diff --git a/yaml/docker-compose-include-base.yml b/yaml/docker-compose-include-base.yml
deleted file mode 100644
index 7a3f4b3e..00000000
--- a/yaml/docker-compose-include-base.yml
+++ /dev/null
@@ -1,3 +0,0 @@
-include:
-{{ range .files }}- {{ . }}
-{{ end }}
diff --git a/yaml/generator.go b/yaml/generator.go
index 50990822..2463fa50 100644
--- a/yaml/generator.go
+++ b/yaml/generator.go
@@ -18,9 +18,6 @@ import (
 //go:embed docker-compose-docker-lgtm-template.yml
 var lgtmTemplate []byte
 
-//go:embed docker-compose-include-base.yml
-var lgtmTemplateIncludeBase []byte
-
 func CreateDockerComposeFile(r *Runner) string {
 	p := filepath.Join(r.testCase.OutputDir, "docker-compose.yml")
 	content := getContent(r)
@@ -85,22 +82,8 @@ func getContent(r *Runner) []byte {
 		files = append(files, name)
 	}
 
-	t = template.Must(template.New("docker-compose-base").Parse(string(lgtmTemplateIncludeBase)))
-	buf = bytes.NewBufferString("")
-	vars = map[string]any{}
-	vars["files"] = files
-	err = t.Execute(buf, vars)
-	gomega.Expect(err).ToNot(gomega.HaveOccurred())
-	f, err := os.CreateTemp("", "docker-compose-base.yml")
-	gomega.Expect(err).ToNot(gomega.HaveOccurred())
-	_, err = f.Write(buf.Bytes())
-	gomega.Expect(err).ToNot(gomega.HaveOccurred())
-	defer func(name string) {
-		_ = os.Remove(name)
-	}(f.Name())
-
-	// uses docker compose to merge templates
-	args := []string{"compose", "-f", f.Name(), "config"}
+	// uses docker compose to merge templates (multiple -f flags allow service overrides)
+	args := buildComposeArgs(files, compose.Files)
 	cmd := exec.Command("docker", args...)
 	cmd.Env = env
 	cmd.Stderr = os.Stderr
@@ -112,6 +95,21 @@ func getContent(r *Runner) []byte {
 	return content
 }
 
+// buildComposeArgs constructs the docker compose arguments for merging compose
+// files. When user compose files are present, --project-directory is set to the
+// directory of the first user file so that relative paths resolve correctly.
+func buildComposeArgs(generatedFiles []string, userFiles []string) []string {
+	args := []string{"compose"}
+	if len(userFiles) > 0 {
+		args = append(args, "--project-directory", filepath.Dir(userFiles[0]))
+	}
+	for _, file := range generatedFiles {
+		args = append(args, "-f", file)
+	}
+	args = append(args, "config")
+	return args
+}
+
 func joinComposeFiles(template []byte, addition []byte) ([]byte, error) {
 	base := map[string]any{}
 	add := map[string]any{}
diff --git a/yaml/generator_test.go b/yaml/generator_test.go
index d2af3a1c..8f7f006a 100644
--- a/yaml/generator_test.go
+++ b/yaml/generator_test.go
@@ -6,6 +6,31 @@ import (
 	"testing"
 )
 
+func TestBuildComposeArgs(t *testing.T) {
+	t.Run("without user files", func(t *testing.T) {
+		got := buildComposeArgs([]string{"/tmp/base.yml"}, nil)
+		require.Equal(t, []string{
+			"compose",
+			"-f", "/tmp/base.yml",
+			"config",
+		}, got)
+	})
+
+	t.Run("with user files", func(t *testing.T) {
+		got := buildComposeArgs(
+			[]string{"/tmp/base.yml", "/home/user/project/docker-compose-generated.yml"},
+			[]string{"/home/user/project/docker-compose.yml"},
+		)
+		require.Equal(t, []string{
+			"compose",
+			"--project-directory", "/home/user/project",
+			"-f", "/tmp/base.yml",
+			"-f", "/home/user/project/docker-compose-generated.yml",
+			"config",
+		}, got)
+	})
+}
+
 func TestJoinDockerComposeFiles(t *testing.T) {
 	template, err := os.ReadFile("testdata/docker-compose-template.yaml")
 	require.NoError(t, err)