Performance Bond Dispute in Turkey: Emergency Remedies for Foreign Contractors (2026 Updated Guide)

A performance bond is called in Turkey against a foreign contractor. Learn about injunctions, unfair calls, bank guarantees, contract termination, evidence preservation, arbitration and emergency legal remedies.

A performance bond dispute can become an immediate financial crisis for a foreign contractor operating in Turkey. In construction, energy, infrastructure, industrial, supply and engineering projects, an employer may attempt to call a performance bond after alleging delay, defective performance, failure to achieve milestones, termination or another contractual breach. The contractor may strongly dispute those allegations, but once a demand reaches the issuing or guaranteeing bank, payment can move much faster than the underlying contractual dispute. The central legal question is therefore often not only whether the contractor ultimately breached the contract, but whether payment under the bond can be prevented before the money is transferred. Foreign contractors facing an imminent call should examine the bond wording, underlying contract, applicable law, dispute-resolution clause and available interim remedies immediately.

Why Performance Bond Disputes Become Urgent

The commercial purpose of a performance bond is to provide the beneficiary with financial security if the contractor fails to perform its contractual obligations. However, disputes frequently arise where the beneficiary attempts to call the bond while the contractor maintains that contractual performance is continuing, delay was caused by the employer, an extension of time should have been granted, termination was unlawful or the conditions for calling the bond have not occurred.

The practical problem is timing. The underlying construction or commercial dispute may take months or years to resolve, while the guarantee may potentially be called and paid much earlier.

First Examine the Exact Performance Bond Wording

The bond itself should be reviewed before conclusions are drawn from the underlying contract. Determine the amount, beneficiary, issuing bank, expiry date, extension provisions, governing law, payment conditions and documents required for a valid demand.

A contractor should not assume that every performance bond operates identically.

Is the Bond Independent From the Underlying Contract?

This is often one of the most important questions. Many bank guarantees used in major commercial projects are structured so that the bank’s payment obligation is legally distinct from disputes arising under the underlying construction, supply or service contract.

If the instrument is independent, merely proving that the contractor disputes the employer’s breach allegation may not automatically prevent payment.

Conditional Guarantees Require Different Analysis

Some guarantees make payment dependent on specified documents, certifications or events. In such cases, the beneficiary’s demand should be compared carefully with the precise conditions contained in the guarantee.

A demand that does not comply with the instrument may create a materially different dispute from a compliant demand under an unconditional or on-demand guarantee.

Obtain the Call Notice Immediately

If the beneficiary has already called the bond, obtain the complete demand delivered to the bank. Review its date, amount, signatures, statements and supporting documents.

Do not rely solely on a telephone notification from the project team or bank.

Determine Whether Payment Has Already Occurred

The contractor should immediately establish whether the bank has merely received a demand, approved the demand internally, scheduled payment or already transferred the funds.

The available emergency strategy can change dramatically depending on this timing.

Notify Legal Counsel and the Bank Without Delay

Where there are serious legal grounds to challenge the demand, the contractor should communicate its position promptly. Relevant contractual and judicial steps should be coordinated rather than relying on informal requests asking the bank not to pay.

Can a Turkish Court Stop Payment?

Potentially, depending on the nature of the guarantee, governing law, contractual structure, evidence and circumstances. Interim judicial protection may be sought where the applicable legal requirements are satisfied.

However, an injunction should never be treated as automatic merely because the contractor disputes the beneficiary’s allegations.

Timing Is Critical for Interim Relief

An injunction obtained after the guarantee has already been paid may no longer accomplish the contractor’s primary objective of preventing the transfer.

Foreign contractors should therefore establish an internal escalation procedure requiring immediate legal review whenever a beneficiary threatens to call a bond.

Unfair or Abusive Calls Require Strong Evidence

A contractor alleging that the beneficiary is abusing the guarantee should build a detailed evidentiary record. Relevant evidence can include project correspondence, progress certificates, employer instructions, extension-of-time requests, acceptance documents, completion records and notices showing the actual contractual position.

General statements that the call is “unfair” are rarely sufficient.

Employer-Caused Delay Can Be Important

The beneficiary may allege contractor delay even though the project was affected by late site access, design changes, delayed approvals, additional works or other employer-caused events.

The contractor should reconstruct the project chronology immediately.

Extension-of-Time Claims Should Be Preserved

If contractual milestones were extended or should have been extended, preserve notices, revised schedules, correspondence and expert delay analysis.

The relationship between contractual delay and the guarantee call should be explained precisely.

Variation Orders Can Change the Dispute

Foreign contractors frequently perform additional or changed works while the parties disagree about price and time consequences.

A beneficiary should not automatically be allowed to characterize every delay arising from substantial variations as straightforward contractor default without examination of the contract and project history.

Defective Performance Allegations Need Technical Evidence

If the bond is called because of alleged defects, obtain inspection reports, test results, commissioning records, punch lists, photographs and expert evidence.

