Turkey: EPC Contracts In The Energy Sector

Last Updated: 23 March 2015
Article by Burak Eryiğit

An engineering, procurement and construction ("EPC") contract is a complex form of construction contract, commonly used in large-scale construction works of complex infrastructure projects. EPC contracts are used in many sectors including energy (especially power plant projects), transportation and telecommunications. Under an EPC contract, the EPC contractor is required to deliver a completely functioning facility to the employer by carrying out the design, engineering, procurement and construction until a set date, in return for a pre-determined price. An EPC contractor must conduct the detailed engineering and design of the project (obtain the employer's approval if stipulated), procure all the materials and equipment, construct the facility and deliver it to the employer. Generally, the employer simply turns the key to operate the facility and, because of this, EPC contracts are sometimes called turnkey contracts.1 For EPC contracts in the energy sector, in addition to delivering a fully functioning energy facility on a set date, the EPC contractor must ensure that the energy facility performs to pre-determined levels.

Unlike traditional construction agreements, EPC contracts impose broad obligations for the EPC contractor, in order to facilitate the entire process for the employer. Hence, EPC contracts became a preferred type of agreement in public private partnership ("PPP") projects that (i) are project financed and (ii) involve multiple parties, such as lenders, investors, guarantors and public authorities.

An EPC contract governs many issues (e.g. liquidated damages, limitation of liability, compensation, force majeure). In addition, there are additional energy related issues (e.g. access to the transmission grid, commissioning and testing regimes, interface issues) that must be considered while drafting EPC contracts in the energy sector.


There is no Turkish law that specifically governs EPC contracts. EPC contracts can be classified as "mixed contracts", as they contain the features of different contract types. Due to lack of court precedent and doctrine in relation to issues arising from EPC contracts, the provisions dealing with construction contracts, as set forth between Articles 470 and 486 of the Turkish Code of Obligations2 (the "TCO"), apply to EPC contracts by way of analogy.3 Some of the important provisions regarding construction contracts set forth under the TCO are as follows:

  • If it becomes clear that the contractor will not be able to finish the construction on time, the employer can rescind the contract prior to the specified completion date.
  • In the event of the contractor's gross negligence, the limitation period for the contractor's liability for defective works is 20 years for immovables.
  • The employer can terminate the contract before completion of the work, by paying the completed part's price and the contractor's damages.


1. Single Point Responsibility

Under an EPC contract, the EPC contractor is responsible for conducting all design, engineering, procurement, construction, commissioning and testing activities. The EPC contractor undertakes the entire responsibility and risk, as the single responsible party. Even if an EPC contractor uses sub-contractors to carry out some parts of the work, it will remain responsible to the employer for the subcontractor's work. This single point responsibility is seen as one of the major advantages of EPC contracts in energy projects.

2. Fixed Contract Price and Fixed Payment Terms

The EPC contractor undertakes the entire risk, in return for a fixed contract price. Generally, the employer is not required to provide additional money unless it delays the EPC contractor or orders changes to the work. Furthermore, unless otherwise stipulated, EPC contract prices are free from market price variation. Payment terms are generally specified and fixed in an EPC contract and payments are generally linked to milestones set out in the EPC contract.

3. Fixed Completion Date and Milestone Basis Progress

EPC contracts provide for a fixed completion date for the overall contract,4 and may also contain fixed time limits for each activity. Under EPC contracts, contract work is divided into a certain set of activities and each set of activity is linked to a milestone. In EPC contracts with milestones, billing and payments are made when each milestone is reached. EPC contracts should include clauses that grant time extensions when the works are delayed for reasons arising from the employer.

In almost all cases, if the EPC contractor fails to meet the fixed dates, it will be liable for delay liquidated damages ("DLDs"). EPC contracts generally stipulate DLDs in order to compensate the employer for losses and damages arising from late completion of the energy facility. Although liquidated damages are not specifically governed under Turkish law,5 based on the freedom of contract principle and subject to certain restrictions,6 parties are free to agree upon liquidated damages clauses. In order to claim DLDs, the employer is not required to prove any damage. Under Turkish law, a party can claim damages exceeding the amount stipulated in the contract, if that party can prove both the additional amount and the other party's fault.

4. Performance Regime and Performance Guarantees

Stipulating a performance regime is a significant issue for EPC contracts in the energy sector. The employer's profits will be from operating the energy facility. Hence, it is important that the energy facility performs as required in terms of output, efficiency and reliability. It is for this reason that EPC contracts generally contain performance guarantees supported by performance liquidated damages ("PLDs"). The EPC contractor is required to pay PLDs if the energy facility fails to meet the pre-determined performance. Under Turkish law, similarly with DLDs, there is no provision prohibiting the stipulation of PLDs. Again, the employer is not required to prove any damage in order to claim PLDs.

5 .Limitation of Liability

The general rule in Turkish law is that the parties to a contract can contractually limit their liabilities, by way of determining a cap or excluding liabilities, to the extent this does not exclude liability for gross negligence and (of course) willful misconduct.7 Furthermore, there is no explicit provision under Turkish law that governs "consequential" or "indirect" damages and there is no legal restriction preventing the exclusion of liability for consequential and indirect losses. Parties can contractually agree on and enforce the exclusion of liability for consequential or indirect damages.

6. Security

EPC contracts generally stipulate for an EPC contractor to provide securities in different forms in order to protect the employer if the EPC contractor does not fulfill its obligations. The purpose of this system is to protect the employer where the EPC contractor is in breach of the EPC contract and cannot or does not pay the employer's claim for damages. Examples of forms of securities are (i) performance bonds; (ii) bank guarantees; (iii) retention bonds; (iv) advance payment bonds; (v) warranty bonds; and (vi) parent company guarantees.

7. Supplier's Warranty / Defect Liability

Under Turkish law, defect liability is referred to as the supplier's warranty.8 In an energy project, a defect occurs if the energy facility's equipment and services do not comply with the agreed quality in accordance with the specifications under the EPC contract. According to the concept of the supplier's warranty, the EPC contractor must deliver the energy facility free from any defects and the EPC contractor's fault is not a condition for the employer to invoke the supplier's warranty liability. However, the supplier's warranty liability can be contractually excluded or limited, except for gross negligence or fault.


1 Although EPC contracts are sometimes called turnkey contracts, there are differences depending on the specifications of the project: For instance, in EPC contracts, the employer generally provides the basic engineering and the contractor conducts the detailed design. In turnkey contracts, the employer only provides certain technical specifications. In turnkey contracts, the contractor is required to perform construction, commissioning, start-up and turn-over of the facility to the employer; whereas in EPC contracts, it may be a third party's responsibility to perform commissioning and start-up.

2 Published in the Official Gazette dated 4 February 2011 and numbered 27836.

3. Under the TCO, in a construction contract, one party undertakes to realize a project and the other party is required to pay the contract price.

4. A fixed completion date can be either a fixed date or a fixed period following the commencement date.

5. According to some scholars, liquidated damages are considered as a penalty fee under Turkish law. However, the two are different concepts, as liquidated damages are a genuine pre-estimate of the damage, whereas a penalty is a sum that is not necessarily proportionate to the actual damage.

6. Under the TCO, "agreements against statutory provisions, morals, public order, personal rights and agreements, the subject of which are impossible, are null and void."

7 Article 115/3 of the TCO provides an exception to this general rule, whereby in agreements concerning services, professions or arts requiring a certain specialization, clauses excluding or limiting negligence are strictly null and void.

8 The concept of supplier's warranty is similar to the "implied warranty" principle in English law.

© Kolcuoğlu Demirkan Koçaklı Attorneys at Law, 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Burak Eryiğit
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.