This country-specific Q&A provides an overview to Construction laws and regulations that may occur in Turkey.
Is your jurisdiction a common law or civil law jurisdiction?
Turkey is a civil law jurisdiction.
What are the key statutory/legislative obligations relevant to construction and engineering projects?
Contracts subject matters of which include aspects of construction and/or engineering are customarily regarded as “contracts of work” under the Code of Obligations (“CO”). Hence, parties’ key statutory obligations derive from the sections 470 – 486 of the CO. Normally, parties considerably vary the statutory obligations and introduce a number of secondary obligations in their contract which are not stipulated in the CO. However, the default scheme under the law is as follows:
If the contract is regarded as a “contract of work” the contractor’s statutory obligations include (i) carrying out the works with due care and fidelity, (ii) procuring the equipment required for the works, (iii) carrying out the works personally or having others to carry out the works under its superintendence, and (iv) commencing the works on time and performing them at the required pace. Although not explicitly stipulated under the CO, another important obligation of the contractors is the duty to inform their clients in case an event detrimental for the completion or integrity of the works, occurs (this may even be an instruction from the client). From the clients’ perspective, the only statutory obligation is the payment of the contract price while there is also a customary obligation to deliver the site on which the works shall be performed.
Are there any specific requirements that parties should be aware of in relation to: (a) Health and safety; (b) Environmental; (c) Planning; (d) Employment; and (e) Anti-corruption and bribery.
(a) health and safety;
With respect to the issue of health and safety, the Occupational Health and Safety Act numbered 6331 (“OHSA”) and the Regulation on Occupational Health and Safety (official journal date 09.12.2003 and number 25311) impose a number of obligations on employers. These include (i) taking necessary measures (in terms of training the employees setting up an appropriate organisation, providing the necessary tools) to prevent occupational hazards, (ii) supervising on exercising the health and safety rules, (iii) conducting (or having others to conduct) risk analysis, (iv) taking their employees’ health conditions into consideration when assigning them to a duty (v) taking the required measures to prevent those who have not been properly instructed to enter into areas which pose risks to their lives and health. Furthermore, Regulation on Health and Safety in Construction Works (official journal date 05.10.2013 and number 28786) includes more specific health and safety requirements applicable to construction works.
(b) environmental issues;
In terms of environmental issues, according to the Environment Act numbered 2872 (“EA”), (i) those generating waste as a result of their activities must manage their waste according to the EA and the relevant regulations, (ii) if a prospective project may have adverse effects on the environment, an environmental impact assessment must be conducted, (iii) emergency plans must be prepared and applied regarding protection of the environment in certain circumstances, and (iv) the noise and vibration levels set out in the regulations must be complied with. Management of excavation soil and construction debris is specifically regulated under the Regulation on Control of of Excavation Soil, Debris and Wreckage (official journal date 18.03.2004 numbered 25406).
Construction permit is required for all sorts of construction/renovation operations (except for those minor works which are exhaustively mentioned in the Zoning Law) in accordance with the Zoning Law numbered 3194. When applying for construction permit, architectural projects, static projects, electrical and installation projects, representations and calculations, benchmark sketches or if that is not available, dimensioned sketches must be submitted. If these are not compliant with the development plan of the place where the construction is to take place, as well as the Zoning Law, Planned Zones Development Regulation (official journal date 03.07.2017 and numbered 30113), and other relevant regulations such as the Regulation as to Protection of Buildings from Fire (official journal date 19.12.2007 and numbered 26735) then the construction permit will not be issued. After the construction permit is issued, the conduct of the works must comply with the construction permit and its appendices.
(d) employment; and
On the employment aspect of the construction and engineering projects, the Labour Act numbered 4857 (“LA”) is the main legal instrument governing the key obligations of those who employ workers. According to the LA, employers’ obligations include treating their workers equally, allowing them to take leave as contemplated in the LA, making overtime payments if their workers do overtime work, making timely payments of the workers’ remunerations and social security premiums, taking the required measures to ensure health and safety of the workers and so on.
