Everything You Need to Know Before Entering a Turnkey Contract
A Turnkey Contract is a business arrangement where the project is undertaken from the nascent stage and delivered upon completion. However, there are points that need to be kept in mind before entering the contract for the project from the technical, legal and other aspects.
Define Needs and Budgets
Experience shows that turnkey projects are more successful when the client is able to accurately specify his needs and the financial funds available to him to work on the project. Where the client’s expectations are unclear, dissatisfaction becomes a certainty for all participants.
The agreement should have a reasonable time frame; this is inclusive of technical delays that may happen while working on the project.
The agreement should clearly state all the price points. Please also be wary of additional charges that may have not been discussed with the other party and keep margins for them as well.
Successful projects require the turnkey solution provider to have the necessary cash flow to meet the construction costs. A good way to tackle such a problem is to mutually agree on project milestones and decide on part payments based on the milestones achieved.
Late Execution Penalties
Determine whether there would be the clause of late execution penalties in the agreement and if they are reasonable. It should also be stated that any design changes that may have occurred once the project has been started should not be considered as a part of the same.
Do conduct a thorough site inspection before finalizing on a project; this is to ensure that you are in agreement as far as all the technical details are concerned. Also it will allow you to specifically calculate the capital investment required.
Make sure all the material used for the project is clearly the contractor’s liability and ensure that transport of all materials is included in the prices agreed upon as well. It is very common that contractors bill extra at the end of the project for transportation charges.
Particular industries have rules by which transactions are governed. If you see something in a contract that makes an assumption of following a particular industry procedure, but doesn’t set out the procedure in the contract, make sure you know what the industry procedure is before you sign the contract.
If you need to have work started immediately, but cannot come to an agreement on the final terms of an agreement, you need to make sure that you are signing a contract that is not going to be taken as a permanent agreement. You can accomplish this by adding language like, “This interim agreement is in effect only until a more permanent agreement can be negotiated by both parties.”
One must also make sure that the contractor will remain personally liable for the obligations of the project in their entirety. One must also make sure that the client can independently seek enforcement of the warranties given by the contractor and suppliers, at the same time ensuring the fact that he does not have a contact directly with them.
Although a turnkey project may allow the client to take a back seat with most of the issues, it is important that the client retains a certain measure of control. For example at different stages of completion the client should inspect the project conditions before allowing the contractor to proceed ahead. This may increase the project timespan by a little bit but would help keep the contractor in check and prevent any shortcuts.
– Raghav Kapur, Bangalore Head, SILA
SILA is a Real Estate Services company with expertise in Facility Management, Real Estate Advisory, Project Management & Interior Contracting, servicing clients in over 50 cities with 4,000+ employees. The company’s Facility Management clients include Mumbai International Airport (T2), J&K Bank, Piramal Enterprises, Adlabs Imagica, Tata Sons, WeWork amongst others. SILA’s Projects division has projects across property asset classes – Hospitality, Industrial, Commercial, Mixed Use, Retail, & Residential, and Turnkey Interior Contracting for Commercial Offices, Restaurants & Retail Stores to its service offerings. SILA’s Advisory business provides with a comprehensive range of services such as Research, Valuation, Feasibility Studies, Equity/Debt Syndication for Real Estate Projects. SILA’s goal is to use the experience gained across all our services and projects, to provide our clients with in-depth advice and support for their Real Estate.