Turnkey (or Turn-key) project is a term that refers to construction projects in which the developer assumes all responsibility from design to completion, ensuring that the building is ready to use for the buyer.
A Turnkey Contract is one in which the contractor is responsible for both the design and construction of a project. The basic idea is that in a Turnkey Contract, the contractor must provide the works ready for use at the agreed-upon price and by a fixed date.
The reality is that the employer wants to be and should be actively involved in the project at all phases. The word is used interchangeably with phrases such as “package contract,” “design and build,”. In French one uses the expression clé en mains, in Spanish llave en mano and schlusselffertig in German. This type of contracts are also known as EPC Contracts (Engineering, Procurement and Construction)
What is Turnkey Construction?
Turnkey construction is a building solution that greatly simplifies things for the future project’s owner. The contractor is responsible for both design and construction work on this type of project. The owner only needs to wait for the contractor to finish the job, and then he or she can “turn the key” and begin using the new building or facility.
These types of contracts usually have three primary components:
- Design: The contractor is in charge of preparing the design of the home or facility, eliminating the need for the future owner to hire architects and designers independently.
- Supply Procurement: Instead of the project owner or employer locating and purchasing supplies, the contractor does so through his or her own network of suppliers. Depending on the type of turnkey contract, the future owner may be able to specify suppliers and materials.
- Construction: From start to completion, the contractor is in charge of all aspects of construction. The owner does not have to spend time looking for and hiring subcontractors, nor does he or she have to participate in the construction process. The keys are given over to the new owner once the project is completed, and the new owner can begin using the building or facility.
Turnkey construction has an advantage over other types of contracts in that project owners who are short on time will not have to participate actively in the design, supply purchasing, and construction phases. Project owners or employers must only provide access to the site, assist with the acquisition of licenses and permits, and approve project phases as specified in the contract.
Components of a Turn-Key Contracts
Turnkey contracts include at least three components:
- The design of the facility by the contractor. This does not exclude that certain aspects
of the design are already defined in the contract or that the preparation of the design
forms the object of a separate, preliminary contract. In any event, even if the contract simply covers the construction of the facility, the contractor is usually required to prepare the detailed design.
- The technology component, i.e., patents, know how, etc., in so far as it concerns the
completed works, can be seen as incorporated already in the design. However, in
certain cases the contractor uses the technology of their parties by virtue either of his
own contractual arrangements or as requested by the employer or his engineer.
- Supplies, construction and erection, form also part of contractor´s obligations. Even in
the more restrictive definition of a turnkey contract, the contractor owns the
construction of the complete facility ready to be operated. However, it is not uncommon for the employer to require that the contractor retain a specified subcontractor or to limit the option to specific materials. In this manner, the employer may wish to ensure the quality of specific components or directly negotiate the price of specific subcontractors.
The idea behind the turnkey approach is, putting it crudely, for the contractor to be given the job to engineer, procure and construct the required works and then, once ready for operations, to hand over the keys to the owner so that it may operate the facility. Turnkey, in principle, means a contract whereby the contractor provides whatever is necessary for a certain purpose.
Turnkey contracting is sometimes also referred to as ‘Lump Sum Turnkey’ or ‘LSTK’, emphasising the intended bargain of the parties, with responsibilities allocated to the contractor to deliver the project on time and to a required performance level, in return for payment of a fixed price. A lump sum turnkey price will include contingency allowances to hedge against the risk of things costing more or taking longer to deliver. Owners expect to pay a premium for a turnkey contract.
Turnkey Projects Examples
Engineering Projects, large construction projects i.e Construction of Airports, Ports, High-rise towers, Bridges, In IT (turn-key implementation of information systems)
The turnkey project is usually very complex and may involve the development and design, the production, and the delivery and set-up or installation of the project.