Turkey: Offset And Industrial Participation (O/IP) Regime In Turkey

Last Updated: 15 September 2014
Article by Safak Herdem

In 2012 the Undersecretariat for Defence Industries ("SSM") of Turkey has announced its vision as making Turkey superior in defence and security technologies taking the management of industrialization, technology and procurement programs that assures the continuous improvement of Turkey's defence and security capabilities as a mission.

SSM manifested its strategic priorities in its Strategic Plan of 2012-2016 as sustainability of defence industry, achieving maturity in program management, developing technological competence and employee who create value and receive recognition.

In consideration and as the result of all aforementioned plans, vision and the missions, Turkey has started to initiate a new approach in its offset and industrial participation regime in 2011.

Former undersecretary of defence industries, Murad Bayar has made major contribution to improve the offset regime and competence and increase in capabilities has ensued as a result of new set of rules. The new approach has abandoned the limited thresholds, amended the definitions and extended the categories of offset and industrial participation activities as applicable since April 2011.

Accordingly any offset and industrial participation activities under procurement and industrialization activities executed by SSM based on the authorization from Defence Industry Executive Committee and assigned to the SSM is subject to new regulation since 2011.

New regime is also applied to all activities contracted with the natural and real persons whom are liable to SSM for the duration between the advance payment and 2 (two) years (O/IP Duration) and effective to the past activities unless contradicts with the terms and conditions of those.

The new offset regime classifies the O/IP commitments in three categories. The category A consists of the activities to be conducted by Turkish industry within the scope of the contract that Industrialization Plan attached thereto and setting out the terms and conditions of contractor's obligations and with a proven fulfillment by supporting documents within the related program period. The program period for the O/IP contracts which the O/IP liability period is up to 2 (two) years, the duration from the date that advance payment within the framework of procurement contract is made on the contractor until the date that O/IP liability period is expired. The program period for the O/IP contracts which the O/IP liability term is longer than 2 (two) years, every 12 (twelve) months period from the date that advance payment within the framework of procurement contract is made on the contractor. The category A O/IP commitments do not require a pre-approval from SSM and only executed thru O/IP contracts.

The category B consists of product and/or service export within the fields of defence, homeland security and aerospace industries. The category C is also sub-classified based on the contractor's origin. Accordingly; the domestic contractor's contributions including equipment, hardware, software, service or financial support to the training and R&D studies conducted by industrial enterprises, training and research institutions in Turkey in the fields of defence, homeland security and aerospace industries and foreign contractor's technological cooperation and investment activities in field of defence, homeland security and aerospace industry excluding those in category A are recognized in category C. The technological cooperation is defined as either the development of a genuine product and technology or design, development, production, test, etc. capabilities. Therefore the term "investment" excludes the takeover of an existing company, direct foreign investments within the scope of establishment of brand new companies or partnership with existing companies to be deemed as in category C.

The category B and C O/IP commitments require pre-approval from SSM before reaching an O/IP contract. The financing the commitments are also designed based on the conditions and references of the pre-approval and the multipliers granted by SSM. The maximum number of multipliers is allowed to be eight for an offset and industrial participation activity. However except the technoparks, the export and technological collaboration / investment activities conducted by the companies settled in Free Trade Zones can be provided loan with a lower multiplier up to (-2) than the ones defined for category A.

The multiplier for the design and engineering activities executed by small medium sized business enterprises in category A is (2) and in all other activities in category A the multiplier is (1).

In category B, the multiplier for i) land and naval platforms is (4), ii) air platforms, rocket/missiles and satellite systems is (5).

For the systems/subsystem and components the multiplier in category B for i) mechanical / hydraulic / pneumatic systems, electrical/electronic systems, software, weapon and ammunition, power/impulse/motor/transmission systems, command control/information systems, electronic warfare systems, simulators is (3) and ii) structural components is (2).

For technological collaboration of category C, depending on fields of network based warfare, command control/information management systems, software, electronic warfare, missile guidance and control, sensor systems, system integration, satellite and space technologies the multiplier varies as (4) of (5). For generation or creation of special requested technology/ability the multiplier varies between (6) and (8).

