Contractor, Subcontractor and Progress Payment Disputes in Construction Contracts for Work

In construction, a progress payment (hakediş) claim does not become final automatically merely because an invoice has been issued or because it is asserted that a certain part of the work has been completed. Who the main contractor and the subcontractor are, which works were undertaken, the unit-price or lump-sum price regime, the quantity measurement, increases in the work, approval of the progress payment, the payment due date, retention deductions and the final account are assessed within the same contractual whole. While the provisions of the Turkish Code of Obligations on contracts for work are fundamental, in public works the special contract and specification provisions, and in disputes between merchants the rules on commercial cases and mediation, are decisive for the outcome. When a dispute arises, timely preservation of the technical evidence, a claim directed at the correct addressee and a verifiable calculation of the claim prevent loss of rights.

How Are the Contract for Work and the Main Contractor–Subcontractor Relationship Formed in Construction?

Under Article 470 of the Turkish Code of Obligations (TBK), in a contract for work the contractor undertakes to produce a specific work and the project owner undertakes to pay a price in return. In a construction project, this basic relationship may be layered across more than one contract: the owner of the immovable property or the project company may contract with the main contractor, and the main contractor may contract with subcontractors performing reinforced concrete, mechanical, electrical, facade, insulation or other specific works. A supplier’s mere sale of goods, a worker’s employment relationship and a subcontractor’s obligation to independently produce a work are not legally of the same nature. [1]

The actual performances of the parties matter as much as the name given to the work. If the subcontractor works with its own organization, personnel and technical method and with the obligation to produce a specific result, the provisions on contracts for work may come into play. By contrast, merely labeling as “subcontracting” a relationship in which a person in fact works in a dependent capacity does not set aside the provisions of employment and social security law. This characterization may change the parties to the action, the subject-matter jurisdiction of the court, the calculation of the price and the rules of proof.

Why Should the Obligations of the Project Owner, the Main Contractor and the Subcontractor Be Examined Separately?

The project owner’s obligation toward the main contractor and the main contractor’s obligation toward the subcontractor arise from separate contracts. The project owner usually pays the contract price to the main contractor; the main contractor covers the subcontractor’s progress payment under its own subcontract. The fact that the works performed by the subcontractor are located on the project owner’s immovable property does not automatically make the project owner liable for all the prices under the subcontract. If there are special grounds such as a direct payment undertaking, assignment of the contract, assumption of the debt, assignment of the receivable or a statutory security, each of them is assessed separately.

The main contractor’s transfer of the contractual scope to a subcontractor should also be examined from two angles: under TBK Article 471/3, whether the work must be performed personally because of the contractor’s personal characteristics; and whether the main contract or the project specification restricts the use of subcontractors. Working with a subcontractor does not, as a rule, eliminate the main contractor’s obligation toward the project owner regarding quality, time and delivery. [1]

Project Company, Simple Company (Adi Ortaklık), Consortium and the Chain of Subcontractors

In large projects, a company that appears as the “employer” on the contract may in fact have a different status, such as investor, landowner, joint venture or representative. The representative authority of the signatory, which legal entity undertook the payment obligation, and whether there is a simple company or a consortium between the parties should be investigated. The mere appearance of a company logo in site correspondence does not lead to the conclusion that the company is the addressee of all subcontractor debts. The joint venture agreement, powers of attorney, the trade registry, signature circulars, progress payment letterheads and payment records should be examined together.

The Contract and Its Annexes Set the Legal Boundaries of a Progress Payment Dispute

A construction contract consisting only of a price and a delivery date leads to disputes that cannot be calculated later. Which document applies in which order among the main contract, the bid and cost estimate summary (keşif özeti), the room schedule, the schedule of unit prices, the construction drawings, the technical specification, the work program, revision instructions and the payment protocol should be clear. For example, if an element shown in an architectural drawing is not included in the cost estimate summary, the question arises whether the contractor undertook to perform that work free of charge; the answer cannot be inferred merely from the existence of the drawing.

In interpreting the contract, the general provisions of the TBK, the common intention of the parties, their conduct in performance and the nature of the commercial relationship are assessed together. The scope of broad clauses such as “the contractor shall perform all kinds of additional work” or “the price shall not change” should not be regarded as unlimited beyond the specific subject of the contract, foreseeable risks and mandatory provisions. If there is a genuine conflict between documents, a priority clause alone may not provide a solution; it should be determined on which date, with what authority and what the parties changed.

Review of Signatures and Authority

The site manager, control engineer, project manager or consultant who signs a progress payment is not always authorized to acknowledge a debt or accept a new price on behalf of the company. The authority to confirm that the work has been technically performed should be distinguished from the authority to sign an amendment that creates a new economic obligation. Despite the authorization document, the legal effect of conduct such as the parties’ subsequent written agreement, making payment or knowingly using the works may also be examined in the specific case.

How Is Transparency of the Payment Chain Ensured?

The subcontract should separately set out in which period a progress payment will be prepared, with which documents an application will be made, the review period, notification of missing documents, the objection procedure, the payment due date, offsetting of advances, retention deductions, tax withholdings and when the final account will be drawn up. The main contractor’s inability to obtain payment from the project owner and the subcontractor’s performance of its own obligation are different facts. Even if a contract contains a condition along the lines of “payment when payment arrives from the upper-tier employer,” its interpretation is made separately on the basis of certainty, the principle of good faith and on whom the risk was placed; it does not automatically turn into a payment deferral of unlimited duration.

Differences Between Lump-Sum Price, Unit Price, Quantity Measurement and Approximate Price

The method by which the price of the work was agreed is the first point to be determined with regard to progress payment and additional work claims. The lump-sum price regime under TBK Article 480 is not the same as the calculation under Article 481, which is based on a price that was not fixed definitively in advance or on an approximate price. In public works, the special provisions of the tender and contract documents may additionally apply. [1]

Under a Lump-Sum Price, Must the Contractor Bear Every Additional Cost?

