Construction Law

A construction project is a network of contracts spread over years and bringing many parties together. The employer, the contractor, subcontractors, suppliers, designers and the building inspection firm all take on different obligations in respect of the same structure. Most disputes arise from matters left unclear on the day the contract was signed: the scope of the work, time, price changes, additional work and how acceptance is to take place.

In Turkish law, the core rules for construction contracts are Articles 470 to 486 of Turkish Code of Obligations No. 6098 (TBK), which govern the contract for work (eser sözleşmesi). In public projects, Public Procurement Law No. 4734 and Public Procurement Contracts Law No. 4735 also apply, as do Building Inspection Law No. 4708 and Zoning Law No. 3194 in respect of supervision of the building.

The parties' main obligations under a works contract

Under a works contract, the contractor undertakes to produce a work and the employer undertakes to pay a price in return (TBK Art. 470). The contractor must perform the work with care and protect the employer's legitimate interests (TBK Art. 471). Where the contractor supplies the materials, it is liable to the employer for defects in the materials in the same way as a seller (TBK Art. 472).

Time is governed by TBK Art. 473. If the contractor fails to start the work on time, delays it contrary to the contract, or, for a reason not attributable to the employer, falls so far behind that it is clear it will not be able to finish the work by the agreed date, the employer may withdraw from the contract without waiting for the delivery date. If it can be foreseen that the work will be performed defectively or in breach of the contract, the employer may give the contractor a reasonable period to remedy the situation; if it is not remedied, the employer may have the work carried out by a third party.

Under TBK Art. 484, the employer may also withdraw from the contract at any time before the work is completed, provided it pays for the work done and compensates the contractor for all its losses. This provision allows the employer to stop the project, but because it requires full compensation to the contractor, it should be used with care.

Defective and incomplete work

After delivery, the employer must inspect the work as soon as it is able to do so in the ordinary course of business and, if there are defects, notify the contractor within a reasonable period (TBK Art. 474). If no notice is given for apparent defects, the work is deemed accepted. Hidden defects that cannot be discovered by ordinary inspection must be notified immediately once they come to light (TBK Art. 477).

The employer's alternative remedies for defects are listed in TBK Art. 475: withdrawal from the contract where the work is so defective that it cannot be used or cannot fairly be expected to be accepted, a price reduction in proportion to the defect, or repair free of charge where this does not involve excessive cost. Compensation may also be claimed under the general provisions. For buildings attached to the land, the right of withdrawal is limited where removing the structure would cause excessive harm.

Limitation is governed by TBK Art. 478. As a rule, claims arising from defects in the work are time-barred two years after delivery; for immovable structures, this period is five years. For defects resulting from the contractor's gross fault, the period is twenty years from delivery. The contractor cannot rely on limitation for defects it fraudulently concealed.

Price, progress payments and the final account

As a rule, the price becomes due on delivery of the work (TBK Art. 479); in large projects, however, the price is paid through progress payments (hakediş) based on the progress of the work. The contract should state clearly which items are calculated at which unit prices in progress reports, when payments will be made and how objections are to be raised. The final account (kesin hesap) is the document that sets out all of the parties' mutual receivables and debts at the end of the project; signing the final account without a reservation may prevent certain claims from being raised later.

Under a lump-sum contract, the contractor may not, as a rule, ask for the price to be increased. However, under TBK Art. 480(2), if circumstances that could not be foreseen at the outset, or that were foreseeable but not taken into account by the parties, prevent the work from being completed at the agreed price or make this extremely difficult, the contractor may ask the judge to adapt the contract to the new circumstances or, if this is not possible or cannot be expected of the other party, to withdraw from the contract; where good faith so requires, only the right of termination may be used. Sudden changes in exchange rates and material prices are frequently argued under this provision and under the rule on excessive difficulty of performance in TBK Art. 138.

Delay, default and penalty clauses

If the contractor exceeds the delivery date, the rules on default (TBK Arts. 117–125) apply. Where the contract provides for a delay penalty (penalty clause), TBK Arts. 179–182 come into play. Where the penalty is added to performance, the creditor can claim the penalty together with performance only if, when accepting performance, it expressly states that it reserves this right (TBK Art. 179(2)). One of the most common mistakes in practice is accepting late delivery without a reservation.

Excessive delay penalties may be reduced by the judge (TBK Art. 182(3)). However, for a debtor who is a merchant, Article 22 of Turkish Commercial Code No. 6102 as a rule prevents this reduction. The parties' merchant status therefore directly changes the effect of a penalty clause.

Public procurement contracts

In construction works for public bodies, the tender stage is governed by Law No. 4734 and the contract stage by Law No. 4735. Against acts in the tender process, a complaint is first made to the contracting authority, followed by an objection to the Public Procurement Authority; the time limit for complaining to the contracting authority is ten days from the day after the date on which the act complained of was, or should have been, noticed (Law No. 4734, Art. 55). Disputes about performance of the contract are, as a rule, heard by the civil courts. Claims for price differences, extensions of time and increases in the work must be raised in accordance with the procedures in the applicable general specifications for construction works.

Evidence determination, mediation and arbitration

In construction disputes, time works against evidence. When the site is handed over, a new contractor starts work or the building comes into use, the existing condition changes. For this reason, asking the court for a determination of evidence (delil tespiti) before filing an action, under Article 400 et seq. of Code of Civil Procedure No. 6100 (HMK), often shapes the course of the dispute.

If the dispute is a commercial case and concerns payment of a sum of money (including actions for annulment of an objection, negative declaratory actions and actions for restitution), applying to a mediator before filing an action is a mandatory pre-condition under Article 5/A of the Turkish Commercial Code. In international projects and large contracts, arbitration is widely preferred; FIDIC-type contracts provide for a dispute board stage followed by arbitration. Drafting the arbitration clause clearly and in an enforceable form prevents disputes about jurisdiction later.

Our work in this area

We draft and negotiate construction, subcontracting, project management and material supply contracts. During the project, we assess the legal basis for notices, extension of time and variation claims; in a dispute, we conduct evidence determination, mediation, litigation and arbitration proceedings. For relations between landowner and contractor, see Flat-for-Land Construction Contracts; for the renewal of risky buildings, Urban Transformation and Zoning Law; and for litigation generally, Dispute Resolution. For a sector view, see our Infrastructure and Transportation and Real Estate pages.

Areas covered under this heading

Main topics

• Drafting works and construction contracts (TBK Art. 470 et seq.)
• Delay, default and liquidated damages
• Defective and incomplete work, inspection and notice (TBK Arts. 474–478)
• Progress payments, final account and variation costs
• Public procurement contracts and complaint procedures
• Bank guarantees and subcontractor relationships
• Evidence determination, expert examination, mediation and arbitration

Frequently asked questions

Legislation and sources

• Turkish Code of Obligations No. 6098 (in Turkish)
• Code of Civil Procedure No. 6100 (in Turkish)
• Public Procurement Law No. 4734 (in Turkish)
• Building Inspection Law No. 4708 (in Turkish)
• Turkish Commercial Code No. 6102 (in Turkish)

The information on this page is general and does not constitute legal advice. As legislation may change, the current rules must be assessed separately for your particular situation.