Construction projects are particularly vulnerable to economic volatility.

A contract may be commercially reasonable when signed but become dramatically more expensive months later because of inflation, exchange-rate movements, increases in steel or cement prices, energy costs, labour expenses, imported equipment prices, taxation, financing costs or supply-chain disruption.

This creates one of the most difficult questions in Turkish construction law:

Who bears the risk when the cost of construction increases after the contract has been signed?

The answer depends primarily on the contractual pricing model.

A fixed-price contract, unit-price contract, cost-plus contract and price-adjustable contract allocate economic risk differently.

Turkish law also contains statutory mechanisms that may exceptionally allow adaptation of a contract where economic conditions change so fundamentally that insisting on performance under the original conditions would become incompatible with the principle of good faith.

The two most important provisions for private construction contracts are:

Article 138 of the Turkish Code of Obligations — hardship / excessive difficulty of performance

and

Article 480 — adjustment of lump-sum prices in contracts for work.

For public construction contracts, however, a separate statutory and regulatory price-difference regime applies under Turkish public procurement legislation. The Public Procurement Authority maintains dedicated current “Price Difference Principles” for contracts awarded under the Public Procurement Law, and that framework was materially updated in 2025.

Understanding the distinction between these regimes is essential.

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1. The Starting Rule: A Contract Is Binding Even When It Becomes Less Profitable

The fundamental principle of contract law is pacta sunt servanda — agreements must be performed.

A contractor does not normally acquire a right to increase the construction price merely because:

• materials became more expensive;
• labour costs increased;
• the contractor’s profit margin fell;
• financing became more costly;
• the Turkish lira depreciated;
• subcontractors increased their quotations; or
• the project ultimately cost more than initially estimated.

Commercial risk is inherent in construction activity.

This principle becomes particularly strict in lump-sum contracts.

Article 480 of the Turkish Code of Obligations provides that where the price has been determined as a lump sum, the contractor must complete the work for that price even where the work requires more labour or expense than originally anticipated.

Therefore:

Increased cost is not the same thing as a legal right to increased price.

The contractor must first demonstrate either a contractual entitlement or the exceptional statutory conditions required for adaptation.

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2. Lump-Sum Construction Contracts Transfer Significant Cost Risk to the Contractor

A götürü bedel, or lump-sum price, is one of the most common mechanisms for allocating construction-price risk.

Where the parties agree that a contractor will construct a project for a fixed total amount, Article 480/1 establishes a strong rule:

even if the work turns out to require more labour and expenditure than expected, the contractor cannot ordinarily demand an increase in the agreed price.

This means that ordinary estimating mistakes usually remain with the contractor.

For example, if a contractor signs a contract for TRY 100 million and later discovers that:

• concrete quantities were underestimated;
• subcontractor quotations were inaccurate;
• labour productivity was lower than expected; or
• ordinary market prices increased,

the contractor cannot automatically transfer those costs to the employer.

The legal position changes only where the circumstances reach the exceptional threshold recognised by Article 480/2 or another contractual or statutory mechanism.

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3. Article 480/2 Creates an Exceptional Right to Adapt a Lump-Sum Price

Article 480/2 contains one of the most important protective mechanisms for contractors.

Where circumstances that were unforeseeable at the beginning, or were foreseeable but were not taken into account by the parties, make completion at the agreed lump-sum price impossible or extremely difficult, the contractor may request adaptation of the contract to the new circumstances.

If adaptation is impossible or cannot reasonably be expected from the employer, the contractor may, depending on the circumstances, withdraw from or terminate the contract.

This provision is particularly important because it confirms that a fixed price is not absolutely immutable.

However, the threshold is deliberately high.

The contractor must establish considerably more than:

“The project became expensive.”

The real question is closer to:

“Did an unforeseen change fundamentally destroy the economic assumptions on which the agreed lump-sum price was based?”

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4. Inflation Does Not Automatically Trigger Article 480/2

Inflation is one of the most important risks in Turkish construction projects.