Determine whether the alleged defect exists, whether it is material and whether the contractor was contractually entitled to cure it.

Completion and Acceptance Documents Are Critical

Provisional acceptance, taking-over certificates, commissioning records and similar documents may materially affect the contractual dispute.

If the beneficiary accepted the works and later calls the full performance bond, the legal and contractual basis should be examined closely.

Check Whether the Bond Amount Should Have Been Reduced

Some contracts require the performance security to decrease after completion of specified milestones.

If the beneficiary calls an amount exceeding the security that should properly remain outstanding, this issue should be raised immediately.

Check the Expiry Date

Determine whether the demand was made within the bond’s valid period and in accordance with any presentation requirements.

A demand made after expiry may raise fundamental enforceability issues.

Extension Requests Can Create Separate Disputes

Certain contracts require the contractor to extend a bond if completion is delayed. Failure to extend may itself entitle the beneficiary to make a demand under the contractual documents.

The contractor should therefore monitor expiry dates long before the final weeks of validity.

Review the Underlying Contract

The bond cannot be analyzed commercially without understanding the underlying contract. Review provisions governing performance security, delay, defects, termination, notice, extension of time, liquidated damages and dispute resolution.

The objective is to determine why the beneficiary claims a right to call the security and whether that claim is supported by the contractual record.

Was the Contract Validly Terminated?

Performance bond calls often follow termination. If termination itself is disputed, examine whether the required contractual grounds, cure notices and procedural steps existed.

An allegedly wrongful termination can become central to the wider damages dispute even where the guarantee has an independent legal character.

Cure Periods Should Be Checked

The contract may require notice and an opportunity to remedy default before termination or other remedies become available.

Determine whether the employer complied with those requirements.

Notice Requirements Matter

Construction and infrastructure contracts frequently contain strict notice provisions. Review notices issued by both sides and identify whether contractual rights were properly reserved.

Preserve Electronic Evidence

Emails, project-management systems, messaging applications, electronic approvals and digital schedules may contain critical evidence.

Foreign contractors should preserve project data before employees leave the project or access rights are terminated.

Do Not Delete Difficult Project Correspondence

An internal message acknowledging a delay or technical problem should not be destroyed. Evidence should be preserved and evaluated in context.

Selective destruction can create serious litigation and evidentiary problems.

Consider Independent Expert Evidence

Complex performance disputes may require engineering, delay, quantity or financial expertise.

An expert can help explain whether the beneficiary’s stated reason for calling the bond corresponds with actual project performance.

Arbitration Clauses Must Be Reviewed

Many international construction contracts provide for arbitration. Determine the seat, rules, governing law and available interim-measure mechanisms.

The existence of an arbitration clause does not mean the contractor should wait for the final arbitral award before considering urgent protection.

Emergency Arbitration May Be Relevant

Depending on the agreed arbitration rules, emergency arbitrator procedures may potentially provide urgent interim relief before the tribunal is fully constituted.

Whether this is strategically appropriate depends on the arbitration agreement and circumstances.

Turkish Court Relief and Arbitration Must Be Coordinated

Where the underlying dispute is subject to arbitration but the guarantee or bank relationship involves Turkey, jurisdiction and interim-relief strategy require careful analysis.

The contractor should avoid initiating inconsistent proceedings without understanding their interaction.

Foreign-Seated Arbitration Requires Additional Planning

If arbitration is seated outside Turkey, determine how interim measures affecting a Turkish beneficiary, bank or assets can practically be implemented.

Procedural strategy should be developed before the guarantee payment becomes irreversible.

What If the Bond Has Already Been Paid?

The dispute does not necessarily end. The contractor may still pursue claims arising from an allegedly wrongful call under the underlying contractual relationship or other applicable legal grounds.

However, the case shifts from preventing payment to recovering money and damages.

Document the Financial Consequences

Preserve evidence showing the amount paid under the guarantee, bank charges, financing costs and other direct financial consequences.

If the call triggers cross-defaults or affects other financing arrangements, preserve those records as well.

Reputation and Banking Capacity Can Be Affected

A substantial bond call can reduce available credit lines and affect the contractor’s ability to obtain new guarantees.

This makes emergency management commercially important even beyond the amount of the individual bond.

Counter-Guarantees Must Be Reviewed

International guarantee structures can involve a foreign bank issuing a counter-guarantee to a Turkish bank that issues the local performance bond.

The contractor should map the entire guarantee chain because payment obligations and available remedies may involve more than one institution and jurisdiction.

Parent Company Guarantees Are Different

A parent company guarantee should not automatically be treated as equivalent to an independent bank guarantee.

Its wording, underlying obligations and governing law should be analyzed separately.

Performance Bonds and Advance Payment Guarantees Should Be Distinguished

A project may include several forms of security, including performance bonds, advance payment guarantees and retention guarantees.