The principle of TBK Article 480 is that a work with a lump-sum price is to be produced for the price set in the contract; an increase in the price cannot be demanded merely because more labor or expense was required than expected. However, where extraordinary circumstances that could not be foreseen at the outset, or that were foreseeable but not taken into account by the parties, make the work extremely difficult, adaptation or termination under the statutory conditions may come into play. This exception does not mean that inflation or an increase in costs automatically turns into a price adjustment in every case. In addition, genuine additional work undertaken because of a project change subsequently given by the employer may be a legal issue separate from the initial lump-sum scope. [1]

The Function of Quantity Measurement and Measurement Sheet (Ataşman) Records in Unit-Price Work

In a unit-price contract, the accuracy of the payment calculation depends not only on whether the works were performed but also on which basis of measurement was chosen. Bills of quantities, on-site measurements, measurement sheets, signed records, revised drawings and, where necessary, photographs should be compared. It cannot be assumed that the theoretical quantity entered in the project corresponds to the quantity actually performed in practice. In buried installations, foundations, waterproofing or covered works, preservation of evidence before the opportunity for inspection is lost is particularly important.

What Is a Progress Payment, How Is It Prepared and When Does It Become a Claim?

A progress payment is a payment document showing, together with the relevant measurement and calculation records, the price of the works reported as performed in a certain period or of the performances linked to the contract. However, the document may have different functions with regard to technical determination, contractual approval, accounting entry and the maturity of the claim. A draft progress payment prepared by one party is not equal to a progress payment that has been approved by the authorized persons, whose objection process has been completed and which has fallen due.

Under TBK Article 479, the project owner’s obligation to pay the price falls due, as a rule, upon delivery of the work; where delivery in parts and a price for each part have been agreed, a different result arises for each part. If the parties have regulated specific interim progress payments and a payment schedule by contract, this arrangement is assessed separately within the framework of mandatory law and the nature of the specific contract. For this reason, no general rule can be established that every progress payment falls due only on the date it is prepared, and every invoice only on the date it is issued. [1]

Basic Stages from Preparation to Payment of a Progress Payment

1. The period and scope are determined; the work items provided for in the contract and any approved additional works are separated.
2. Measurement is carried out; the quantity measurement, measurement sheets, works record and supporting technical records are linked.
3. Double counting is prevented by deducting the cumulative amounts of previous periods.
4. The price in accordance with the contract, any price adjustment and the tax elements are recorded.
5. Advances, previous payments, security, penalties and other deductions are shown with their separate legal grounds.
6. The technical and financial approvals of the person authorized in the contract are obtained; objections are recorded with dates.
7. The payment due date, default conditions and collection record are monitored; a link to the final account is established.

Not all of these steps are the same mandatory procedure in every project; they are applied according to the contract. Nevertheless, keeping the dates of preparation, approval and payment of the document separate is important both for the parties’ accounting and for proof in a possible action.

Are the Interim Progress Payment, the Final Progress Payment and the Final Account the Same Thing?

An interim progress payment may have the nature of an interim payment and progress calculation prepared while the work is ongoing. The final progress payment or final account, on the other hand, aims to settle the cumulative amount for the whole work, the revisions, deductions and the remaining balance. Their binding effect is determined on the basis of whether delivery and acceptance procedures have been carried out, whether there are objections in accordance with the specification and the parties’ records. Signing an interim progress payment does not necessarily mean that the work has been finally accepted as entirely free of defects; nor does the final acceptance necessarily mean that all unpaid monetary claims have been waived unconditionally. Release and reservation of rights provisions are examined separately.

Why Are Objections to Progress Payments and Reservations of Rights Critically Important?

If the progress payment amount has been understated, the work item applied is incorrect or an unauthorized deduction has been made, the objection should be communicated to the addressee, within the period and in the manner set in the contract. The objection should not be limited to a general phrase such as “I reserve my rights”; as far as possible, it should explain which item of which progress payment is being challenged and on account of which measurement or calculation. The applicable contract and specification may require that the objection be written separately on the progress payment or that a reasoned petition be attached.

In public works, the progress payment objection procedure in the applicable version of the General Specification for Construction Works (Yapım İşleri Genel Şartnamesi) incorporated into the contract may be decisive. In the decision of the 15th Civil Chamber of the Court of Cassation (Yargıtay 15. Hukuk Dairesi) numbered E.2015/1817, K.2016/1527, the progress payment objection provisions of the specification annexed to the relevant contract were assessed within the framework of HMK Article 193, and it was stated that whether the objection was made within the period and in the proper manner had to be investigated. The specific period or procedure in this decision should not be applied to every private-sector subcontractor without investigating its entry into force and the scope of the contract. [6]

What Does a Reservation of Rights (İhtirazî Kayıt) Mean in Private-Sector Contracts?

If a private-sector contract for work has its own objection system, the validity and applicability of that system are investigated first. The parties’ subsequent correspondence, authorized acceptance, conflicting calculations and actual payment conduct may be taken into account. Where the contract has no clear acceptance mechanism, it cannot be accepted that specific formalities belonging to public works automatically form part of the contract. Nevertheless, a timely objection containing reasons and evidence strengthens proof of a claim to be asserted later.

Is Signing a Progress Payment or Receiving a Payment a Waiver of Rights?

The concepts of acceptance, release deed (ibraname), reconciliation and waiver are not the same. Receiving an interim payment does not in every case mean waiving the balance of the claim; however, a party’s clear and valid statement that “the final account and all claims have been paid” may lead to a different result. The full texts of the receipt, signature, specification and offsetting documents should be assessed together. If there are objections of material error, fraud, duress or standard terms with regard to the actual amount of the debt, these too are examined under the relevant provisions.

What Do Invoices, E-Invoices, Current Accounts and Commercial Books Prove?

