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Classified or Confidential Information: Entering into a Contract with State-Owned Enterprises and Turkish Armed Forces Foundation Companies

29 May, 2020

There are some rules which are not always contractual in the usual sense of defense contracts such as secrecy which refers to a weakness when revealed in this highly competitive market. Nothing in any contract shall prevail such rules as they are regulated and touch upon almost everything related to programs including but not limited to classified defense contract, information, documentation, project, purchase, sell, manufacturing, research and development, storage of material or services, facilities to conduct those activities related to defense industry excluding the staff of and the facilities belong to Turkish Armed Forces.

In Turkey, security classification in defense projects which is the most commonly confused and misused word with confidentiality refers to classification and nomenclature of the information, documentation and material which is objectionable to disclose as a common knowledge on the basis of national security interests depending on their severity of "top secret", "confidential", "privileged" and "service specific".

Not only the security classification, classified information, documents and materials have also a legal ground which refers to information and materials including cryptographic and atomic information and materials, confidentiality record with all types of grade content, written and oral communication media, messages, documents and weapons, ammunition, vehicles and parts and components thereof, with all kinds of materials, such as equipment, software and hardware. 

Nothing in those definitions directly points towards a definition of classified project which refers to the project in need of defense and classified information containing all kinds of war weapons , tools and equipment with the purchase and sale of the important and critical subsystems and components, research and development with all types of production activities, the study of services and infrastructure facilities and activities related the whole. The Need to Know principle as a typical contractual term in most non-disclosure agreements seems alike but mean different things when it relates to defense programs and refers to a person who holds personal security clearance (certification by Ministry of National Defense enables access to location and facilities where classified information, documents or materials exist)  and solely has the task and responsibility of knowing and using classified information documents and materials. The sale or transfer of a classified information, documents, materials, projects to any third countries or persons except those set out in contracts are only possible:

  • If provided from abroad in scope of a contract, the provisions of the contract apply.
  • In case of development and produced domestically where it is subject to Law on Supervision of Industrial Organizations Manufacturing Military Equipment, Weapons, Ammunition and  Explosives
  • The contract provisions shall apply in NATO projects

The question, then, is what is the ultimate benefit of entering into a non-disclosure agreement in a defense projects and what are the challenges a contractor may face? The answer is clear. It depends on how you consider each.

A standard form of non-disclosure agreement mainly sets forth the clauses of definitions, treatment of confidential information, protection and return of confidential information. In such agreements, the potential dispute is only between the signatory parties and courts likely require that disclosing of information shall result with a loss or harm due to unlawful act or omission of disclosing party only. In general, it appears to court that, having regard to all circumstances, including the circumstances in which the definition of confidential information refers to same level of confidentiality, breach of non-disclosure agreement shall not deemed as a material breach if the disclosed information is not confidential or it resulted with damage or loss. It is widely disregarded in defense programs that information, materials and documents exchanged by and between the parties are deemed classified by law and the protection of classified information would have a material impact on a non-disclosure agreement beyond the discretionary power of judges. A simple clause stating that nothing in the non-disclosure agreement shall be construed to impair or otherwise affect the applicability of laws and regulation regarding classified information and the agreement shall be executed consistent with applicable law and subject to availability of appropriations.  

In many cases, contracts on protection of classified information are known as government to government and government to contractor only. Most cases practiced by foreign contractors raise issue of business practices, in a jurisdiction that they do not seek legal assistance, but no issue of what the law is. The possible problems can be illustrated by reference to possible contracts and collaboration. For example, in a government to government program; governments through a separate agreement on protection of classified information commit to ensure that the protection of classified information that is exchanged between the competent authorities of each government as well as with contractors or between contractors of the two governments. In some cases, those agreements are agreed to apply to all agreements on cooperation to be concluded between the governments and to contracts involving an exchange of classified information whatsoever the project is. Such agreements set forth the terms and conditions regarding the comparability of security classifications of both jurisdictions, marking, measures at national level, award and performance of classified contracts, transmission of classified information, visits and dispute settlement. In a case that two governments signed such an agreement, contractors awarded by either government may seek to enter into a separate non-disclosure agreement with other contractor and this may result with conflict on applicable law, jurisdiction perspectives and conflict of interest where the contractors are not well informed about the scope of agreement on protection of classified information between two governments or they did not seek legal assistance from a local counsel. It is of course for governments to agree what rights and obligations they will protect and commit by such an agreement and what actions shall be taken in case of breach or violation but in cases where contractor to contractor agreement for protection of information purposes is in place, this alarms the inescapable risks due to local laws and regulations related to classified information where a simple non-disclosure agreement would be lack of such awareness and not protect the parties on highly crucial matters that may have impact on intellectual property and proprietary rights.  

For purposes of comparison, I have reviewed remarkable number of non-disclosure agreement drafts sent by state-owned enterprises and Turkish Armed Forces Foundation companies to several corporate clients in aerospace and defense which were requested to be reviewed and undersigned and conclude that over the period of a decade my aspects on such agreements are still same and as follows:

  • Contracts referring to classified information is highly limited,
  • Identification of confidential information is not accurate and to wide to protect any legitimate benefit
  • Intellectual property rights are either not referred or clauses related to intellectual and proprietary rights are poorly drafted.
  • No clear definition of project confidential information in cases where such an information may exist as a result of exchange of confidential information especially in defense research and development programs,
  • No reference to deemed export rules
  • Many of those enterprises/foundation companies are authorized to disclose the information to government agencies.

Despite this apparently clear fact that information and data are alike cell doctrine of intellectual and industrial property, an ignorance or lack of legal assistance in contracts in aerospace and defense related projects from this perspective may cause substantial and irreparable damage beyond monetary aspects.


Şafak Herdem

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