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What statutes or regulations govern procurement of defence and security articles?
The Turkish Public Procurement Law (the Law) is the principal document regulating defence procurement in Turkey. Article 3(b) of the Law refers to:
- goods, services and works procurement that the relevant ministry decides are related to defence, security or intelligence, or should be treated confidentially; and
- procurements requiring special security measures during the performance of the contract pursuant to related legislation, or those concerning cases in which the basic interests of the state’s security need to be protected.
Article 3(n) of the Law refers to goods and services procurement through agreements and contracts, allowing guarantees in advance in order to ensure the provision of urgent requirements that are likely to come up in cases involving defence, security and humanitarian aid issues. Such requirements may arise from either international obligations or for national purposes, and exempt the Law in order for defence procurement to be applied in a fast and effective manner.
This provision constitutes the basis of directives for each relevant institution, such as the Ministry of National Defence, the Ministry of the Interior, Service Commands, the Undersecretariat of the Ministry of Defence, the Mechanical and Chemical Industry Corporation and the defence procurement programmes through the NATO Support and Procurement Agency and the Foreign Military Sales programme.
How are defence and security procurements identified as such and are they treated differently from civil procurements?
The Law on Control of Private Industrial Enterprises Producing War Weapons, Equipment, Vehicles and Ammunitions and Explosives (Law No. 5201) and the Defence Industry Security Law (Law No. 5202) are the principal documents regulating the Turkish defence industry. They set forth the legal framework for all classified military agreements, information, documentation, projects, purchases, sales, manufacturing, research and development, storage of material or services, and allow facilities to conduct activities related to the defence industry, excluding staff of and facilities belonging to the Turkish armed forces.
How are defence and security procurements typically conducted?
Law No. 3238 defines the government mechanism of defence and security procurement as it gives the following responsibilities:
- the Defence Industry High Coordination Council: planning and coordination;
- the Defence Industry Executive Committee: decision-making; and
- the Presidency for Defence Industries (SSB) and the Defence Industry Support Fund: execution.
Once the decisions following the planning and coordination of the Defence Industry High Coordination Council are taken, they are implemented by the SSB on the basis of procurement legislation.
Are there significant proposals pending to change the defence and security procurement process?
Are there different or additional procurement rules for IT versus non-IT goods and services?
The Turkish government has particular focus on research and development projects in the defence industry. In this regard, article 3(f) of the Turkish Public Procurement Law exempts ‘purchases of goods and services necessary for research and development projects executed and supported by national research and development institutions, and purchases of all kinds of research and development services, excluding those where the authorities covered by this law meet the entire financing and exploit the outputs only in executing their own activities’ from general procurement rules and national research. Development institutions apply their own directives in the case of information technology-related projects.
Are most defence and security procurements conducted in accordance with the GPA or other treaty-based procurement rules, or does this jurisdiction commonly use the national security exemption to procure them?
Turkish defence procurement legislation covers both national security exemptions and guidelines for treaty-based rules, such as procurement through the NATO Support and Procurement Agency, the Foreign Military Sales programme (US) and the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (Germany).
Disputes and risk allocation
How are disputes between the government and defence contractor resolved?
Disputes are commonly settled with arbitration, depending on the type of contract. In some cases, Turkish authorities prefer to procure the goods from or through state foundation companies such as Aselsan, Havelsan and Roketsan, and those companies are free to choose the settlement of dispute mechanism as some address local courts for dispute resolution.
To what extent is alternative dispute resolution used to resolve conflicts? What is typical for this jurisdiction?
See question 7. Disputes are commonly settled with arbitration. Mediation, conciliation and expert determination are not common in the defence industry.
What limits exist on the government’s ability to indemnify the contractor in this jurisdiction and must the contractor indemnify the government in a defence procurement?
It depends on the type of contract. In most cases, government authorities ask for a bank guarantee that covers the risks of each phase of the project. All conditions related to bank guarantees are defined in the procurement contract. Contractors are mostly asked to indemnify the government authorities in the case of any breach or paying penalty, depending on the contract type.
Limits on liability
Can the government agree to limit the contractor’s liability under the contract? Are there limits to the contractor’s potential recovery against the government for breach?
This is not common, and no regulatory or statutory limitations are applied in Turkey.
Risk of non-payment
Is there risk of non-payment when the government enters into a contract but does not ensure there are adequate funds to meet the contractual obligations?
No, defence items should not be procured without a budget allocation.
Under what circumstances must a contractor provide a parent guarantee?
There is no statutory requirement in this regard; however, the government is free to request a parent guarantee if it deems it necessary.
Defence procurement law fundamentals
Mandatory procurement clauses
Are there mandatory procurement clauses that must be included in a defence procurement contract or that will be read into the contract regardless of their actual inclusion?