An invoice is an accounting and commercial document related to the progress payment; whether the works were actually performed and whether the price of the work was agreed are different matters of proof. Under Article 21/2 of the Commercial Code, failure to object to an invoice in time may have consequences. However, the existence of a unilaterally issued invoice does not by itself prove that an undisputed contract for work was formed between the parties or that all the works covered by the invoice were performed in full. [4]

In the decision of the 15th Civil Chamber of the Court of Cassation numbered E.2016/4742, K.2018/652, proof of the contractual relationship and assessment of the content of an invoice to which no objection was made were likewise treated separately. The transmission of the invoices, whether they were recorded in the commercial books, the statements of the other party and on-site technical determination should be examined together. [7]

Accounting Reconciliation Differs from Technical Quantity Reconciliation

The appearance of a particular invoice in the current account does not directly prove which concrete class was used, the cable length or whether the installation complies with the project. Conversely, which company owes the price of a work found to have been completed on site cannot be inferred merely from an engineering report. The assessments of a financial adviser (mali müşavir) expert, a civil engineer and other necessary technical experts answer different questions. For the court to reach a verifiable conclusion, complementary reports and the parties’ records are required.

Bank Payments and the Debt Against Which They Were Offset

The existence of a bank receipt does not always show against which progress payment, which project or which company debt the payment was made. The description field, payment instruction, contract, invoice, current account, advance protocol and the debtor’s statement should be examined together. Where there are several projects or several subcontracts with the same company, a separate account statement for each project should be used; advances, refunds of security and payments of the price of the work should not be mixed up.

How Is the Price of Additional Work, Extra Works and Project Changes Proven?

Just as the absence of a work from the project or the bill of quantities does not mean that it is necessarily free of charge, not every work performed by the contractor automatically requires separate remuneration. First, it should be determined whether there is a genuine difference in scope between the initial contractual scope and the work performed later. Re-invoicing the same work item under another name, presenting complementary work within the contractual scope as “extra works” and confusing a change made out of technical necessity with an instruction from the project owner are significant risks.

In an additional work claim, the first question should be “Was this work performed?”; the second “Who requested or approved it?”; the third “Was it included in the initial price?”; and the fourth “Which price regime applies?” A photograph of a work performed on site can help only with the first question. The legal basis of the claim for an additional price should be explained by the contract, a change order, an authorized agreement of the parties, acceptance of the work or, in the specific circumstances, other applicable provisions of the law of obligations.

If There Is No Written Change Order, Is the Price of the Additional Work Lost Entirely?

The existence of a written approval requirement in the contract is important; however, in the specific case, who requested the change, the subsequent approval or acceptance of authorized persons, the parties’ correspondence and actual practice may also be examined. Not every file without written approval leads to the same result. Nevertheless, particularly in corporate projects, carrying out a high-value increase in the work on the basis of the oral instruction of unauthorized site personnel creates a serious risk in terms of proof.

The evidence may include revised drawings signed by the parties, work orders, meeting minutes, the updated work program, a table of quantity differences, price analyses, photographs, delivery records of third parties, e-mails and electronic correspondence. Where necessary, the time of preparation and the source of technical records should be submitted to expert examination. A litigation plan should not be built solely on witness statements without separately assessing the HMK rules on proof by documentary evidence and their exceptions according to the value of the legal transaction. [5]

Determination of a New Unit Price and the Market Rate

For the price of a work that has no counterpart in the contract, a valid price agreement between the parties is investigated first, followed by any method for new work items and price analysis in the contract. If these do not exist, under the conditions in which TBK Article 481 may apply, the value at the place and time the work was performed and the contractor’s costs may be examined. The market rate is not the online material price on an arbitrary day; it should be linked to the quantity of the work, the combination of materials and labor, the difficulty of installation, equipment, and market and time conditions. [1]

Advances, Deductions, Contractual Penalties and Refund of Security in the Progress Payment Calculation

To calculate the balance of a progress payment, the gross progress payment total should be distinguished from the collectible net amount. Payment advances, previous progress payments that have been offset, retention deductions, legally valid penalties and deductions arising from tax legislation should not be combined on a single line. It should be shown who made which deduction under which contract clause or statutory provision.

When Can a Retention Deduction Be Reclaimed?

A deduction from progress payments at a certain rate agreed in the contract may secure the performance risk of the project owner or the main contractor. However, making the deduction and the due date of its refund are separate issues. The refund of a certain portion may have been provided for at provisional acceptance, and of the remaining portion after final acceptance or the warranty period. Whether the refund conditions have been met, and which defect or incomplete work is actually being asserted, should be documented. A party merely saying “the project has not been closed yet” does not in every case grant a right to an indefinite deduction; likewise, an amount whose acceptance condition has not been met cannot in every case be claimed immediately.

The decision of the Civil General Assembly of the Court of Cassation (Yargıtay Hukuk Genel Kurulu) dated November 17, 2020, numbered E.2017/495, K.2020/904, concerns a hotel construction project in Antalya in which a company that was initially a subcontractor later entered into a direct contractual relationship with the project owner, and the claims arising from progress payments and retention deductions. Particularly noteworthy in the decision is the different assessment of the main and the joined files with regard to whether the claim could be determined from documents, the commercial book records and compensation for denial of debt (icra inkâr tazminatı). This decision is not a general rule that every retention deduction will be refunded automatically at delivery or final acceptance. [8]

Deduction of a Contractual Penalty from a Progress Payment

If a contractual penalty is deducted on grounds of delay or breach of contract, the occurrence of the breach, to whom it can be attributed, the determination of the penalty amount, notification and the effect of accepting delivery without reservation should be examined separately. Under TBK Articles 179–182, the possibility of claiming the contractual penalty together with performance, an excessiveness argument and the limitations specific to the position of merchants are not the same. The claim that the employer made an unjustified deduction and the contractor’s liability for delay should not be assumed to be independent of each other; they should be linked to the work program, handover of the site, approval delays and change orders. [1] [4]

How Do Provisional Acceptance, Final Acceptance and Delivery of the Work Affect the Progress Payment?

