The Biggest Pitfalls to Avoid When Building Ships in Turkey

In recent decades, Turkey has established itself as a leading nation in shipbuilding, with many Norwegian shipping companies among the clients. Favorable cost levels and high expertise attract many foreign clients to Turkish shipyards. At the same time, it is important to be aware of certain pitfalls and challenges that may arise during contract signing and follow-up of construction projects in this jurisdiction. Here are some key issues Norwegian actors should be aware of.

1. Contract drafting and choice of law

Although Turkish law does not impose specific form requirements for shipbuilding contracts, it is crucial to ensure a clear and balanced contract that protects both parties' interests. The parties are free to agree on foreign choice of law, which can be appropriate for Norwegian buyers. Regardless, key aspects such as specifications, payment terms, delivery time, delays, defects, guarantees, and dispute resolution should be regulated thoroughly. Be aware that overarching mandatory rules and public policy norms in Turkish law may still apply.

2. Supervision and follow-up during construction

Thorough follow-up of progress and quality during the construction process is essential to ensure a successful project. Although the shipyard is responsible, the buyer should have their own representatives present who can supervise and address discrepancies along the way. Experience shows that proactive follow-up reduces the risk of unpleasant surprises upon delivery.

3. Subcontractors and equipment list

Turkish shipyards often use a large number of subcontractors, which can create challenges regarding coordination and responsibility. Ensure that the main contract regulates the shipyard's responsibility for subcontractors, and require approval of key subcontractors. The shipyard should also commit to using pre-approved equipment suppliers according to a so-called Makers List.

4. Safety, environment, and working conditions

Turkish shipyards have previously been criticized for lack of safety and poor working conditions. Although conditions have improved in recent years, it is important that the buyer ensures that international standards are followed and that the shipyard has good HSE (Health, Safety, and Environment) systems in place. For more information on this, read the article: "How to ensure that HSE requirements are met at Turkish shipyards." Specify concrete requirements in the contract and follow up on compliance.

5. Guarantee, liability, and dispute resolution

Turkish background law gives the buyer certain mandatory rights for defects, but these should be supplemented by specific guarantee provisions in the contract. Regulate complaint deadlines, the extent of the shipyard's repair obligations, and any right to price reduction and termination. The shipyard's liability should also be clarified, including any liability limitations. Be prepared for protracted negotiations on these points.

Finally, the contract should have clear provisions on dispute resolution. Arbitration is often preferable to Turkish courts for international buyers. By thoroughly addressing these core issues in contract and project follow-up, Norwegian shipping companies can safely reap the benefits of building ships at reputable Turkish shipyards. A close and trusting collaboration with the shipyard throughout the process is the key to success.