(e) anti-corruption and bribery.
Turkish law deals with the issue of anti-corruption and bribery mainly as a matter of criminal law. Turkish Criminal Code numbered 5237 defines bribery (section 252), corruption (section 250) and embezzlement (section 247) as criminal offences. Imprisonment or judicial fines contemplated under the Turkish Criminal Code can only be applied to real persons—cannot be applied to corporations or other judicial persons (section 20/2). However, judicial persons may face certain ‘security measures’ if their officials commit a crime. These security measures are (i) cancellation of the corporation’s licenses if it is operating under a license granted by a public authority and/or (ii) seizure of the things used for or generated out of the crime (section 60). Furthermore, Misdemeanours Act numbered 5326 contemplates an administrative fine in case when the crime of bribery is committed for the benefit of a corporation (section 43/A). This administrative fine can be up to 2.000.000,00 TRY for each offence.
What permits/licences and other documents do parties need before starting work, during work and after completion? Are there any penalties for non-compliance?
Every construction operation requires a construction permit. In addition to that, if the construction operation may, potentially, have adverse effects to the environment, then obtaining a ‘positive environmental impact assessment’ decision is necessary. Unless this ‘positive environmental impact assessment’ is obtained, construction permit will not be issued. If a construction starts without a construction permit (or is conducted in a manner not compliant with the construction permit and its appendices), then the authorities will affix seals to the entrances of the construction site. It is a criminal offence to remove these seals. Within one month as from the date on which the seals are affixed, the building owner is required to acquire a construction permit. Otherwise, the building will be demolished by the relevant municipality or governorship and the costs of doing so will be requested from the building owner. After the construction is completed, an occupancy permit needs to be acquired for being able to use the constructed building. Other than those major permits mentioned above, there are also a number of other permits required to obtained by the contractors and employers during the execution of the construction works.
Is tort law or a law of extra contractual obligations recognised in your jurisdiction?
Turkish contract law recognises tort law and some other extra-contractual obligations (i.e. unjust enrichment, acting without authority and culpa in contrahendo).
Who are the typical parties to a construction and engineering project?
In projects of at least average calibre, in addition to the employer and the main contractor, engineers, controllers, banks, insurance companies, health and safety institutions, project management companies, sub-contractors and other vendors are typically involved.
What are the most popular methods of procurement?
Parties usually draft and negotiate their own procurement contracts in private sector. Mostly, it is the main contractors’ or employers’ standard type of contract to be used against contractors, suppliers or subcontractors. On the other hand, major suppliers tend to insist on using their own standard type contracts which are commonly amended as per the parties’ concerns and expectations. Another popular method of procurement is turn-key engineering, procurement and construction contracts with a fixed contract price. In terms of large public projects with strict financing requirements, the most common method is build-operate-transfer schemes or where public procurement law is involved (whether the project is small or large), it is mandatory to use a statutory standard type of public procurement contract as the tender rules for public projects are quite strict.
What are the most popular standard forms of contract? Do parties commonly amend these standard forms?
Use of international standard forms of contracts is not a common practice in Turkish construction industry. However, when parties would like to use a standard form of contract, they usually prefer FIDIC forms and substantially amend them in order to make it in line with Turkish law and to meet the expectations of the parties.
Are there any restrictions or legislative regimes affecting procurement?
Procurements initiated by private entities are not specifically regulated. However, there are general principles of Turkish law, such as the duty to act in good faith, as a general restriction in terms of the conduct of the procurement processes. Public entities, however, must comply with the Public Procurement Act numbered 4734 and Public Procurement Contracts Act numbered 4735 as required by law.
Do parties typically engage consultants? What forms are used?
In projects of an average or large size, if the employer has no sufficient technical resources project management companies and/or engineers are typically engaged. In case project finance is involved, engaging with an engineering company is a typical requirement of the Banks.
Is subcontracting permitted?