The multiplier of investment section of category C for i) direct foreign investments within the scope of establishing brand new companies in the fields of defence, homeland security and aerospace industries is (4) i) the equipment, hardware and software provided to the universities, training and research institutions in Turkey in the fields of defence, homeland security and aerospace industries is (3).

For the R&D support for the equipment, hardware, software, service or financial support provided to the training and R&D studies conducted by industrial enterprises, training and research institutions in Turkey in the fields of defence, homeland security and aerospace industries of category C, the multiplier is (5).

The law requires all procurement and industrialization activities by means of O/IP to be conducted within scope of the new regime and to sign a contract with the contractor referring to the procurement agreement for the duration between the advance payment and 2 (two) years (O/IP Liability). The new regime also allows SSM to sign separate contracts with foreign subcontractors involved in relevant procurement and industrialization activities. Any financial burden on SSM while performing the O/IP liability is not allowed in the new regime as same applied in the past. The foreign contractors shall also act as cosignatory of the O/IP contracts together with the SSM in intergovernmental purchases of foreign military sales (FMS) if reached to a contract with a foreign country's administration. In such conditions O/IP contracts requires to be signed by the foreign country and SSM before signature of the procurement agreement or before the first payment made by SSM within the scope of the project.

The O/IP liability percentage is not acceptable if lower than 70% of the value of the procurement contract that is determined by SSM taking the attributes of the procurement and industrialization activities into account. The work share ratio of supplier company to small-medium business sized enterprises is not allowed to be lower than 30% of the Category-A O/IP commitments. In addition to this limitation minimum 15% of Category-A O/IP liability shall be accomplished by ten small-medium sized business enterprises. The evaluation and calculation of the O/IP proposal are subject to below formulas:

Evaluation Score = 0.50 × (T) + 0.40 × (I) + 0.10× (E)


T: Technical Score,

I : O/IP Score,

E: Administrative/Economical Score.

O/IP Score (I) = 0.65 × (PA) + 0.20 × (PB) + 0.15 × (PC)


PA: Category-A O/IP Score

PB: Category-B O/IP Score

PC: Category-C O/IP Score

The calculation of category B O/IP is made according to the formula of:

PB = RB / (1+ DB / TB)


RB: Ratio of Category-B O/IP liability over contract value

DB: Weighted average fulfillment duration of Category-B O/IP liability (Sum of multiplication of every Program Period's number and Category-B

O/IP liability amount within related Program Period over total Category-B O/IP liability)

TB: Duration that the Category-B O/IP liability is fulfilled

And the calculation of Category-C O/IP is subject to the below formula:

PC = RC / (1+ DC / TC)


RB: Ratio of Category-C O/IP liability over contract value

DB: Weighted average fulfillment duration of Category-C O/IP liability (Sum of multiplication of every Program Period's number and Category-C O/IP liability amount within related Program Period over total Category-C O/IP liability)

TB: Duration that the Category-C O/IP liability is fulfilled

The letter of guarantee requested by SSM from the contractor should correspond to 6% of O/IP liability with minimum one year longer term of the O/IP liability period. The new regime also requires to apply escalation to O/IP liabilities as defined in procurement contracts only in cases where procurement contract is subject to escalation.

In cases where O/IP commitments fail the contractor is obliged to pay 6% of the value of its commitments within 30 days upon the written request of SSM. This penalty is also subject to off-set that SSM may deduct from payments to be made to the contractor if not paid within 30 days term.

As clearly observed the Turkish defence industry has been undergoing a comprehensive transformation with new approaches and coordinated policies to industrial participation and offset regimes. Its recent success not only reflects the success of ongoing policies but also the contribution of skills in technology production gained by past offset experiences. However the gap in technology assessment and review capabilities still remains as a shortcoming in evaluation of offset activities. Turkey as the country having 194 universities and 21 technoparks is expected to focus more on technology production and transfer capabilities as South Korea and Japan did in the past during KTX-2 and FS-X offset projects that resulted with gaining the capability technology production in their countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Safak Herdem
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.