What is Turnkey Project?
A turnkey project is a type of project that is constructed, developed, and delivered to the customer as a complete and fully functional product or service. In other words, the customer receives a “key” that can be turned to start using the product or service immediately without any further effort or investment.
The turnkey project is about hiring another specialized company to produce or build the desired project until it is completed and ready for delivery. During the construction of the Turnkey Project, the project contractor will bear the costs and risks of the investment of the project until the delivery and the payment.
Turnkey projects are often used in the construction, engineering, and technology industries, where a company is contracted to design, build, and deliver a complete project to the customer. Here are a few examples of turnkey projects:
- Construction of a new building: A construction company may be contracted to design and build a new building, handling everything from the architectural plans to the final touches of interior design.
- Installation of a new software system: Hired a technology company to install a new software system, configuring the software to meet the customer’s specific needs and providing training for the customer’s employees.
- Design and construction of a power plant: An engineering firm may be contracted to design and build a power plant, handling everything from the initial design to the installation of the equipment and the testing and commissioning of the facility.
- Setting up a new factory: A company specializing in factory automation may be hired to design and install a new factory, including the layout, equipment, and systems needed for production.
The turnkey approach is often preferred by customers because it allows them to focus on their core business while the turnkey provider takes care of everything else. It can also save time and money, as the customer does not need to invest in hiring and managing multiple contractors or suppliers.
Advantages of Turnkey Project
Time-saving and expertise: Turnkey projects can save time and simplify the process for companies that lack knowledge or expertise in specific or large-scale projects. Hiring a contractor with specific skills and expertise can greatly reduce the time required to learn and avoid mistakes that may arise due to inexperience.
Transfer of risk: Turnkey projects transfer project risks, capital costs, and liability to the contractor until the project is delivered to the buyer. This reduces the risks and responsibilities of the buyer and provides greater protection against potential losses.
Predictable duration: As the contractor is a specialist in turnkey projects, they can accurately estimate the project duration. Additionally, the contractor bears the risk of the project until it is completed, which incentivizes them to complete the project in a timely manner.
Price certainty: Turnkey projects provide price certainty as the contractor agrees to a fixed price in the contract. This allows the buyer to calculate their return on investment based on the clear and agreed-upon cost of the project.
Disadvantages of Turnkey Project
Turnkey projects can also have drawbacks, one of the disadvantages of turnkey projects is the limited control that the buyer has over the construction and design decisions made by the contractor during the project’s execution. This can lead to misunderstandings and disagreements between the buyer and the contractor, resulting in the final product not meeting the buyer’s expectations.
However, this problem can be mitigated by establishing clear project requirements and closely monitoring the progress of each phase of the project. The buyer can engage a third-party consultant to provide oversight and ensure that the project is meeting the requirements and specifications outlined at the beginning of the project. By doing so, the buyer can avoid potential conflicts and ensure that the final product meets their needs and expectations.