Large-scale infrastructure projects are usually developed through various methods. One of these methods is known as turnkey project development. In this article, we explain everything about turnkey projects.
What is a turnkey project?
According to the Oxford Dictionary, the word ‘turnkey’, an adjective, stands for anything that is ‘complete and ready to use immediately’. When applied to project development, a turnkey project meaning remains the same. A turnkey project is one which is designed, developed and equipped with all facilities by a company under a contract. It is handed over to a buyer when it becomes ready to operate business. Obviously, the company responsible for building a turnkey project does it for the cost as agreed in the contract. The work of the company includes design, fabrication, installation, aftermarket support and technical service for the turnkey project.
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What is a turnkey contract?
A turnkey contract is a legally binding agreement between a client (owner) and a contractor, where the contractor undertakes to deliver a completed project ready for immediate use. The contract specifies that the contractor will handle all aspects of the project, from initial design to final handover, ensuring that the client does not have to participate in the day-to-day management of the project.
Key elements of a turnkey contract include:
- Scope of work: Clearly defines the project requirements and deliverables.
- Timeframe: Specifies the project timeline, including milestones and completion dates.
- Cost: Details the total project cost, including payment terms and financial obligations.
- Performance guarantees: Outlines the expected quality and performance benchmarks.
- Risk allocation: Clarifies which party is responsible for various project risks.
- Warranties and liabilities: Defines the contractor’s obligations regarding defects and maintenance.
Turnkey project features
In this mode of carrying out international projects, a company in need of a manufacturing or services facility hires a third-party operator to design and build, rather than doing everything on its own. The third-party contractor is responsible for providing everything from manufacturing to supply chain services.
See also: What is a Greenfield Project?
Advantages of turnkey projects
Turnkey projects offer several benefits for both clients and contractors. Some of the key advantages include:
- Reduced client involvement: Since the contractor manages the entire process, the client can focus on core business activities without getting involved in project execution.
- Single point of responsibility: The contractor is solely accountable for project completion, reducing the risk of miscommunication and disputes between multiple parties.
- Time and cost efficiency: Turnkey contracts often lead to faster project completion and reduced costs due to streamlined planning and execution.
- Guaranteed performance: Contractors typically provide performance guarantees, ensuring that the final product meets the agreed specifications.
- Reduced risk for the client: The contractor assumes responsibility for project-related risks, including delays, budget overruns, and quality issues.
Disadvantages of turnkey projects
Despite their benefits, turnkey projects also come with certain challenges:
- Limited client control: Clients have minimal input in design and execution, which may lead to dissatisfaction if the final product does not meet expectations.
- Higher dependency on the contractor: The success of the project depends entirely on the contractor’s ability to deliver as promised.
- Potentially higher costs: While cost efficiency is a benefit, turnkey contracts may include higher markups due to the contractor taking on additional risks.
- Lack of flexibility: Any design changes or modifications requested by the client after project commencement may be costly and difficult to implement.
Turnkey project examples
A majority of government-funded, large-scale infrastructure projects are developed on a turnkey basis. The upcoming Jewar Airport project, for example, is a turnkey project. It is being developed by Swiss company Zurich Airport International. Once it is fully developed, the airport will be handed over to the local authorities to operate. In the housing market, a turnkey property is a fully-furnished flat or apartment that you can buy and rent immediately.
Turnkey projects are commonly seen in various industries, including construction, manufacturing, information technology, and energy sectors. Below are some notable examples:
1. Construction industry
In the construction sector, turnkey projects are widely used for large-scale infrastructure and commercial developments. Examples include:
- Airport construction: A government or private entity may contract a firm to design and construct an entire airport, ensuring it is fully operational upon handover.
- Hospital projects: A construction company is hired to build a hospital, complete with medical equipment, ready for use upon completion.
- Residential and commercial buildings: Developers may opt for turnkey solutions where a construction company delivers fully completed housing or office complexes.
2. Manufacturing industry
Turnkey contracts in manufacturing often involve setting up complete production plants or assembly lines. Examples include:
- Automobile manufacturing plants: A contractor is hired to design, construct, and set up a fully functional vehicle assembly line.
- Pharmaceutical production facilities: A turnkey contract may be used to establish a drug manufacturing plant with all necessary equipment and regulatory approvals.
- Food processing units: A contractor delivers a ready-to-operate food production plant with automated machinery.
3. Information technology (IT) industry
The IT industry frequently uses turnkey projects for software development and IT infrastructure deployment. Examples include:
- Enterprise resource planning (ERP) systems: A company may hire an IT firm to design and implement a fully functional ERP system tailored to its business operations.
- Data centers: IT firms may undertake turnkey contracts to establish data centers, complete with servers, networking infrastructure, and security systems.
- E-commerce platforms: Businesses often opt for turnkey solutions to set up e-commerce websites, including backend systems and payment integrations.
4. Energy sector
The energy industry relies heavily on turnkey projects for power generation and distribution. Examples include:
- Solar and wind farms: A renewable energy company may contract a firm to design and build a fully operational solar or wind energy farm.
- Power plants: Turnkey contracts are commonly used for constructing power generation plants, such as thermal, hydroelectric, and nuclear plants.
- Oil and gas refineries: A contractor is hired to build and commission a refinery, ensuring it meets all industry regulations and safety standards.
5. Telecommunications industry
In the telecom sector, turnkey projects are employed to set up infrastructure for communication networks. Examples include:
- Mobile network towers: A telecom company may contract a firm to establish mobile towers with all necessary equipment for immediate operation.
- Fiber optic networks: Turnkey contracts are used to deploy fiber optic networks, ensuring seamless broadband connectivity.
- Satellite communication systems: A company may contract a provider to build and launch a satellite communication system.
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Housing.com POV
Turnkey projects provide an efficient and reliable method of delivering large-scale projects across multiple industries. They offer significant benefits, including reduced client involvement, cost efficiency, and guaranteed performance. However, they also come with challenges, such as limited client control and dependency on the contractor. By carefully evaluating the scope, risks, and contractor capabilities, clients can ensure the successful execution of turnkey projects tailored to their specific needs.
FAQs
What is a turnkey project?
A turnkey project is a contract where a single entity handles the entire project—from design to execution—delivering a fully functional solution to the client.
How does a turnkey contract work?
In a turnkey contract, the contractor is responsible for all project phases, including design, procurement, construction, and commissioning, ensuring the client receives a ready-to-use facility.
What are the advantages of turnkey projects?
Turnkey projects offer reduced client involvement, cost and time efficiency, a single point of responsibility, and performance guarantees.
What industries use turnkey contracts?
Construction, manufacturing, IT, energy, and telecommunications industries commonly use turnkey contracts for large-scale projects.
What is the difference between a turnkey project and an EPC contract?
While both involve end-to-end project execution, an EPC (Engineering, Procurement, and Construction) contract focuses on detailed engineering and construction, whereas a turnkey project delivers a fully operational facility.
Are turnkey projects more expensive than traditional contracts?
They can be more expensive upfront due to the contractor assuming full responsibility, but they often reduce long-term costs by avoiding project delays and inefficiencies.
What are the risks associated with turnkey projects?
Clients have limited control over execution, depending on the contractor’s performance, and may face higher costs for changes after the project begins.
