Defence contract disputes and risk allocation in Turkey

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.

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.

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.