Yes. The procurement clauses are as follows, and should be included in the contracts:
- the name of the project;
- the name and address of the contractor;
- the name or trade name of the contractor;
- the address of the notification;
- the information and responsibilities of the subcontractor, if any;
- the type of contractor;
- the type and duration of contract;
- the place and conditions of payment;
- whether the advance payment will be made or not;
- the conditions of advance payment if given and the amount of the advance letter of guarantee in the case of purchases extending over years, the price difference to be paid if payment is made for contractual matters and the cost of the transportation;
- insurance details;
- the conditions of the support services such as assembly, operation, training, maintenance-repair and spare parts;
- the amount of the performance bond and conditions of the return of the performance bond;
- the duration of the guarantee; and
- the conditions of warranties:
- place of work, delivery and receipt;
- form and conditions;
- failure to fulfil obligations or penalties to be imposed in the case of delay;
- coercive reasons and extension periods;
- mutual obligations in the case of reductions;
- conditions for the inspection and acceptance procedures;
- conditions for amendment to the contract;
- conditions for termination of the contract;
- the language to be taken in consideration for the interpretation of the contract; and
- the settlement of disputes.
How are costs allocated between the contractor and government within a contract?
This is a contractual issue, and each contract may contain different clauses in this respect.
What disclosures must the contractor make regarding its cost and pricing?
There is no regulation or law that requires contractors to make certain disclosures. Disclosure is only required when non-original documents are submitted during application to a tender, to acknowledge and warrant that the copies are the same as the originals.
How are audits of defence and security procurements conducted in this jurisdiction?
They are conducted through independent audit companies.
Who gets the ownership rights to intellectual property created during performance of the contract? What licences are typically given and how?
This is a contractual issue.
Are there economic zones or other special programmes in this jurisdiction commonly utilised by foreign defence and security contractors for financial or other procurement-related benefits?
Yes, there are some free zones such as Esbaş in İzmir and Ostim in Ankara, which are utilised by some defence contractors. Moreover, a new zone - HAB Aerospace Zone (Ankara Aerospace Specialised Industrial Zone) - has been founded to combine subsidiaries and small and medium-sized enterprises in a common area, mainly based on advanced technologies and high value-added products. With a skilled workforce, this zone is being developed to become one of the world’s leading aviation centres.
Forming legal entities
Describe the process for forming legal entities, including joint ventures, in this jurisdiction.
Commonly used company types in Turkey are limited liability companies (LLCs) and joint stock companies (JSCs). LLCs are formed by one or up to 99 individual or legal entities with minimum capital of 10,000 lira cash or in kind. JSCs can be formed by one individual or legal entity with minimum capital of 100,000 lira cash or in kind. To establish such companies, an article of association should be duly signed and registered to the trade registry where the company headquarters would exist. A quarter of the capital should be deposited during the establishment, and the rest can be committed to be paid within two years following the registration date.
Joint ventures are not deemed to have a legal personality in Turkey. Each party of the joint venture is solely responsible for their commitment to a joint venture agreement; however, any type of LLC or JSC can establish a new company for a specific project, also as a joint venture, even if it is an additional company in the form of an LLC or JSC.
Access to government records
Are there statutes or regulations enabling access to copies of government records? How does it work? Can one obtain versions of previous contracts?
The Defence Industry Security Law defines the ‘classified information, documents and materials’ used in the defence industry. Accordingly, procedures for determination, marking, transfer, storage, modification of security classifications for defence industry information, documents and materials and the training within this context are regulated by taking the approved resolutions of the Multinational Defence Industrial Security Working Group and bilateral cooperation agreements into consideration.
Supply chain management
What are the rules regarding eligible suppliers and supply-chain management and anti-counterfeit parts for defence and security procurements?
The same rules apply to eligible suppliers and supply-chain management and anti-counterfeit parts as well, and no distinction or privilege exists in this regard.
International trade rules
What export controls limit international trade in defence and security articles? Who administers them?
From a domestic law perspective, the Law on Control of the Private Industrial Enterprises Producing War Weapons, Equipment, Vehicles and Ammunitions and Explosives (Law No. 5201) regulates the trade of defence and security objects in Turkey. In addition, as a party to international treaties such as the Treaty on Non-Proliferation of Nuclear Weapons, the Comprehensive Test Ban Treaty, the Chemical Weapons Convention, the Biological Weapons Convention and the Wassenaar Arrangement, Turkey is subject to the strict regulations of the international arms trade.
In general, the Ministry of National Defence is authorised to administer the international trade of military equipment, arms and ammunition.
What domestic preferences are applied to defence and security procurements? Can a foreign contractor bid on a procurement directly?
There is no restriction on foreign contractors making bids. However, the Turkish government mostly prefers local procurement or co-procurement, which may require foreign contractors to transfer certain technologies to local capabilities.
Are certain treaty partners treated more favourably?
This is only possible if a treaty requires it to be so.
Are there any boycotts, embargoes or other trade sanctions between this jurisdiction and others?
Turkey applies boycotts, embargoes and other trade sanctions if they are a requirement of the treaties and conventions (UN, WTO, etc) to which Turkey is a party. Turkey also applies embargoes and trade sanctions to certain countries.
Are defence trade offsets part of this country’s defence and security procurement regime? How are they administered?
Yes, the offset regime defines three type of categories:
- category A, which consists of local production;
- category B, which refers to export of product or service; and
- category C, which requires tech transfer and investment.
The offset commitment shall not be lower than 70 per cent of the value of the procurement contract, and all processes of an offset programme are administered by the SSB.
Ethics and anti-corruption
Private sector appointments
When and how may former government employees take up appointments in the private sector and vice versa?
There are no statistics regarding this issue.
How is domestic and foreign corruption addressed and what requirements are placed on contractors?
Corruption is only combated using the general provisions of the Turkish Penal Code. No specific legislation exists to combat against corruption in the defence industry.
What are the registration requirements for lobbyists or commercial agents?
No policy or regulation exists for registration.
Limitations on agents
Are there limitations on the use of agents or representatives that earn a commission on the transaction?
No, such things are not regulated.
Conversion of aircraft
How are aircraft converted from military to civil use, and vice versa?
For civil use, Directive SHY-21 of Turkish Civil Aviation Authority regulates the airworthiness and environmental certification of a product, part and device in this regard, and the Directive is in full compliance with European Aviation Safety Agency’s Part 21, the International Civil Aviation Organization’s Annex 8 and the Chicago Convention.
For military use, it is subject to the export control regimes of technology transferring countries and international rules and conventions, as Turkey has not manufactured any local aircraft yet.
What restrictions are there on manufacture and trade of unmanned aircraft systems or drones?
There is no specific law regulating manufacture of unmanned aircraft systems or drones in Turkey. Therefore, Directive SHT-IHA of the Turkish Civil Aviation Authority regulates the airworthiness and registration of such air vehicles. However, this Directive exempts drones with a take-off mass of less than 4 kilogrammes, a maximum speed of less than 50 kilometres per hour and a maximum altitude of less than 100 metres. Drones that are more than five years old are not registered in Turkey, and registration requires security clearance of the applicant.
Which domestic labour and employment rules apply to foreign defence contractors?
There is no difference in rules and regulations for foreigners. The Turkish Labor Law applies to everyone working in the country, as Turkish entities or in a workplace.
Defence contract rules
Are there any specific rules that contractors, foreign or domestic, are bound by in defence contracts?
In general, all defence procurement laws apply in the same way to each and every contractor. This excludes incentive regimes, particularly for local manufacturers. Depending on the nature and scope of the projects, some specific rules might be applied in the form of contractual clauses. There is no law or regulation that has specific rules binding foreign contractors.
Do contractors avail themselves of these rules when they perform work exclusively outside of the jurisdiction?
There are no particular rules for works that are performed exclusively outside of Turkey.
Must directors, officers or employees of the contractor provide personal information or certify that they fulfil any particular requirements to contract with a government entity?
In addition to the requirements defined in the Law on Control of the Private Industrial Enterprises Producing War Weapons, Equipment, Vehicles and Ammunitions and Explosives (Law No. 5201) (see question 37), the Defence Industry Security Law (Law No. 5202) requires personal security clearance for each person and facility security clearance for each facility to receive the classified information, documents and materials from the relevant authority. No information, project or material is allowed to be delivered or disclosed without holding such clearances. Providing personal information constitutes a requirement of such clearances.
What registration or licensing requirements exist to operate in the defence and security sector in the jurisdiction?
When offering weapons, ammunition, explosive materials and their spare parts to the local market, a company must get the approval of the Ministry of Defence, which also requires the assent of the General Staff of the Ministry of the Interior. Moreover, companies must also provide information about their founders, capital, investors and managers, which requires in-depth information-sharing with the government body in order to be licensed.
What environmental statutes or regulations must contractors comply with?
General environmental safety and occupational health regulations also apply in the defence industry, except regarding facilities.
Must companies meet environmental targets? What are these initiatives and what agency determines compliance?
There is a policy that requires defence companies to meet any environmental targets.
Do ‘green’ solutions have an advantage in procurements?
There is no legislation with special provisions regarding ‘green’ solutions in the defence industry.