However, the existence of inflation by itself does not automatically entitle a contractor to adjustment.

This follows from the statutory threshold.

Article 480/2 requires circumstances serious enough to prevent or extremely complicate completion at the agreed price.

Consequently, a court examining an inflation-based claim would need to evaluate matters such as:

• the inflation environment when the contract was signed;
• the duration of the contract;
• whether price increases could reasonably have been anticipated;
• the extent of the increase;
• whether the contract already included a price-adjustment mechanism;
• how much commercial risk the contractor expressly assumed;
• the contractor’s pricing methodology;
• whether the cost increase affects the project as a whole or only selected components; and
• whether performance remains commercially reasonable despite reduced profitability.

This is particularly significant in an economy where inflation already existed when the agreement was made.

A contractor signing a long-term fixed-price agreement during an already volatile economic period will normally face a harder foreseeability argument than a contractor affected by a genuinely exceptional event outside the ordinary economic assumptions of the transaction.

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5. Article 138 Provides the General Hardship Rule

The broader statutory basis for contractual adaptation is Article 138 of the Turkish Code of Obligations, governing excessive difficulty of performance.

Article 138 applies where an extraordinary circumstance:

1. was not foreseen and could not reasonably have been expected when the contract was concluded;
2. arose for a reason not attributable to the debtor;
3. fundamentally altered the circumstances existing when the agreement was made so that requiring performance would become contrary to good faith; and
4. the debtor has either not yet performed or performed while expressly reserving rights arising from excessive hardship.

Where these conditions are satisfied, the debtor may request judicial adaptation of the contract.

If adaptation is impossible, termination or withdrawal may become available depending on the nature of the contractual relationship.

Article 138 expressly states that the rule also applies to foreign-currency debts.

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6. Article 138 and Article 480 Are Related but Not Identical

In construction disputes, both provisions may appear relevant.

Article 138 is the general hardship provision applicable across contractual relationships.

Article 480/2 is the special rule specifically addressing lump-sum pricing in contracts for work.

Accordingly, where the core dispute concerns whether a contractor can escape or modify a fixed lump-sum construction price because of extraordinary subsequent circumstances, Article 480/2 becomes particularly important.

Article 138 nevertheless remains highly relevant to the broader analysis of changed circumstances, particularly for obligations not falling squarely within the special lump-sum mechanism.

Both provisions reflect the same fundamental idea:

contractual certainty is protected, but contractual performance cannot always be demanded where the economic foundation of the transaction has exceptionally collapsed.

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7. Currency Depreciation Can Create Hardship — But Not Automatically

Exchange-rate volatility is particularly important in Turkish construction projects because many construction inputs may be connected directly or indirectly to foreign currency.

Examples include:

• imported elevators;
• HVAC systems;
• façade equipment;
• electrical components;
• mechanical systems;
• construction machinery;
• specialised steel products;
• imported stone or finishing materials;
• software and automation systems; and
• foreign technical services.

A contractor may sign a TRY-denominated fixed-price agreement but purchase significant inputs in EUR or USD.

If the Turkish lira subsequently depreciates materially, the contractor’s cost base can increase rapidly.

However, the legal principle remains the same:

currency depreciation is not, by itself, a guaranteed price-adjustment mechanism.

The claimant must still establish the statutory requirements for hardship or rely upon the adjustment mechanism contained in the contract.

Article 138 specifically confirms that excessive-hardship rules may also apply to foreign-currency obligations.

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8. The Timing of the Contract Is Critical in Currency Cases

Consider two hypothetical contracts.

Contract A

The parties entered into a three-year fixed-price construction contract during a relatively stable economic environment. Shortly afterwards, an extraordinary external event caused a severe and unexpected disruption in currency markets and imported construction costs.

Contract B

The parties signed a three-year TRY fixed-price contract at a time when significant exchange-rate volatility and inflation had already persisted for several years.

