Turnkey Project Advantages and Disadvantages: What to Know Before Signing a Contract
9/10/2021
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A turnkey project is a delivery method in which a single entity—a contractor—works with a project owner under a single contract to complete all stages of a project from detail engineering through construction. Turnkey projects eliminate inconveniences from the project owner, as this method places responsibilities on the contractor that would otherwise fall on the owner in a traditional design-bid-build (DBB) delivery. Unlike the DBB approach, turnkey delivery methods consolidate aspects of project design, financing, procurement, subcontracts, and construction into an all-in-one solution with a single point of accountability. Turnkey delivery methods can be used for a wide range of capital projects in industries such as energy, terminal and logistics, and chemicals. As for any project delivery method, it is important to weigh the pros and cons before signing a contract. Let’s take a look at turnkey project advantages and disadvantages.

Turnkey Project Advantages and Disadvantages

When deciding if a turnkey project delivery method makes sense for you, you'll need to consider several factors. Some of these include cost, timeline, risk, and quality. Here's a closer look at the factors to consider.

Turnkey project advantages and disadvantages

Cost and Timeline Advantages

  • Price certainty: Unlike the traditional DBB approach, turnkey methods reduce financial unknowns and provide project owners the ability to accurately calculate return on investment (ROI), and there is less uncertainty regarding total project cost. With traditional methods, the construction cost is unclear until it has been designed and bid out. If a separate company lacking strong construction experience is hired to design and engineer the project, they might not be able to achieve this within the given budget. This can lead to construction bids coming in at much higher costs than was budgeted for.
  • Reduced change management challenges: With the DBB technique, there is no connection between the company that engineers and designs for a project and the company that constructs it. This can result in inconsistencies with the engineering drawings and the project owner’s actual needs, leading to numerous change orders that can continue to cause price increases throughout the project. Errors and omissions are also charged as a change order, leading to increased cost. Poorly designed projects, if not caught until in construction, can lead to significant cost overruns. With turnkey approaches, this challenge is greatly reduced, as everything in the “Issued for Design” package is included in the price. 
  • Reduced cost overruns: If the turnkey project is bid fixed cost, project owners are only responsible for the lump sum agreed upon during the contract negotiation. Thus, any increase in costs, such as surges in material costs, are already accounted for and are covered by the contractor. If reimbursable, cost overruns are reduced, compared to DBB methods, due to the continuity of the team from engineering to construction. It is also beneficial to have construction team members involved during the design phase because it helps to prevent project delays that could result in cost overruns. 
  • Condensed project timelines: Multiple stages of a turnkey project may overlap due to the nature of having a single design and construction contractor. This allows for the procurement of materials and subcontractors to occur as designs are being finalized, resulting in a reduced timeline and reduced delays throughout the process.

Additional Advantages

  • Collaborative approach: The turnkey method is a model based on a collaborative approach—the designer and builder work as a team, with their interests aligned. This eliminates the adversarial nature that is sometimes present in the DBB model. The turnkey approach reduces the amount of blaming and finger-pointing that may otherwise be involved in DBB project deliveries.
  • Risk transference: Much of the project risk and responsibility is transferred to the contractor as opposed to the project owner, as the contractor is in control of, and is held accountable for the schedule, cost, and performance of the project.
  • Reduced management efforts: Turnkey projects reduce the need for the project owner to manage and supervise the entirety of the project. Without the need to manage numerous contracts, the project owner can place sole focus on the project itself.
  • Consistent quality: From the beginning, a contractor can set quality standards to ensure consistency across design, fabrication, and construction teams.

Disadvantages

  • Requires strong scope definition: The scope must be fully established before entering the engineering and design phase of a turnkey project. In other words, making changes and adding additional components to the project shouldn’t be done after the scope has been defined. Changes during engineering must be minimized due to construction, procurement, and planning activities that may have already commenced.
  • Dependent on trust: The turnkey approach depends heavily on the project owner’s trust in the contractor. While having a single point of responsibility is a benefit, finding the right contractor that understands the project owner’s vision, budget, and engineering and construction needs is an absolute must.
  • Cost: Project budgets are typically presented before design finalization and are often estimated to account for unpredictable changes in budget requirements, such as cost increases resulting from inflation and final design material takeoffs and labor. However, price certainty is arguably more important, as it allows project owners to accurately calculate the ROI for the project and meet investment criteria.

Weighing Turnkey Project Advantages and Disadvantages

Before signing a contract, it is important to weigh turnkey project advantages and disadvantages. While there are pitfalls to avoid when utilizing a turnkey contractor, this method can typically yield superior outcomes compared to DBB approaches in terms of project timeline and engineering and construction quality. With the inherent price certainty that comes with turnkey projects, there is a reduced risk of cost overruns. 

Turnkey approaches to capital projects, small or large, provide an all-inclusive, cohesive option for project execution. However, project success is highly dependent on choosing the right contractor who has the experience and ability to provide all services in-house to deliver high-quality engineering and construction services that meet your project vision and budget.

H+M Industrial EPC has more than three decades of experience providing exceptional capital project execution from concept to start-up for a wide range of project sizes within the energy, chemical, and terminal and logistics industries. We are dedicated to providing trust, experience, and efficiency through all stages of engineering, procurement, and construction through our proven strategic EPC approach.

About the Author

Want to Learn More About Project Management?

To find out more about the advantages and disadvantages of turnkey projects and how H+M Industrial EPC can meet your capital project needs, contact us through our website today.

To find out more about the advantages and disadvantages of turnkey projects and how H+M Industrial EPC can meet your capital project needs, contact us through our website today.

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The H+M Industrial Team

For over three decades, we have provided best-in-class capital project management services to Energy and Chemical industries through our proven EPC approach. We are dedicated to providing trust, experience, and efficiency through all stages of engineering, procurement, and construction--on budget and on time.

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