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CLAUSES OF TURNKEY CONTRACT 

CLAUSES OF A TURNKEY CONTRACT 5

WHAT IS A TURNKEY CONTRACT?

A turnkey contract is a contract in which the contractor is in charge of the facility’s design and construction. The fundamental idea behind a Turnkey Contract is that the contractor must deliver the finished product by the specified date and price. In actuality, the employer should and wants to participate in the project at all times actively. There are some points to be considered, which are referred to as the main clauses of turnkey contract before starting the construction.

MAIN CLAUSES OF TURNKEY CONTRACT

Turnkey agreements frequently aim to govern any potential disagreements between the parties in great detail. The main clauses of a turnkey contract are the following:

  • The project design
  • The construction site
  • completion time 
  • price and payments
  • performance guarantees and 
  • the Contract’s law. 

MAIN CLAUSES OF TURNKEY CONTRACT: The design of the project

Generally, the contractor’s job is to ensure that the project’s design is thorough, comprehensive, and adequate and that the facility complies with the performance guarantees stipulated in the Contract.

The nature of these commitments and the issue of whether they have been adequately performed should be decided independently of the quality and functionality of the ultimately constructed plant if one were to view the design obligations as separate from those of construction.

MAIN CLAUSES OF TURNKEY CONTRACT: The construction site

The employer is usually responsible for selecting the construction site, accessing it, and frequently the availability of utilities during that time. The contractor must specify the corresponding requirements. When we require assistance choosing the best location, help to find a suitable site, or when the site is retained despite the Contract being deemed problematic, challenging issues occur.

MAIN CLAUSES OF TURNKEY CONTRACT: Completion time

The contractor’s primary responsibility is to complete the installation by the deadline or the subsequent deadlines if the installation is completed in stages. However, in cases where the construction schedule has been incorporated into the Contract, the buyer may demand that the contractor follow this schedule. On the one hand, this assures the buyer that the construction is proceeding well and will be finished by the scheduled date. On the other hand, the buyer’s production schedule and the coordination of the contract work with other projects may demand that the contractor strictly adheres to his schedule.

MAIN CLAUSES OF TURNKEY CONTRACT: Price and payments

Turnkey projects often have a lump sum pricing. Although it is theoretically possible to represent prices in a turnkey contract as unit prices or via cost reimbursement, such agreements are uncommon. Nevertheless, it happens frequently that the turnkey lump-sum contract includes a list of unit costs or prices for specific operations or pieces. These unit and partial values are then used to value variations and perhaps even progress payments.

The Contract allows for partial payments where the works are of any relevance. It is challenging to determine progress payments for lump-sum turnkey contracts using measurements of quantities. As a result, these contracts typically make partial payments based on milestones like the dates of placing orders with suppliers, completing particular manufacturing steps, packing equipment for shipment, arriving at the site, etc.

MAIN CLAUSES OF TURNKEY CONTRACT: Performance guarantees

The contractor is responsible for keeping these promises. The contractor is not released from this obligation if his failure to do so is caused by flaws in the approved design or alterations the buyer ordered unless a dismissal has been agreed upon, either explicitly or implicitly. The performance guarantees that the contractor has agreed to are predicated on several assumptions about the standard of the raw materials used and the operational conditions, such as the weather, the availability, and regularity of construction supplies, etc.

MAIN CLAUSES OF TURNKEY CONTRACT: The Contract's law

This law governs the formation and validity of contracts, the parties rights and obligations under them, and how we should interpret them. Turnkey contracts are likewise subject to the principle of party autonomy recognized for most contract types. Consequently, subject to certain limitations stemming from public policy principles, the parties can select the law regulating their contractual duties. Such regulations may apply to specific contract provisions (such as intellectual property rights) or specific transactional details (e.g. rules based on interest rates, competition, etc.).

The legislation of the court or arbitration procedure in the jurisdiction where the project is being conducted is typically the law that applies to dispute resolution procedures. It is decided on its own. It may occasionally be the law of a nation other than the one whose law controls the Contract itself.

CLAUSES OF A TURNKEY CONTRACT

In conclusion, based on the MAIN CLAUSES OF TURNKEY CONTRACT discussed above, a turnkey contract model should be based on a balance of risk allocations, employers’ rights and obligations, and the contractor’s. The Contract must also have a simple, manageable structure that makes it easier to administer. Finally, the Contract should be acceptable to arbitration courts under civil and common law and other jurisdictions.

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