Even if both contractors later experience substantial cost increases, the foreseeability analysis may be very different.

Turkish hardship rules expressly focus on circumstances that were unforeseeable or could not reasonably have been expected when the agreement was concluded.

Accordingly, the economic environment existing on the contract date is evidence.

A party cannot evaluate unforeseeability purely with hindsight.

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9. A Loss of Profit Is Not the Same as Excessive Hardship

Construction businesses routinely price risk.

A project originally expected to generate a 20% margin may ultimately generate only 10%.

That does not ordinarily mean that the contractual foundation has collapsed.

Likewise, the fact that the contract later becomes commercially unattractive does not automatically justify judicial intervention.

The statutory threshold under Articles 138 and 480 is substantially more serious.

The contractor should therefore be prepared to demonstrate the economic impact objectively through evidence such as:

• original cost estimates;
• tender calculations;
• supplier quotations;
• purchase contracts;
• invoices;
• foreign-currency exposure;
• wage increases;
• official price indices;
• revised cost-to-complete calculations;
• project cash-flow analysis; and
• expert reports.

A court needs to understand not merely that prices increased, but how those increases changed the contractual equilibrium.

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10. The Contractor’s Own Pricing Error Is Different From an Extraordinary Event

A contractor cannot normally convert a bad commercial decision into a hardship claim.

Suppose the contractor:

• underestimated concrete quantities;
• failed to obtain supplier quotations;
• ignored obvious inflation;
• intentionally submitted an extremely low price to win the project;
• failed to hedge known foreign-currency exposure; or
• accepted risks expressly allocated to it under the contract.

These circumstances are very different from a genuinely unexpected external event.

Article 138 expressly requires the relevant extraordinary circumstance not to originate from the debtor.

Likewise, Article 480 distinguishes extraordinary unforeseen circumstances from the ordinary rule that the contractor bears additional labour and expense under a lump-sum arrangement.

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11. Reservation of Rights During Performance Is Extremely Important

Article 138 contains an issue that is sometimes overlooked in commercial practice.

The debtor must either:

• not yet have performed the obligation; or
• have performed while reserving its rights arising from excessive hardship.

This can have major practical significance for construction contractors.

A contractor experiencing extraordinary cost escalation should therefore avoid proceeding for months without documenting its legal position and later attempting to reconstruct a hardship claim retrospectively.

Depending on the contract, protective steps may include:

• formal notices;
• reservation-of-rights letters;
• notices accompanying progress payment applications;
• records identifying affected materials;
• notice of extraordinary cost events; and
• requests for contractual adjustment.

The exact wording should be designed according to the relevant contract.

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12. Do Not Confuse Price Escalation With Force Majeure

Force majeure and economic hardship are related but legally different concepts.

A force-majeure event typically concerns an event that prevents performance or causes legally relevant impossibility or delay.

Economic hardship concerns a situation where performance may still technically be possible but has become extraordinarily burdensome.

For example:

Factory destroyed by an earthquake: potentially a force-majeure/impossibility issue.

Steel becomes three times more expensive: potentially a price-escalation/hardship issue.

Import prohibition makes specified equipment unavailable: may raise both force-majeure and hardship/change-in-law issues depending on the circumstances.

Construction contracts should therefore avoid placing every unexpected event under a generic “force majeure” provision.

Separate clauses should normally address:

force majeure, price escalation, hardship and change in law.

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13. A Well-Drafted Price Escalation Clause Is Better Than Relying on Litigation

Articles 138 and 480 should generally be viewed as exceptional safety mechanisms.

Commercial parties should ideally allocate inflation and currency risk themselves.

A properly drafted construction agreement may provide an objective formula for adjusting the contract price when specified costs change.

Possible mechanisms include:

Index-Based Adjustment

The contract price may be linked to an agreed official index or basket of indices.

Different components may be assigned different weightings, for example:

• labour;
• steel;
• cement;
• energy;
• machinery;
• imported equipment.