Delivery, provisional acceptance, final acceptance and approval of the progress payment are separate concepts. Fulfillment of the conditions provided for provisional acceptance in the contract may not end all maintenance/repair and warranty obligations. At final acceptance, outstanding incomplete works, notices of defects, the refund of security and reservations on the final account should be properly recorded. Whether the person giving technical acceptance has the authority to waive all monetary claims should also be examined separately.

TBK Articles 474–478 regulate the project owner’s obligations in inspecting the work and notifying defects and its rights concerning a defective work. The statute of limitations for claims arising from defects in an immovable structure should not be confused with the statute of limitations for the contractor’s own claim for the price of the work. Even if the due date of the progress payment has passed, a counterclaim arising from a defect or a valid set-off defense may come into play depending on the specific contract; every assertion should be supported by documents and technical examination. [1]

Why Is the Distinction Between Incomplete Work and Defective Work Important?

Incomplete work means that a part undertaken by the contract has not been performed; defective work means that the work performed does not have the qualities agreed or expected by law. On the basis of this distinction, the project owner may demand different elective rights, completion of the incomplete work, remedy or compensation. The absence of a work and its low quality are measured differently; the report of the expert calculating the price of the incomplete work may also be of a different nature from a report on the technical cause of the defect.

If the Main Contractor Does Not Pay, Whom Can the Subcontractor Turn To?

In most cases, the subcontractor’s primary addressee is the main contractor, which is the debtor under its own subcontract. The fact that the project owner has not paid progress payments to the main contractor does not automatically change who the debtor is for a price of the work that has fallen due under the subcontract. By contrast, whether the subcontractor has a right to claim directly from the project owner should be investigated on the basis of a special contract or a statutory option.

Direct Payment, Assumption of Debt, Assignment of the Contract and Assignment of the Receivable

In a protocol, the project owner may have undertaken direct payment to the subcontractor, assumed a specific debt under the main contract or become a party to an assignment of the contract. The addressee of the claim cannot be determined without examining the parties to the protocol, the amount of the debt, whether the former debtor was released, the conditions of the assignment/transfer, the approvals and any remaining retention deductions. In the 2020 decision of the Civil General Assembly, the transition from a subcontracting relationship directly to the project owner took place through a specific protocol and documents; this fact is not an abstract principle granting all subcontractors an automatic right of direct action. [8]

The Direct Action Decision of the 6th Civil Chamber of the Court of Cassation Dated January 31, 2023

In the decision of the 6th Civil Chamber of the Court of Cassation (Yargıtay 6. Hukuk Dairesi) dated January 31, 2023, numbered E.2022/316, K.2023/338, the claims for payment and for a construction creditor’s mortgage asserted against the owner of the immovable property by a subcontractor that had contracted with the main contractor in the construction of a factory were discussed. The decision explained that where the project owner is not a party to the sub-contract for work and it cannot be proven that it undertook a separate obligation toward the subcontractor, direct personal liability for the claim cannot be imposed merely on the basis that the works were performed on the project owner’s immovable property. As regards the mortgage claim, it was also assessed that the conditions of TMK Article 893/3 were not met in the specific case. [13]

Practical consequence: The debtor of the subcontractor’s personal claim, the immovable property and time-limit conditions of a statutory mortgage claim, and any additional protocol creating a direct obligation should be distinguished from one another. This decision, too, should not be generalized to mean that all subcontractor mortgage claims must be rejected.

The Construction Creditor’s Statutory Mortgage Right: A Special Security Subject to a Time Limit

Article 893/3 of the Turkish Civil Code enables subcontractors or craftsmen who have expended labor on buildings or other works on an immovable property, under certain conditions, to request registration of a statutory mortgage right as security for their claims for materials and labor. Under TMK Article 895, conditions such as a three-month period from completion of the work undertaken and the claim having been acknowledged by the owner or decided by a court apply to this registration. The existing exception and the registration mechanism should be assessed separately. [3]

This security does not mean that the project owner is the direct personal debtor of every subcontractor’s contract price. A personal action for payment and a request for registration of a statutory mortgage on the immovable property are subject to separate regimes of rights and procedure. Missing the three-month period may lead to a serious loss of rights. The date on which the work was completed, the identity of the immovable property, its ownership status, the nature of the claim and eligibility for registration should be examined urgently.

Defenses of the Main Contractor, the Subcontractor and the Project Owner

Construction claims should not be assessed one-sidedly. While the subcontractor claims the balance of the price of the work, the main contractor may assert that the work was performed incompletely, that unauthorized extra works were carried out, that delivery was not completed, that payment had already been made or that the progress payment was not approved by the person provided for in the contract. Just as these defenses cannot be accepted as automatically correct, ignoring them in the statement of claim is a significant strategic shortcoming.

Delay and Increases in the Work Caused by the Project Owner

In calculating a deduction for late delivery or a counterclaim for compensation, delay in handing over the site, project revisions, failure to give approvals of materials and drawings on time, access obstacles or other causes attributable to the employer should be examined one by one. Determining the length of the delay merely by working backward from the completion date may not be sufficient; the critical work program and concurrent causes of delay may require technical examination.

Termination of the Contract, Abandonment of the Work and Settlement of the Final Account

When a construction contract is ended, saying “the parties have parted ways” does not resolve the settlement calculation. Which works have been performed, which materials remained on site, which works were completed by third parties, which advances were given, which securities have not yet been refunded and which damage claims have been asserted? These specific data form the starting point of the settlement.

TBK Article 473 regulates the right of withdrawal without waiting for the delivery date under certain conditions of delay contrary to the contract; Article 482 the exceeding of the approximate price; Article 484 the project owner’s option to terminate against compensation before completion; and Article 485 the impossibility of performance due to an unforeseen event relating to the project owner. These provisions and the general provisions on default, breach of contract and compensation may give rise to different legal grounds and settlement consequences. [1]

When the Work Is Abandoned, How Is It Established Which Works Existed on Which Date?

