Turnkey

Also known as engineer, procure, construct (EPC) or design-build (D/B), this contracting method can be used with firms that specialize in providing all components of project engineering and construction. The basis of the contract can be similar to any of the other contracting methods, such as lump sum or cost plus, but in this case one firm will provide all engineering and construction work.

This method can help to expedite a project for several reasons. Because completed plans and specifications are not necessary to allow contractors to bid on the project, the schedule of the project can be compressed by that bidding time that is no longer required. It is also possible for preliminary construction work to begin or long lead-time materials ordered, while final design documents are being developed. There is also one line of responsibility for both design and construction, reducing or eliminating the ability for the party to assign blame to another entity if problems occur.

This approach places the design risk on the contractor (builder). Not only will the contractor offer a firm bid price on the basis of an incomplete design (which will only be completed later by the contractor), but if the design is flawed, the contractor will bear the responsibility for all corrections, presuming the contractor had legitimate access to known existing conditions.

Sometimes, the parties will agree to a gross maximum price (GMP) for the project. The actual final price is then determined through some open-book type accounting/reporting from the contractor, but cannot exceed the initial GMP (absent SOW change). This approach mitigates owner risk by establishing a price ceiling. The contractor may seek some financial premium for offering this price ceiling in advance and may also carry some contingency in the price estimate for unforeseen cost exposure. Sometimes, the contracts are structured to provide incentive for the contractor to value-engineer cost reductions by sharing a portion of the underage from the GMP once final prices are trued up. The GMP provision can be applied not only to turn-key contracts, but to several of the other contracting methods as long as sufficient detail exists as to the overall SOW of the project.

Since the work is based on a proposal with incomplete design and specification, the contract must carefully specify the final conditions and minimal levels of performance that are to be achieved by the contractor. Also, with this approach, the owner is placing a great amount of the construction inspection, normally reserved for the design engineer, in the hands of the turn-key contractor. To mitigate risk of substandard or incomplete work, the owner must still maintain (or hire a separate contractor to perform) a vigilant oversight role.

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