Currency Adjustment

Imported components may be linked to EUR, USD or another relevant currency where legally permissible.

Threshold Adjustment

The contractor absorbs increases up to a defined threshold — for example 5% — while increases above that threshold trigger adjustment.

Band Mechanism

Price movements within an agreed band remain with the contractor; movements outside the band are shared.

Cost-Sharing Formula

Extraordinary increases are divided between employer and contractor according to a predetermined percentage.

Material-Specific Adjustment

Only specifically identified volatile commodities are adjustable.

The correct structure depends on the project.

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14. Price Adjustment Should Work in Both Directions

Employers should not necessarily accept a clause under which the price only rises.

A balanced adjustment mechanism may provide that:

• extraordinary increases increase the contract price;
• extraordinary decreases reduce the contract price.

This prevents the provision from becoming merely a guaranteed profit-protection mechanism for the contractor.

It also supports the argument that the clause represents genuine economic risk allocation.

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15. The Base Date Must Be Clearly Defined

Any escalation formula requires a clear reference date.

Possible dates include:

• tender date;
• bid submission date;
• contract signing date;
• notice-to-proceed date;
• commencement date.

A vague clause saying:

“Material increases will be reflected in the price”

is likely to create a new dispute rather than solve one.

The agreement should identify:

the base index, base date, comparison index, adjustment frequency, formula, excluded costs and calculation method.

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16. Delay and Price Escalation Must Be Connected Carefully

One of the most contentious situations occurs where the project is delayed and prices increase during the delay.

The first question should then be:

Who caused the delay?

If the employer causes a 12-month delay and the contractor’s materials become substantially more expensive during that period, it may be commercially and legally inappropriate to allocate the entire escalation to the contractor.

Conversely, where the contractor is already in culpable delay, allowing the contractor to benefit from later inflation may create the wrong risk allocation.

A sophisticated escalation clause should therefore distinguish:

• employer-caused delay;
• contractor-caused delay;
• neutral delay;
• force-majeure delay; and
• governmental or regulatory delay.

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17. Change in Law Can Create a Separate Price Claim

Construction costs may increase because legislation changes after contract formation.

Examples include:

• new taxes;
• customs duties;
• environmental requirements;
• safety obligations;
• minimum-wage changes;
• technical standards;
• mandatory equipment;
• permit requirements.

A change-in-law clause can determine whether such cost increases are:

• included in the contractor’s original price;
• reimbursable;
• subject to a threshold;
• or treated as grounds for time and price adjustment.

Without such a clause, the parties may be forced back into general statutory principles and interpretation of contractual risk allocation.

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18. Foreign-Currency Construction Contracts Require a Separate Currency-Law Review

Parties should not assume that they are always free to price every Turkish construction agreement in USD or EUR.

Turkish foreign-exchange legislation contains restrictions and exceptions governing agreements between persons resident in Türkiye.

However, the Ministry of Treasury and Finance expressly states that contracts for work containing foreign-currency costs may have their contract price and related payment obligations denominated in or indexed to foreign currency. The Ministry also states that there is no minimum percentage threshold: the existence of some foreign-currency cost can be sufficient for the relevant exception.

This is highly relevant to construction agreements involving imported equipment or materials.

Nevertheless, the classification of the agreement matters.

The Ministry’s guidance also warns that mixed contracts containing several contract types require separate analysis; where one component does not qualify for the relevant exception, the currency treatment of the overall agreement may be affected.

Therefore, contract drafters should not simply insert:

“Contract Price: USD 10,000,000”

without first checking the applicable foreign-exchange rules.

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19. Foreign Currency Does Not Eliminate Economic Risk

Pricing an agreement in EUR or USD may reduce one type of currency mismatch but create another.

For example:

Contractor’s costs:

50% EUR
30% TRY
20% USD

Contract price:

100% EUR

The contractor remains exposed to movements in TRY wages and USD imports relative to EUR.

Similarly, an employer whose revenue is entirely TRY-denominated may assume significant currency risk by accepting a USD construction price.

