When you enter a turnkey contract...

Raghav Kapur lists some essential points that you need to know before entering a turnkey contract
Last Updated 10 August 2017, 19:49 IST

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. Here they are:

Needs & budgets
Experience shows that turnkey projects are more successful when the client is able to accurately specify her needs and the financial funds available to her to work on the project. Where the client’s expectations are unclear, dissatisfaction becomes a certainty for all participants.

Time frame
The agreement should have a reasonable time frame; this is inclusive of technical delays that may happen while working on the project.

Final costs
The agreement should clearly state all the price points. Also, be wary of additional charges that may not have been discussed with the other party and keep margins for them as well.

Payment schedules
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.

Site inspections
Do conduct a thorough site inspection before finalising 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.

Construction material
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.

Transaction rules
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.

Agreement terms
If you need the work to start 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.”

Project responsibility
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.

Client control
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 time span by a little bit, but would help keep the contractor in check and prevent any short cuts.

(The author is city head - Bengaluru, SILA)

(Published 10 August 2017, 17:24 IST)

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