In practice, the employers permit subcontracting subject to a prior approval procedure. It is also a common practice to include a list of permitted subcontractors / vendors as an attachment to the contract. On the other hand, in theory, since the nature of construction works does not strictly require personal involvement of the contractor, contractors are allowed to engage subcontractors unless otherwise provided under the contract.
How are projects typically financed?
While there were a handful projects financed through non-recourse project finance model, currently it is somewhat difficult, if not impossible, to use such a scheme. However limited recourse project finance methods are typically used for projects over a certain size. There are also projects financed via leasing, secured term loans, equity finance or balance-sheet finance.
What kind of security is available for employers, e.g. performance bonds, advance payment bonds, parent company guarantees? How long are these typically held for?
Generally, the employers require irrevocable and unconditional performance bank guarantee letters in amounts ranging between 5% to 20% of the contract price. Such bank guarantee letters are expected to be held until the provisional acceptance of the project and replaced with a bank guarantee in amounts ranging between 2% to 5% and kept until the end of the warranty period. If payment of an advance is contemplated, then an irrevocable and unconditional advance payment bank guarantee is typically required. The advance payment is gradually deducted from the interim progress payments or milestones, and, when all of the advance payment is deducted, the advance payment guarantee is released. The employers also typically require a parent company guarantee to be released once the provisional acceptance certificate or defects liability certificate is issued by the employer.
Is there any specific legislation relating to payment in the industry?
There is no specific legislation with respect to the payments in construction industry. However, if a construction contract does not provide otherwise, the entire contract price becomes payable only after the work is completed.
Are pay-when-paid clauses (i.e clauses permitting payment to be made by a contractor only when it has been paid by the employer) permitted? Are they commonly used?
Turkish law allows contemplating a contingent event as a condition precedent of maturity of payment obligations. Therefore, it is permissible to agree that receipt of payment from the employer is a condition precedent of the main contractor’s payment obligations. Such a clause should be exercised pursuant to the principle of good faith which draws the limit of application of such clauses. For subcontractors bargaining power of which are considerably low against the main contractors, pay-when-paid clauses are quite common. On the other hand, acceptance of such a clause by qualified subcontractors is not a common practice.
Do your contracts contain retention provisions and, if so, how do they operate?
Construction contracts commonly contain a retention provision which requires a certain percentage of the interim payments to be retained by the employer as a security and paid to the contractor after the end of provisional acceptance or defects liability period.
Do contracts commonly contain delay liquidated damages provisions and are these upheld by the courts?
As opposed to Anglo-Saxon jurisdictions, Turkish Law defines penalties rather than liquidated damages. Contacts commonly contain delay penalty clauses. As a principle, commercial companies and real person merchants cannot claim that the amount contemplated as penalty is not reasonable. However, in exceptional circumstances, if the amount of a penalty is so high that it would financially destroy the party who is obliged to make payment of it, the courts may intervene and decrease the amount of liquidated damages. (Court of Cassation 23rd Civil Chamber D., E:2015/9886 K:2018/3074). On the other hand, “liquidated damage” concept is also used for cross-boarder transactions where parties involved are associated with an Anglo-Saxon jurisdiction.
Are the parties able to exclude or limit liability?
Parties are allowed to exclude or limit their liability to a certain extent. Under Turkish law, there are three layers of negligence: wilful conduct, gross negligence and slight negligence. Turkish law does not allow exclusions and limitations of liability for wilful conducts and grossly negligent conducts.
Are there any restrictions on termination? Can parties terminate for convenience? Force majeure?
The parties may terminate the contract in cases when the Code of Obligation or their contract allows it. Termination of construction contracts is normally retrospective, but in certain cases (defined in the High Court precedents) where such a retrospective effect would yield unreasonable results, the courts typically hold the view that such termination will have prospective effects. The Code of Obligations allows the employer to terminate for convenience in which case the employer must pay for the works performed until the date of termination and indemnify the contractor for the damages it incurred. If performance becomes impossible, the parties will be relieved from their obligations except for the liability of the party that has negligence in occurrence of such an impossibility. In addition, construction contracts customarily contain force majeure clauses allowing termination in cases not strictly covered within the civil law doctrine of “impossibility” but, nevertheless, impede performance.