Currency risk should therefore be analysed economically rather than merely by choosing a “stable” currency.

A currency basket or component-specific formula may sometimes match the underlying project costs more accurately.

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20. Public Construction Contracts Follow a Different Price-Difference System

A crucial distinction must be made between:

private construction contracts governed principally by private law

and

public construction contracts awarded under the public procurement framework.

For contracts under the Public Procurement Law and Public Procurement Contracts Law, specific statutory Price Difference Principles apply. The Public Procurement Authority maintains these regulations as a separate body of current procurement legislation.

Accordingly, a contractor performing a public project should not analyse escalation exclusively through TBK Articles 138 and 480.

The tender documents, contract, applicable Price Difference Principles and public procurement legislation must be reviewed together.

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21. The Public Procurement Price-Difference System Was Modernised in 2025

A significant reform was published on 30 July 2025, applicable to tenders announced after 1 September 2025 and related contracts.

The reform expanded the index system available for calculating price differences by allowing use of 24 additional sub-indices published by TÜİK.

It also clarified matters including:

• price-difference treatment for new work items without an existing unit price;
• situations where multiple progress payments are prepared in the same month before the relevant index becomes available;
• later correction when the applicable index is published; and
• price-difference treatment following extensions of time and revised work programmes.

These changes demonstrate how different the public procurement system is from an ordinary private fixed-price contract.

In public works, the applicable formula and tender documentation can be decisive.

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22. Public Procurement Rules Continued to Change in 2026

Turkish public procurement legislation remained active in 2026.

The Public Procurement Authority announced another package of regulatory amendments published in the Official Gazette on 9 April 2026, including changes affecting construction tenders and current unit prices used within procurement procedures.

Accordingly, contractors should verify the version of procurement legislation applicable to the specific tender rather than relying on a generic price-difference model from a previous project.

The relevant date of the tender and contract may determine which regulatory version applies.

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23. Extraordinary Legislative Price Relief Should Not Be Assumed

Türkiye has previously adopted temporary statutory mechanisms addressing exceptional price increases in public contracts.

The Public Procurement Authority continues to archive regimes concerning:

• additional price differences;
• temporary Article 3 mechanisms;
• temporary Article 5 mechanisms;
• temporary Article 6 mechanisms; and
• temporary Article 7 mechanisms.

These mechanisms demonstrate that extraordinary economic conditions can lead the legislature to introduce special relief for defined classes of public contracts.

However, contractors should not assume that a temporary relief regime applicable to one historical period automatically applies to a new contract.

The first questions must always be:

What is the contract date?

Which temporary provision applies?

Was the contract within the statutory scope?

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24. Private Contractors Cannot Automatically Import Public Price-Difference Rules

A common conceptual mistake is to identify a public-sector price-difference formula and assume that a private contractor is legally entitled to the same adjustment.

That is incorrect.

Public procurement price-difference rules arise from a specific statutory and regulatory framework.

Private projects depend primarily on:

• the private construction contract;
• Turkish Code of Obligations;
• agreed adjustment clauses;
• agreed risk allocation;
• and exceptional hardship provisions.

Public formulas may sometimes provide useful commercial benchmarks when parties negotiate a private adjustment mechanism, but they do not automatically become binding merely because they exist in public procurement legislation.

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25. Evidence Is Critical in a Price Adaptation Claim

A contractor seeking judicial adaptation should expect detailed financial scrutiny.

Useful evidence may include:

• original bid documents;
• original cost plan;
• detailed bill of quantities;
• material quotations existing at contract date;
• later quotations;
• supplier contracts;
• actual invoices;
• payroll data;
• subcontractor agreements;
• official inflation indices;
• industry price indices;
• foreign-exchange data;
• imported-material documentation;
• customs duties;
• financing records;
• original project programme;
• revised project programme;
• employer-delay documentation;
• notices and reservation-of-rights correspondence.