Preparing a site handover or work abandonment record, an independent photographic record, determining the occupational safety and access situation, counting the materials in storage, recording open mechanical systems and applying for an independent technical examination are important. Once a new contractor starts work, the earlier works may be covered; in that case, it may become impossible in a later dispute to separate which fault belongs to whom. A unilateral financial calculation submitted only afterward should not be taken as the basis.

Positive Damages, Negative Damages and the Balance of the Price of the Work in the Final Account

The legal nature of the termination may change the type of damage that can be claimed. The balance of the price corresponding to the completed work, the costs saved for the part not performed, the cost of completion by another contractor, delay damages and advances to be refunded are separate items. The same economic loss should not be claimed twice under the names of both “final account difference” and “compensation.” Automatically treating the conditions of withdrawal, termination and compensation in lieu of performance as the same result under a single heading is wrong.

Claim for the Price of the Work, Enforcement Proceedings and the Action for Annulment of the Objection

For a monetary claim that has fallen due, enforcement proceedings without a judgment may be initiated if the conditions are met. If the debtor objects to the payment order, the fate of the proceedings and the request for annulment of the objection are assessed within the framework of Article 67 of Enforcement and Bankruptcy Law No. 2004. The statutory one-year period for the action for annulment of the objection is different from the general statute of limitations of the claim; the start of the period should be examined according to the notification of the objection to the creditor. Whether an action for payment can be brought under the general provisions if the period is missed is a separate issue. [9]

Why Is Compensation for Denial of Debt Not Awarded in Every Progress Payment Action?

In an action for annulment of the objection, in addition to the statutory conditions, whether the claim is liquidated (likit), that is, of a nature that can be determined by the debtor, is also important for compensation for denial of debt. A long calculation by a technical expert does not always conclusively show that the claim is not liquidated; on the other hand, if the amount claimed is to be determined entirely by establishing disputed quantity measurements and unauthorized extra works, a defense that the claim is not liquidated may come into play.

In the decision of the Civil General Assembly of the Court of Cassation dated November 17, 2020, the conditions for compensation for denial of debt were accepted with regard to the claim that could be determined from the assignment protocol signed by the parties and the invoices recorded in the defendant’s commercial books; a different conclusion was reached with regard to the invoices that did not appear in the books and required separate assessment. This distinction should not be generalized as “if there is an invoice, there is necessarily compensation for denial of debt” or “if an expert examination has been carried out, there can never be any.” [8]

The Different Functions of Precautionary Attachment and Interim Injunction

If the conditions are met, precautionary attachment may come into play for securing a monetary claim, and an interim injunction for protecting a specific right or evidence. HMK Article 389 et seq. and the precautionary attachment provisions of the Enforcement and Bankruptcy Law are subject to different conditions and lead to different consequences. These interim protective measures and a request for a statutory mortgage subject to registration on an immovable property do not substitute for one another either. [5] [9]

How Are the Competent Court and Mediation as a Condition of Suit Determined?

The fact that one of the parties to a construction claim dispute is a merchant or a company does not by itself turn every action into a commercial case. The connection of the dispute with the parties’ commercial enterprises, the commercial case regime in TTK Article 4 and any special provision should be assessed. In a matter qualifying as a commercial case, the commercial court of first instance has subject-matter jurisdiction as a rule; in a dispute under a contract for work that is not commercial in nature, the general rules on subject-matter jurisdiction may come into play. If the matter qualifies as a consumer transaction, the consumer court and the special procedural prerequisites should also be examined separately. [4] [5]

TTK Article 5/A provides that in actions for commercial receivables whose subject is a sum of money, compensation, annulment of the objection, negative declaratory judgment and recovery of payment, applying to a mediator before bringing the action is a condition of suit. By contrast, it cannot be asserted that there is a uniform mediation requirement for all construction actions. The real nature of the dispute and of the claim should be established; where necessary, the final record should be added to the file in accordance with the provisions of Article 18/A of Law No. 6325 on Mediation in Civil Disputes. [4] [10]

The Distinction Between the Labor Court, the Consumer Court and the Commercial Court of First Instance

If it is alleged that there is in reality an employment contract between a person claiming to be a subcontractor and the employer, the protection and jurisdiction rules specific to the employee–employer relationship are assessed first. A genuine subcontractor’s action for the price of a work does not move to the labor court merely because work is performed on a construction site. Likewise, a consumer action brought by an individual home buyer against the seller is not subject to the same jurisdiction regime as a main contractor–subcontractor progress payment claim action. Where different actions need to be heard together or as connected to one another, the type of action, the status of the parties and the claims should be reviewed separately.

Statute of Limitations and Time-Limit Risks in Claims Under a Contract for Work

For claims arising from a contract for work, TBK Article 147/6 provides for a five-year statute of limitations, reserving the exception where the contractor, through gross fault, fails to perform its obligations at all or properly. With regard to the exception concerning performance with gross fault and the legal nature of the specific claim, the general period or other special provisions may be assessed separately. TBK Article 149 on the maturity of the claim, together with delivery in parts and the progress payment due dates under the contract, should be examined together. [1] [11]

The periods of two and five years and, in case of gross fault, twenty years provided for actions arising from a defective work under TBK Article 478 are not a general period applicable to all types of claims for the price of the work. Likewise, the three-month registration period under TMK Article 895 cannot be equated with the statute of limitations for the subcontractor’s personal monetary claim. The one-year period for the action for annulment of the objection under Article 67 of the Enforcement and Bankruptcy Law is also a third and separate time regime. [1] [3] [9]

Evidence and Technical Expert Examination in Progress Payment Actions

In progress payment disputes, not only the contract or accounting records but also technical data showing how the contract was actually performed should be collected. In construction, the covering of works, a change of hands of the site, the impossibility of repeating tests later and the loss of device/control records may require that preservation of evidence not be delayed. HMK Article 400 et seq. make it possible, if the conditions are met, to resort to an on-site examination, expert examination or other means of determination. [5]

Document Groups Useful to Compile in the Case File

• Contractual documents: Main contracts and subcontracts, signature/authority records, cost estimate and price schedules, specifications, priority and amendment provisions.
• Technical performance: Approved project and its revisions, quantity measurement/measurement sheets, site diaries, building inspection records, test reports and photographs.
• Approval and reservation of rights: All versions of progress payments, approval and objection letters, registered electronic mail/e-mail, meeting resolutions, delivery and acceptance records.
• Financial documents: Invoices/e-invoices and transmission records, commercial books, current account statements, bank transactions, advance protocol, security and tax deductions.
• Dispute records: Formal notice and notification documents, lists of incomplete and defective work, the other party’s calculations, expert opinions and, if any, the final mediation record.
• Special securities: Documents on assignment of the contract/assumption of debt, mortgage requests, land registry records, letters of guarantee, assignment of the receivable or direct payment undertakings.