What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?
Regarding the projects financed through project finance method, a step-in right is normally expected to be included for the benefit of the banks or funders. Apart from that, the parties do not commonly articulate specific rights for third parties.
Do contracts typically contain strict provisions governing notices of claims for additional time and money which act as conditions precedent to bringing claims? Does your jurisdiction recognise such notices as conditions precedent?
Construction contracts typically contain time-bar provisions for additional cost and/or time claims. The Court of Cassation has recognised the effectiveness of such time limits in a reported case with respect to a dispute relating to a FIDIC based contract: “In order to prevent potential injustices, it is important that extension of time claims are made on time. Therefore, the engineer’s decision rejecting the contractor’s extension of time claim due to the contractor’s failure to file a claim on time and in compliance with the contract is not contrary to the contract.” (Court of Cassation 15th Civil Chamber., E. 2000/4429 K.2001/1032). On the other hand, the language of the contract is of material importance in deciding whether such a notification is intended to serve as a time-bar.
What insurances are the parties required to hold? And how long for?
The contractor is typically expected to obtain a construction all-risk insurance, employer’s liability insurance, third party liability insurance, product liability insurance policies. Additionally, if the contract contemplates a design element, a professional indemnity insurance is also required.
How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?
Although litigation had been the dominant dispute resolution method, arbitration has become increasingly popular in the construction industry. Currently, the preferred method of dispute resolution for large construction projects is arbitration. Adjudication, on the other hand, is foreign to Turkish jurisprudence. Although amicable methods are also utilised, they are mainly considered as a step before arbitration or litigation (as the case may be).
How supportive are the local courts of arbitration (domestic and international)? How long does it typically take to enforce an award?
Turkey is a party to New York Convention and the fundamental principles of arbitration is recognised under Turkish law. In parallel with this, the practices of Turkish courts can be regarded as ‘arbitration friendly’ based on the recent decisions rendered on enforcement of arbitration awards. A proceeding for enforcement of an arbitral award is expected to take 9 to 12 months depending on the particulars of the matter and the workload of the relevant court.
Are there any limitation periods for commencing disputes in your jurisdiction?
Turkish Code of Obligation contemplates statutes of limitations. The general statutes of limitation for claims based on breach of contract is 10 years. The applicable statute of limitation relating to defect liabilities arising out of construction contracts is five years from delivery of the works. Claims regarding the defects resulting from gross negligence or wilful conduct of the contractor are subject to a 20 years’ of statute of limitations. It is commonly upheld that statutes of limitation cannot be lowered but can be increased by agreement of the parties.
What are the biggest challenges and opportunities facing the construction sector in your jurisdiction?
The biggest challenge facing Turkish construction industry is the lack of finance for projects and increased overheads as a result of the devaluation of Turkish currency. This challenge brings opportunities for foreign investors to acquire assets, projects and companies on favourable conditions. As Turkey is so far away from completing its infrastructure there are surely going to be more opportunities for qualified construction companies, technology suppliers and engineering firms.
What types of project are currently attracting the most investment in your jurisdiction (e.g. infrastructure, power, commercial property, offshore)?
Currently, infrastructure projects such as bridges, highways, railways, healthcare complexes with offtake guarantees are attracting the majority of the investments. In addition to that, upgrade and modernization of old power plants are also source of attraction. Last but not least, incentive schemes for renewable energy projects (i.e. Renewable Energy Resources Support Mechanism) draws interests of those who are looking forward to make investments in the renewables sector.
How do you envisage technology affecting the construction and engineering industry in your jurisdiction over the next five years?
Augmented reality techniques are becoming popular in the construction industry as they offer a realistic visualisation before even the contractors are mobilised. We anticipate that augmented reality is soon to start being utilised for major construction projects and benefit the construction companies in terms of the accuracy of their design and efficiency of their project management. Further, given the fact that automation technologies are increasingly used in households and industrial facilities, technology companies tend to be more involved in construction projects.