A general chart showing that inflation increased is rarely enough to explain the economic effect on one specific construction contract.

The analysis must connect the macroeconomic event to the actual contractual cost structure.

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26. Expert Analysis Will Often Be Necessary

Price-escalation disputes frequently require financial and technical expertise.

An expert may need to compare:

Original contract economics

with

Current cost-to-complete economics.

The analysis may need to isolate:

• ordinary contractor risk;
• extraordinary inflation;
• currency effects;
• scope changes;
• employer delay;
• contractor delay;
• inefficient procurement;
• additional work;
• changed legislation;
• and actual market movements.

Otherwise, an exaggerated claim may improperly attribute every increase in project cost to inflation.

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27. Additional Work Is Not the Same as Price Escalation

Suppose the employer adds another floor to the project.

The resulting additional cost is primarily a variation / additional-work issue, not merely inflation.

Suppose instead that the original scope remains unchanged but steel prices increase dramatically.

That is a price escalation issue.

Suppose the employer changes the façade specification from domestic stone to imported marble while the exchange rate also moves.

That may contain both:

variation and currency escalation components.

A proper construction claim separates each cause of additional cost.

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28. Advance Payments Can Reduce or Increase Inflation Exposure

Advance-payment structures can materially affect risk.

A contractor receiving a significant mobilisation advance may be able to:

• order materials early;
• secure prices;
• hedge currency;
• pay deposits;
• reduce future exposure.

Therefore, where a contractor received substantial advance funds but chose not to procure key materials, the factual hardship analysis may differ from a situation where the employer withheld advance payments and prevented early procurement.

Commercial conduct after contract execution matters.

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29. Employers Should Require Evidence Before Accepting Escalation

When a contractor requests an additional 30%, the employer should not immediately accept or reject the request.

A structured review should ask:

1. Which contract clause permits the claim?
2. Which cost items increased?
3. What were the original prices?
4. What are the current prices?
5. What percentage of total project cost do those items represent?
6. Could the contractor reasonably have anticipated the increase?
7. Was the contractor already delayed?
8. Could early procurement have avoided the increase?
9. Has the contractor already received escalation elsewhere?
10. Does the proposed adjustment preserve the original commercial allocation of risk?

This converts an emotional renegotiation into a legally and economically measurable claim.

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30. Contractors Should Notify Early

A contractor facing serious escalation should avoid waiting until the project is financially unsustainable.

An effective notice should ordinarily identify:

• the event;
• when it occurred;
• why it was unforeseeable or outside the assumed risk;
• which project components are affected;
• expected financial impact;
• expected programme impact;
• the contractual clause relied upon;
• statutory rights reserved;
• mitigation measures taken; and
• the requested relief.

Early documentation is particularly important because Article 138 expressly takes account of whether performance occurred subject to reservation of hardship rights.

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31. Price Adjustment and Time Extension Should Be Analysed Separately

An economic event may affect both:

price

and

time.

For example, an import restriction may force the contractor to locate alternative equipment at a higher price and may also delay delivery by three months.

A contract should therefore separately address:

• extension of time;
• increased cost;
• prolongation cost;
• escalation;
• liquidated damages;
• and mitigation.

Granting additional time does not necessarily answer who bears the additional cost.

Likewise, increasing the price does not automatically excuse contractual delay.

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32. A Good Construction Contract Should Contain a Hardship Procedure

Large projects should ideally contain a contractual procedure requiring the parties to negotiate when defined economic thresholds are exceeded.

For example:

If an agreed construction cost index increases by more than 15% compared with the base date, the parties shall negotiate an adjustment using the contractual formula.

The agreement should then determine what happens if negotiations fail.

Possible options include:

• expert determination;
• dispute adjudication board;
• arbitration;
• litigation;
• suspension rights;
• termination.

This is far more predictable than leaving the entire economic future of a multi-year project to a general statutory hardship claim.