Which Questions Should the Expert Report Answer?

It is not sufficient for the expert merely to say “the plaintiff should be paid this much.” A report suitable for the court’s assessment should make clear which work was performed on which date and with which technical document, which work item of the contract it falls under, the measuring method, findings on quality/defects, the separation of disputed extra works, the cumulative progress payment calculation and the offsetting records. Legal characterization and rendering judgment belong to the court; the technical expert should not on its own initiative become an authority that rewrites the contract or determines the procedural prerequisite.

What Step Should Be Considered Before Technical Documents Are Lost?

Even if an action has not yet been brought, the need for preservation of evidence may be examined before the works are covered, the installation is dismantled or another contractor intervenes. A unilateral record and photograph never absolutely replace court review. The manner in which the evidence was obtained and kept, the time of the photograph, the person who carried out the measurement and the device records are also part of the reliability assessment. Certain electronic correspondence may be important with regard to its character as initial written evidence (yazılı delil başlangıcı) for a legal transaction; however, it cannot be said that every WhatsApp screenshot by itself constitutes conclusive proof. [5]

The Effect of Court of Cassation Case Law on Progress Payment and Subcontractor Actions

Civil General Assembly, November 17, 2020: The Distinction Between a Liquidated Claim and a Claim Requiring Technical Examination

In the dispute that was the subject of the decision of the Civil General Assembly of the Court of Cassation dated November 17, 2020, numbered E.2017/495, K.2020/904, the plaintiff initially worked as a subcontractor, and a direct contractual relationship with the project owner was then established through a specific assignment protocol. Part of the claim was based on the signed protocol and on invoices entered in the defendant’s commercial books, while other invoices in the joined file did not appear in the commercial books. The General Assembly upheld the decision of persistence (direnme kararı) concerning compensation for denial of debt with regard to the main action because the claim could be determined; with regard to the joined action, it reversed the decision of persistence on the basis of a different assessment. [8]

Practical consequence: Without examining the identity of the debtor, the protocol, the invoices and the commercial book records together, it is not possible to classify all progress payments either as definite claims or as claims that are necessarily not liquidated. This decision, arising from a specific hotel construction project in Antalya, is not a directly absolute outcome for other projects, but an important example of assessment in identifying the evidence and the debtor.

15th Civil Chamber of the Court of Cassation: The Progress Payment Objection Procedure

In the decision numbered E.2015/1817, K.2016/1527 of the 15th Civil Chamber of the Court of Cassation, the provisions of the General Specification for Construction Works annexed to the contract on objections to interim progress payments and their effect in the context of HMK Article 193 were assessed. It was stated that the court had to investigate whether the objection directed at a specific progress payment was made within the period linked to the payment and in accordance with the method in the contract. [6]

Practical consequence: The contract date of the specific public works project, the applicable version of the relevant specification and the reservation procedure should be examined together; it is not correct to transfer the period in a historical decision of the Court of Cassation directly to all private-sector contracts.

15th Civil Chamber of the Court of Cassation: Examining the Invoice and the Actual Works Together

In the decision numbered E.2016/4742, K.2018/652 of the 15th Civil Chamber of the Court of Cassation, emphasis was placed on distinguishing between an objection to an invoice and proof of the contract for work between the parties. On the other hand, in disputes where the actual performance of the work is contested, an on-site examination and expert examination in the appropriate field of expertise may be required. [7] [12]

Practical consequence: Neither the shortcut “an invoice was issued, so the debt is definite” nor the approach “there is no written contract, so no price can be claimed at all” can be defended without assessing the legal relationship and the conditions of the work.

Decision of the 6th Civil Chamber of the Court of Cassation Dated January 31, 2023: Party Status and the Construction Creditor’s Mortgage

In the decision numbered E.2022/316, K.2023/338 of the 6th Civil Chamber of the Court of Cassation, whether there was a legal connection allowing the subcontractor to direct a personal claim straight at the project owner, and the special conditions of the construction creditor’s mortgage, were assessed. Since no contract or other obligation relationship between the subcontractor and the project owner was proven, the direct claim was not accepted; it was stated that in the specific case the mortgage conditions of TMK Article 893/3 were not met. The decision makes concrete the distinction that “the project owner’s supervision of the site does not show that it has assumed every subcontractor debt.” [13]

Dispute-Preventing Contract Review for the Project Owner and the Contractor

Litigation strategy after a dispute arises often ends up paying the price of decisions that were not made when the contract was drafted. Particularly in large-scale projects with many subcontractors, adding a few figures to a standard template may not be sufficient. A contract suitable for implementation should make technical and legal responsibilities traceable within the same document system.

• The project owner, the main contractor, the subcontractor and the representatives should be defined with clear trade names and authority.
• The scope of work, excluded works, the cost estimate, drawings and the technical specification should complement one another; the order to be applied in the event of conflict should be determined.
• The lump-sum, unit or mixed price and the procedure for agreeing the price of new work items should be shown separately.
• The progress payment period, measurement, application, objection and approval authority, the payment due date and the procedures for missing documents should be clear.
• A mechanism for changes to the work, written work orders, price adjustment, extra works and extensions of time should be established.
• Retention deductions, bank security, insurance, offsetting of advances and refund conditions should be shown separately.
• The relationship between delivery, provisional and final acceptance, notification of defects, testing, warranty and the final account should be regulated.
• Abandonment of the work, termination/withdrawal, safe handover of the site, counting of materials and the method of the settlement calculation should be provided for.
• In dispute resolution, subject-matter/territorial jurisdiction, arbitration, mediation and document production obligations should comply with the relevant mandatory provisions.

