Therefore, turnkey contract may help in cutting down the number of responsibility centres to the extent of one. In a turnkey project a single contractor has complete responsibility to supply the owner a plant which is complete and ready for he owner to operate by simply turning the key. Turnkey thus is an expression for the extent of responsibility that a contractor undertakes; it is not to be mixed up with he commercial and payments terms. Turn-key would not necessarily mean a fixed price contract; it is quite possible for engineering consultancy organizations to undertake turnkey responsibilities for projects ever without having capabilities of supplying and financing. On the other hand, in a lumpsum turnkey contract a contractor offers the owner a complete plant for a single price. Even when a turnkey contract is entered into the process of dividing the work does not totally stop with the decision to go turnkey. It only reduces the number of agencies the owner is required to coordinate. The turnkey contractor in turn will be required to subdivide the work further as it is not possible to have all the capabilities required for a complex project under one single roof. Advantages of Turnkey Contract In projects that are undertaken by government or state-owned enterprises. Ownership and control after the completion of contract is retained with the owner. This is especially true in the case of traditional turnkey contracts, when the involvement of the turnkey contractor could be eliminated once the contract is completed, as he has no share in capital ownership, and hence there would be no conflict as regards policies and management of the operations of the enterprise. In the turnkey contract a major advantages to the promoter stems from the fact that the responsibility for the contract lies with a single source and the promoter is relived from responsibilities for the equipment or plant and performance. In the turnkey contract a major advantage to the promoter stems from the fact that the responsibility for the contract lies with a single source, and the promoter is relieved from responsibilities for the equipment or plant and performance. The turnkey contract generally ensures that the projects is put into operation more rapidly than other contracts since both design and construction are the responsibility of one entity. When a turnkey contract extends beyond the commissioning stage the teething problems of a multidisciplinary project can be resolved by the contractor’s in- house trained personnel.
Disadvantages of Turnkey Contract The cost of a turnkey contract may be significantly higher than that of a traditional form of contract because cost estimates are often expressed in overall terms without a detailed breakdown of costs.
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- Fall '14
- Project Management