Our Guide to Turnkey Projects

If you’re looking into a new commercial building project, you may have heard the term “turnkey”. Turnkey projects are conducted in a wide array of industries, from construction to energy to information technology (IT) and include projects such as power plants, airports, hopsitals, and much, much more.

But, what is a turnkey project, and why should you consider one?

Turnkey Projects

Housing.com describes the a turnkey project as “one which is designed, developed and equipped with all facilities by a company under a contract.” When it’s ready, a buyer can come in and operate it as a business.

Turnkey Contracts

In order to enter a turnkey agreement, a contract is drawn up between said buyer and the contracter. The turnkey contract ensures that the contracter will be responsible for “all aspects of the project, from initial design to final handover.” The buyer will then put the project into the contracter’s hands for day-to-day management until it is completed.

A typical turnkey contract should include the following sections for the buyer to consider:

• Scope of work
• Time frame
• Cost
• Performance guaruntees
• Risk allocation
• Warranties and liabilities

Meeting FIDIC Standards

Every turnkey project needs to meet the standards of the International Federation of Consulting Engineers (FIDIC), or the “global representative body for international associations of consulting engineers”. The FIDIC Silver Book is a contract template that puts most of the project’s risks on the contracter. This is the most common template for turnkey projects and is used by global lenders and multilateral agencies that may not be as involved in the day-to-day operations but still need certainty in the project’s delivery.

Pros and Cons

Before entering this type of contract, it’s important to think of its advantages and disadvantages. For starters, advantages include the following:

• Client has ability to focus on the actual business, avoiding getting tangled in the day-to-day operation weeds.
• Miscommunication is minimized due to the contracter and buyer being the sole parties involved.
• Faster project times resulting in reduced cost
• Performance guaruntees

Some disadvantages to consider:

• Limited client control
• While turnkey projects typically ensure reduced costs, some contracters may mark up prices because of their own added risks.
• Modifications are difficult to carry out

Overall, turnkey projects reduce risk for clients by placing the responsibility on the contracter, ensuring a smoothe experience for everyone.

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