As a small business owner, you may have been asked to get involved with a major construction project involving a new industrial facility. This is potentially exciting and will involve a lot of work on your part, with staged payments and various commitments to be made. However, you may not be involved directly with the owner of the project, as they have decided that this will be a turnkey contract instead. What do you need to know about this type of arrangement as far as it affects your input?
Understanding Turnkey
Whenever an owner or employer decides to turn over most aspects of a major project to a contractor, this is known as a "turnkey" arrangement. Typically, the main contractor will then be responsible for both the design and the construction of the facility for an agreed price and must turn over the completed project to the principal by a fixed date.
Nevertheless, the owner is not always hands-off in this situation and will have input at various stages of the project, but much of the responsibility is given to the principal contractor. In turn, that organisation will need to engage subcontractors like yourselves and will typically want guarantees to be made, so that they can cover their exposure.
Rollout Phases
Turnkey contracts have several different phases, but three of the major components include design, technology and construction.
Design
Certain parts of the design process may be defined within the master contract or may be subject to a totally separate and stand-alone contract. However, the contractor will normally be heavily involved in designing the facility through to completion.
Technology
The contract holder will need to possess or "buy in" the necessary know-how, machinery, patterns and processes to cover all of the required technology. Again, this may involve bringing in subcontractors to cover certain parts.
Construction
Usually, the main contractor is responsible for choosing the materials and supplies necessary to move the project along. Still, there may be restrictions within the terms of a turnkey contract imposed by the owner, limiting this choice to nominated suppliers. This arrangement may be subject to preliminary negotiations between the owner and an external supplier, for reasons of cost or alternative strategy.
Understanding Limitations
The owner must understand the potential limitations associated with such a project and will need to be clear that licenses and permits can be obtained, even if this is subject to certain caveats. After all, they can neither advertise nor issue a turnkey contract and commit to paying the agreed price without certain assurances.
Your Engagement
Make sure that you are happy with the overall terms of your engagement whenever you agree to subcontract to a turnkey arrangement like this. It's nevertheless a very commonplace arrangement within major industrial or commercial projects and as it is such a structured arrangement, can be very lucrative for you.
For more information, contact your local turnkey project management professionals.