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A turnkey contract is a type of project that’s constructed to be sold to any buyer as a completed product. It is used in the supply or sale of goods or services. Turnkey contracts can be used for a range of construction projects from single buildings to large-scale developments.
A turnkey contract can also be referred to as a turnkey bid. EPC contracts can also be known as turnkey contracts. An EPC contract stands for engineering, procurement, and construction contacts.
A turnkey contract is a simple and traditional public sector procurement model used for infrastructure facilities. Generally speaking, a private contractor is selected through a bidding process.
The contractor assumes all responsibility from the design to the completion of the project. It is up to them how the project is completed. They don’t have to conform to the buyer’s specifications as they have none. Once completed, the project is ready to produce cash flow upon completion.
The private contractor designs and builds a facility for a fixed fee/rate/total cost. The aim of a turnkey contract is for a buyer to review the options available to complete a project. A buyer will turn to solicitation to examine their options. Businesses will then detail how they will complete the project and the buyer will pick the winner. There will be certain eligibility criteria they need to meet in order to qualify.
Price is one of the key criteria buyers look at when selecting the winning bid. Obviously, they will be still interested in the quality of your bid as well. However, price is most likely going to be the deciding factor. You must remember that you want to give accurate pricing. If you under-price your services to undercut your competitors, it might not go well. If you end up going way over your budget upon completion, a buyer won’t be best pleased.
You can expect to find turnkey contracts being used within the following industries:
A turnkey contract includes at least five key components:
You will need to detail a detailed design plan for the project. There may be specific aspects of the design that’s already defined in the contract. However, even where this is specified, a contractor must prepare a detailed design for the facility.
For a turnkey contract, you can expect to detail the technical aspects. You should include your experience in carrying out similar projects, demonstrating your knowledge. This could be seen as the engineering aspect of the contract. It also includes obtaining the necessary permits and licenses.
It is typical for a buyer to ask a contractor to detail what supplies they intend to use on the project. They will also be likely to ask about how they plan on erecting the facility. Here, you will need to detail if you plan on using any subcontractors. Who are they and what will they be used for?
Sometimes a buyer can be restrictive or limit the choice to certain supplies or specified subcontractors. Here, the buyer may wish to assure themselves of the quality of certain aspects. Additionally, they could negotiate with you directly about the price of certain subcontractors.
One additional necessary component you can expect to include within your turnkey contract is a risk assessment. This is critical as you as the contractor are responsible for every aspect of the project. You want to ensure that you highlight and mitigate the risks where possible.
As mentioned above, price is one of the most integral aspects of a turnkey contract. Price your services competitively but still reasonably. You want to win the contract and be able to perform it in budget.
So now you should have a better idea of an answer to ‘what is a turnkey contract?’ and what’s required. Keeping up with all the solicitation terminology can take a while. However, the more you educate yourself the easier it gets to understand the processes.
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