The Order of Legal Review to Follow When a Dispute Arises

1. Identify the contract and the parties. Determine the signature, representation, the subcontractor and any companies that have become direct debtors through a protocol.
2. Freeze the account. Calculate separately, period by period, the progress payments and invoices, cumulative quantities, payments, advances, penalties and security schedules.
3. Document the technical situation. Before new work starts, assess whether preservation of evidence is needed for incomplete, defective, completed and soon-to-be-covered works.
4. Check the objection and notification periods. The periods for objecting to a progress payment, notifying defects, registering a mortgage, enforcement proceedings and bringing an action differ from one another.
5. Choose the route suited to the debtor and the type of claim. The conditions for a written demand, mediation, an action for payment, enforcement proceedings, mortgage registration or interim protection should be examined separately.
6. Review the counter-defenses in advance. Defenses of an unauthorized work order, a price already paid, employer delay, defects and set-off should be reflected in the case file.
7. Complete the collection and security steps after the decision. Enforcement proceedings, land registry registration, refund of security, enforcement of the decision where necessary and corrections to the books should be followed up separately.

Related articles: Late, Incomplete and Defective Delivery in Construction Contracts; What Is Preservation of Evidence?; Objecting to an Expert Report in a Civil Action; How Is a Claim Collected in Türkiye?; Construction Contract in Return for Land Share (Flat-for-Land): Formation, Title Transfer, Delivery, Termination and Lawsuits.

Conclusion

Reaching the correct result in construction progress payment disputes depends, before merely calculating the total figure, on identifying the correct debtor, the correct contract and the performance actually rendered. The subcontractor’s contractual claim should be distinguished from a special claim or a statutory mortgage right that may be asserted against the project owner. The effect of interim progress payments, the final account, invoices and delivery and acceptance documents should also not be reduced to the same acceptance regime. The technical and financial records created by the parties during the period in which the work was performed enable the progress payment amount, maturity, offsets and any compensation to be determined in a verifiable manner when a dispute arises.

In particular, it is important to record works on site that will be covered, to make the objection to the progress payment in accordance with the applicable contract and to track the periods relating to the claim for the price of the work and the construction creditor’s mortgage separately. The appropriate action or other route of recourse should be determined on the basis of the status of the parties, the specific contract, the nature of the claim and the current legal situation.

Frequently Asked Questions

Is the Project Owner Directly Liable for the Subcontractor’s Unpaid Progress Payment?

As a rule, the subcontractor’s contractual addressee is the main contractor that concluded the sub-contract for work with it. A direct monetary claim against the project owner additionally requires an assumption of debt, an assignment of the contract, a direct payment undertaking or another valid legal basis. The statutory mortgage under TMK Articles 893–895 is, under certain conditions, a separate option of real security; it does not automatically create a personal debt.

If the Progress Payment Has Been Signed, Is It No Longer Possible to Object?

Not in every case. The objection procedure of the applicable contract and specification, by whom and in what capacity the signature was given, and whether a reservation was made should be investigated. The specification procedure in public works does not automatically apply to all private-sector contracts.

Does Failure to Object to an Invoice Within Eight Days Make the Claim Final?

TTK Article 21/2 has consequences with regard to objections to invoices; however, it is not a general provision that by itself conclusively proves the existence of the contract or that all the works were actually performed. The contract, delivery, progress payment, books, payment and technical records are examined together.

Can a Price for Additional Work Be Claimed Under a Lump-Sum Contract?

A cost increase falling within the lump-sum scope agreed at the outset cannot, as a rule, be claimed separately. However, different assessments may be made with regard to genuine extra works outside the scope, a valid amendment agreement or the conditions of aggravation under TBK Article 480.

If There Is No Written Additional Work Order, Is the Price of the Extra Works Lost Entirely?

The definitive result depends on the written approval regime in the contract, the conduct of the authorized persons, the nature of the work and the available evidence. The absence of written approval creates a serious risk in terms of proof; however, it does not produce an automatic and single result in every file.

Can the Main Contractor Refuse to Pay the Subcontractor by Saying It Has Not Received Payment from the Project Owner?

The payment problem under the main contract and the due date and debt relationship under the subcontract are assessed separately. A defense that no collection has been made from the project owner does not alone justify leaving the subcontractor’s claim without a due date in every case; the valid conditions of the contract and the specific case should be examined.

Can the Retention Deduction Be Claimed Before Final Acceptance?

The contract may contain a provisional/final acceptance condition for all or part of the deduction. The maturity of the claim is determined according to these conditions, defenses of defects/incomplete work, any offsets and other valid provisions.

Is Mediation Mandatory in a Progress Payment Claim Action?

If the dispute qualifies as a commercial case and is a monetary claim or one of the listed types of action within the scope of TTK Article 5/A, the requirement of pre-action mediation comes into play. Not every dispute under a contract for work is automatically a commercial case; jurisdiction and the condition of suit should be assessed according to the specific party and claim.

What Is the Time Limit for the Subcontractor’s Statutory Mortgage Right?

TMK Article 895 provides for a three-month period from completion of the work undertaken for registration of the statutory mortgage. Acknowledgment of the claim or a court decision and the other registration conditions are examined separately. This period should not be confused with the general statute of limitations for the personal claim.

How Many Years Is the Statute of Limitations for the Contractor’s Claim for the Price of the Work?

Under TBK Article 147/6, a five-year statute of limitations applies as a rule; the gross fault exception and special provisions may be assessed separately. The starting date is examined according to the maturity of the claim. The time limits for claims arising from a defective work are subject to a separate regime.

