial activities and carry out the business of the principal company,
• Has autonomous capital and accounting, but the principal is liable for all debts of the branch office,
• Must be registered with the Trade Registry,
 Is regarded as non-resident entity and deemed a limited taxpayer. 
Liaison Office;
 Is closely associated with the principal company,
• Cannot pursue commercial activities,
• Can provide “representation” and “relationship management” for the principal’s Turkish customers and suppliers,
• Can be established with a permission from the Ministry of Economy,
• Must be registered with a tax office, although it has no commercial activity.

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