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33. Arbitration Can Be Particularly Useful for International Construction Projects

International construction contracts often involve:

• foreign investors;
• international contractors;
• imported equipment;
• foreign-currency financing;
• international consultants;
• cross-border guarantees.

In such projects, arbitration may provide an appropriate forum for complex escalation claims.

The contract can combine:

Turkish substantive law

with

international arbitration

where legally appropriate.

The dispute clause should nevertheless be carefully coordinated with mandatory Turkish-law requirements and the nature of the underlying project.

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34. Ten Questions to Ask Before Signing a Fixed-Price Construction Contract

Before agreeing to a fixed price, both parties should answer:

1. How long will construction take?

The longer the project, the greater the escalation exposure.

2. What percentage of costs are imported?

This determines currency sensitivity.

3. Which currency best reflects the project’s underlying costs?

A TRY price may conceal significant USD or EUR exposure.

4. Which materials are most volatile?

Steel and imported mechanical systems may require different treatment from low-risk inputs.

5. Is there an escalation clause?

If not, the contractor assumes considerably more risk.

6. What is the adjustment index?

The selected index should reflect actual project costs.

7. Is there a threshold?

Not every minor increase should require repricing.

8. Who bears delay-related inflation?

Employer and contractor delay should be distinguished.

9. What happens if adjustment becomes commercially insufficient?

Hardship and termination procedures should be addressed.

10. Is the currency clause legally permissible?

Turkish foreign-exchange restrictions must be checked separately. For contracts for work containing foreign-currency costs, the Ministry recognises an exception permitting foreign-currency or foreign-currency-indexed pricing.

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35. Recommended Price Escalation Checklist

A sophisticated construction agreement should consider provisions dealing with:

• base contract price;
• pricing model;
• fixed and adjustable components;
• base date;
• applicable index;
• index weightings;
• imported materials;
• exchange-rate methodology;
• adjustment interval;
• escalation threshold;
• maximum cap;
• downward adjustment;
• additional work;
• change in law;
• employer delay;
• contractor delay;
• force majeure;
• hardship;
• notice periods;
• evidence requirements;
• mitigation;
• advance payments;
• currency hedging;
• renegotiation;
• expert determination;
• suspension;
• termination; and
• dispute resolution.

The objective should not necessarily be to eliminate price risk.

No contract can eliminate economic risk completely.

The objective is to decide in advance who will bear each category of risk.

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Conclusion: Price Escalation Is Primarily a Risk-Allocation Problem

Inflation and currency volatility can radically transform the economics of a construction project.

Turkish law nevertheless does not adopt the principle that every cost increase automatically passes from contractor to employer.

For lump-sum contracts, Article 480 establishes the opposite starting position:

the contractor must ordinarily complete the work for the agreed price even where the work costs more than expected.

Exceptionally, where unforeseen circumstances make completion at the agreed lump-sum price impossible or extremely difficult, Article 480/2 permits adaptation and, where adaptation cannot properly resolve the situation, potentially withdrawal or termination.

Article 138 provides the broader hardship mechanism where unforeseeable extraordinary circumstances fundamentally alter the contractual equilibrium to such an extent that insisting on performance would conflict with good faith. The provision expressly extends to foreign-currency obligations.

Foreign-currency pricing must meanwhile be examined separately under Turkish currency legislation. The Ministry of Treasury and Finance confirms that contracts for work containing foreign-currency costs may qualify for foreign-currency or foreign-currency-indexed pricing under the relevant exception.

Public construction contracts require an entirely separate analysis under public procurement price-difference legislation. The current system provides dedicated price-difference mechanisms and was modernised in 2025 by expanding the available TÜİK sub-indices and clarifying several calculation issues.

The most important lesson for construction parties is therefore not:

“Can inflation justify a higher price?”

It is:

“Who agreed to bear inflation and currency risk, what event actually occurred, and has that event crossed the contractual or statutory threshold for price adjustment?”

The best time to answer that question is not after steel prices double, the currency moves or the contractor threatens to stop work.

It is when the construction contract is being drafted.