Can Enforcement Proceedings Be Initiated Directly on the Basis of a Progress Payment Claim?

For a monetary claim that has fallen due and can be determined, enforcement proceedings without a judgment may be initiated if the conditions are met. If the debtor objects, the period for annulment of the objection under Article 67 of the Enforcement and Bankruptcy Law and the procedural prerequisites should be assessed separately. Compensation for denial of debt is not automatic for every progress payment claim.

Which Documents Should Be Given to the Expert in a Progress Payment Dispute?

The main contract and subcontract, technical annexes, approved projects, quantity measurements and measurement sheets, all versions of the progress payments, change orders, acceptance records, payment/advance/security records and, if any, objection letters should be submitted together. The consistency of the technical and financial records should be verifiable.

Sources and legal bases

1. Law No. 6098, Turkish Code of Obligations (6098 sayılı Türk Borçlar Kanunu), in particular Articles 112, 117–125, 146–149, 179–182 and 470–486; UYAP Legislation and Case-Law Program of the Ministry of Justice of the Republic of Türkiye (T.C. Adalet Bakanlığı UYAP Mevzuat ve İçtihat Programı), current consolidated text of the law: https://mevzuat.adalet.gov.tr/mevzuat/103273
2. Law No. 4721, Turkish Civil Code (4721 sayılı Türk Medenî Kanunu), in particular Articles 2–3, 6, 893/3 and 895; UYAP Legislation and Case-Law Program of the Ministry of Justice of the Republic of Türkiye: https://mevzuat.adalet.gov.tr/mevzuat/103249
3. Law No. 4721, Turkish Civil Code, Articles 893/3, 895 and related provisions with regard to the construction creditor’s statutory mortgage; the same official legislation record: https://mevzuat.adalet.gov.tr/mevzuat/103249
4. Law No. 6102, Turkish Commercial Code (6102 sayılı Türk Ticaret Kanunu), in particular Articles 4–5/A, 21 and the related provisions on commercial books; UYAP Legislation and Case-Law Program of the Ministry of Justice of the Republic of Türkiye: https://mevzuat.adalet.gov.tr/mevzuat/103039
5. Law No. 6100, Code of Civil Procedure (6100 sayılı Hukuk Muhakemeleri Kanunu), in particular Articles 190, 193, 200–202, 266, 389–399 and 400–405; UYAP Legislation and Case-Law Program of the Ministry of Justice of the Republic of Türkiye: https://mevzuat.adalet.gov.tr/mevzuat/103103
6. 15th Civil Chamber of the Court of Cassation (Yargıtay 15. Hukuk Dairesi), E.2015/1817, K.2016/1527, objection to progress payments under the General Specification for Construction Works and evidence agreement; accessible full-text copy of the decision: https://www.ictihatlar.com.tr/ictihatdetay-9948-15hukukdairesi-Yargitay-15-Hukuk-Dairesi-2015-1817-Esas-2016-1527-Karar-Sayili-Ilami.html ; also the related official UYAP case-law record: https://mevzuat.adalet.gov.tr/ictihat/390374200
7. 15th Civil Chamber of the Court of Cassation, E.2016/4742, K.2018/652, distinction between an objection to an invoice and proof of the contractual relationship; accessible decision record: https://librumhukuk.com/karar/yargitay/1105458/15-hukuk-dairesi-e-2016-4742-k-2018-652/
8. Civil General Assembly of the Court of Cassation (Yargıtay Hukuk Genel Kurulu), November 17, 2020, E.2017/495, K.2020/904, hotel construction in Antalya, contractual relationship passing from the subcontractor directly to the contractor, progress payments, invoices and the distinction of compensation for denial of debt in terms of liquidity; official UYAP case-law record: https://mevzuat.adalet.gov.tr/ictihat/638624900 ; accessible full-text copy: https://www.yargitaykararlari.com.tr/ictihatdetay-2707-hukukgenelkurulu-Yargitay-Hukuk-Genel-Kurulu-2017-495-Esas-2020-904-Karar-Sayili-Ilami.html
9. Enforcement and Bankruptcy Law No. 2004 (2004 sayılı İcra ve İflas Kanunu), in particular Article 67 and the provisions on precautionary attachment; accessible UYAP decision of the Court of Cassation explaining the distinction between Article 67 of the Enforcement and Bankruptcy Law and a claim under a contract for work: https://mevzuat.adalet.gov.tr/ictihat/1084605100
10. Law No. 6325 on Mediation in Civil Disputes (6325 sayılı Hukuk Uyuşmazlıklarında Arabuluculuk Kanunu), in particular Article 18/A; UYAP Legislation and Case-Law Program of the Ministry of Justice of the Republic of Türkiye: https://mevzuat.adalet.gov.tr/mevzuat/104320
11. Civil General Assembly of the Court of Cassation, examination of the different limitation regimes under TBK Articles 146, 147 and 478 in claims under a contract for work; official UYAP case-law record: https://mevzuat.adalet.gov.tr/ictihat/1175101700
12. 15th Civil Chamber of the Court of Cassation, E.2016/5524, K.2017/544, investigation of the performance of the work, where necessary, by on-site technical examination; accessible text of the decision: https://www.ictihatlar.com.tr/ictihatdetay-8277-15hukukdairesi-Yargitay-15-Hukuk-Dairesi-2016-5524-Esas-2017-544-Karar-Sayili-Ilami.html
13. 6th Civil Chamber of the Court of Cassation (Yargıtay 6. Hukuk Dairesi), January 31, 2023, E.2022/316, K.2023/338, direct contractual obligation between the project owner and the subcontractor, party status and the conditions for registration of the construction creditor’s mortgage; accessible full text: https://avevrak.com/dev/yargitay/25707959/sozleslmesinden-insaatci-gebze-sakarya-ipotegi-eser-red-yapi-kesinlik-sarti ; judicial decision text index record: https://librumhukuk.com/karar/yargitay/871463300/6-hukuk-dairesi-e-2022-316-k-2023-338/