A dispute involving one security instrument should not automatically determine rights under another.

Can the Contractor Claim Damages for a Wrongful Call?

Potentially, depending on the contract, applicable law and facts. If the beneficiary had no contractual right to retain the proceeds, the contractor may pursue repayment and potentially additional provable losses.

Causation and evidence remain essential.

Liquidated Damages and Bond Calls Are Separate Issues

An employer may claim delay damages while also calling performance security. The contract should be examined to determine the relationship between those remedies and whether contractual limits apply.

Avoid Signing a Waiver Under Pressure

A beneficiary may offer not to call the bond if the contractor signs a settlement, waiver or acknowledgment.

Any such document should be reviewed carefully because it may affect substantial claims concerning extensions, variations, defects or unpaid amounts.

Negotiate Without Losing Emergency Remedies

Commercial negotiations can be useful, but they should not consume the period in which effective interim judicial protection could have been sought.

Negotiation and legal protection can often be managed in parallel.

Review the Beneficiary’s Financial Position

If there is concern that funds paid under the guarantee could become difficult to recover, the beneficiary’s financial position may be relevant to the urgency and strategy of the dispute.

Public Projects May Require Separate Analysis

Performance securities issued for public procurement or public-sector projects may involve specific statutory and contractual rules. The legal regime should be identified before applying principles from a private construction contract.

Foreign Contractors Should Build a Bond Register

International contractors operating in Turkey should maintain a centralized register containing every guarantee’s amount, bank, beneficiary, expiry date, reduction milestones, extension requirements and underlying contract.

This can prevent emergency disputes caused simply by poor internal monitoring.

Establish a Call-Response Protocol

The company should designate who must be notified when a beneficiary threatens a guarantee call. Legal, treasury, project management and senior management teams should receive the information immediately.

Waiting for the next ordinary management meeting may be too late.

Immediate Emergency Action Plan

When a foreign contractor learns that a performance bond may be called in Turkey, it should immediately obtain the bond and call demand, determine whether payment has occurred, identify the issuing and counter-guaranteeing banks, review the underlying contract, preserve project evidence, reconstruct the alleged default, examine expiry and call conditions, assess Turkish court or arbitral interim relief, notify relevant parties appropriately and protect contractual claims against the beneficiary.

Frequently Asked Questions

Can a foreign contractor stop a performance bond from being paid in Turkey?

Potentially, but it depends heavily on the guarantee wording, applicable law, circumstances and requirements for interim relief. A contractual disagreement alone should not be assumed to stop payment.

Does the employer have to prove the contractor breached the contract before calling the bond?

That depends on the nature and wording of the guarantee. Independent on-demand guarantees can operate differently from conditional guarantees.

Can the contractor seek an injunction?

Potentially, where the applicable legal requirements are satisfied. Timing is crucial because the practical objective may be lost once payment occurs.

What if the beneficiary’s demand does not comply with the bond wording?

The demand should be compared carefully with all documentary and timing requirements contained in the guarantee.

Can employer-caused delay be used as a defense?

It can be highly relevant to the underlying contractual dispute and potentially to allegations that the call is abusive, depending on the guarantee structure and facts.

What happens if the bank has already paid?

The contractor may still evaluate claims for recovery and damages against the beneficiary or other responsible parties, depending on the applicable legal and contractual framework.

Does an arbitration clause prevent Turkish courts from granting urgent protection?

Not necessarily in every situation. The arbitration agreement, seat, applicable procedural framework and type of interim relief sought should be examined carefully.

Can emergency arbitration be used?

Potentially, where the applicable arbitration rules provide an emergency procedure and the circumstances satisfy the relevant requirements.

Should the contractor negotiate with the employer before applying for emergency relief?

Negotiation may be useful, but it should not be allowed to consume the time available for effective interim protection where payment is imminent.

What is the most important first step?

Obtain the exact performance bond and the beneficiary’s call demand immediately. The legal strategy depends on the wording of the security, the stage of payment and the evidence showing whether the call complies with the guarantee and underlying contractual framework.

Client-Focused Legal Support for Performance Bond Disputes

Performance bond disputes can involve urgent injunction applications, bank guarantee calls, construction delays, wrongful termination, defects, extension-of-time claims, counter-guarantees, arbitration and substantial financial exposure. Fırat Fesih Kaya Law Office assists foreign contractors, international construction companies, engineering companies and investors facing performance security disputes in Turkey. Lawyer Fırat Fesih Kaya provides legal assistance in reviewing guarantee calls, preparing emergency legal remedies, coordinating contractual and technical evidence, handling arbitration-related interim measures and pursuing claims arising from allegedly wrongful performance bond calls.

Phone: +90 312 434 22 22

Mobile / WhatsApp: +90 532 769 22 22

Email: info@firatfesihkaya.av.tr

Address: Mevlana Boulevard No:221, Yıldırım Tower, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey