A turnkey contract is one where the contractor is in charge of the planning, building, and commissioning of the project. The term "turnkey" refers to the fact that the facility is turned over to the owner ready to be operated.
Components of a Turnkey Contract
A turnkey contract typically includes the following components:
- Design: The contractor is responsible for the design of the facility, including the architectural, structural, and mechanical designs.
- Construction: The contractor is responsible for the construction of the facility, including the procurement of materials and the hiring of subcontractors.
- Commissioning: The contractor is responsible for commissioning the facility, which involves testing and ensuring that the facility is operational.
Obligations of the Employer and Contractor
The employer and contractor have different obligations under a turnkey contract. The employer's obligations typically include:
- Granting access to the location to the contractor
- Obtaining the necessary permits and licenses
- Paying the contract price
The contractor's obligations typically include:
- Designing the facility in accordance with the contract documents
- Constructing the facility in accordance with the contract documents
- Commissioning the facility
- Providing the owner with operation and maintenance manuals
Main Clauses of a Turnkey Contract
1. Understanding Turnkey Contracts:
Discover the definition and synonyms of turnkey contracts, also known as package contracts or EPC contracts. Gain insights into their purpose and the active involvement of the employer throughout the project.
2. Components of a Turnkey Contract:
Explore the three key components of turnkey contracts: design, technology, and supplies/construction/erection. Understand how these elements come together to deliver a complete and operational facility.
3. Obligations of the Employer and Contractor:
Learn about the main obligations of both the employer and the contractor, including site access, permits and licenses, payment terms, design responsibilities, and provision of operation manuals.
4. Main Clauses of a Turnkey Contract:
Discover the essential clauses typically found in turnkey contracts. Topics covered include project design, construction site considerations, completion timelines, pricing and payments, performance guarantees, and the governing law.
5. Importance of Design and Construction:
Understand the critical role of the contractor in ensuring a complete and satisfactory design of the project. Explore the challenges of choosing a suitable construction site and adhering to agreed-upon timelines.
6. Pricing and Payments:
Gain insights into the pricing structure of turnkey contracts, which often involve lump sum payments. Learn about milestones and progress payments that ensure project advancement and fair compensation.
7. Performance Guarantees:
Discover the contractor's responsibility to meet performance guarantees and the factors influencing their fulfillment. Considerations such as raw material quality and operating conditions are crucial in maintaining these guarantees.
8. The Law Governing the Contract:
Explore the significance of selecting the governing law for turnkey contracts. Understand the principle of party autonomy and the restrictions imposed by public policy, along with the determination of applicable law in dispute resolution procedures.
Turnkey contracts are a complex type of contract that require careful negotiation between the employer and contractor. The contract should be clear and comprehensive, and it should address all of the potential risks and liabilities associated with the project.
Here are some additional tips for drafting a turnkey contract:
- Use clear and concise language.
- Be specific about the contractor's responsibilities.
- Include detailed payment terms.
- Provide for performance guarantees.
- Choose the appropriate law to govern the contract.
By following these tips, you can help to ensure that your turnkey contract is fair and enforceable.