Descriptions such as "design and build" and "package deal" are synonymous with a turnkey contract. One might ask, what does it entail? A turnkey contract implies that the design responsibility and the responsibility to construct rest upon the contractor. This differs to traditional contracts where the engineers are responsible for design and the contractor for construction. This separation of responsibility often results in dispute which sometimes results in finger pointing between the design and construction teams to attribute blame when something goes wrong.
Some of the advantages of a turnkey contract include:
There is one party to take responsibility for design and construction and can therefore be expected to design the works taking full account of access and construction issues and in a manner taking into account execution of construction activities. In principle, such design should offer a savings on both cost and time taken.
There should be a cost saving to the Employer due to there being no separate design engineering and consultants. Employers without adequate technical resources may find these contracts attractive.
Turnkey contracts are usually lump sum and offer security to the owner in the sense of price certainty. A contractor must ensure to price their risks into the tendered price.
Payments can be milestone based instead of valuation based and the conventional interim payments can be done away with. This helps the Employer to have an informed budget commitment as well as assist the Contractor with their budget and expense planning in advance.
Some of the disadvantages of a turnkey contract include:
There may be little or no check on the reasonableness of the price where the tendered designs by various contractors differ. Competitive tendering may result in some tenders under-designing the works which may cause issues during the later lifecycles of the project, including the durability of the project.
A Contractor may incur high expenditure to hire a professional team to prepare a baseline design when tendering for the works.
Studies in the UK have shown that where it was possible to compare a turnkey project price to a conventional project, the turkey project did not provide significant price savings but did provide time savings.
Turnkey contracts need to be properly drafted for price certainty and to avoid variation proceedings which can easily be abused. There needs to be a balance of the rights between the Contractor and Owner, since a Contractor should have a right to variations where the requirements of the Employer change.
When deciding whether to use a turnkey contract, the parties must consider advantages and disadvantages, the complexity of the works and decide.
Should you have any further queries regarding a turnkey contract, please contact the Association.
Email to a Friend
Descriptions such as "design and build" and "package deal" are synonymous with a turnkey contract. One might ask, what does it entail? A turnkey contract implies that the design responsibility and the responsibility to construct rest upon the contractor. This differs to traditional contracts where the engineers are responsible for design and the contractor for construction. This separation of responsibility often results in dispute which sometimes results in finger pointing between the design and construction teams to attribute blame when something goes wrong.