A Turnkey Contract is one under which the contractor is responsible for both the design and construction of a facility. The basic concept is that in a Turnkey Contract the contractor shall provide the works ready for use at the agreed price and by a fixed date. The reality is that the employer wants to be and should be actively involved in the project at all stages. The term is used more or less synonymously with expressions as “package contract”, “design and build” or “design constructor”. In French one uses the expression clé en mains, in Spanish llave en mano and schlusselffertig in German. This type of contracts is also known as EPC Contracts (Engineering, Procurement and Construction).
Turnkey contracts include at least three components:
The design of the facility by the contractor. This does not exclude that certain aspects of the design are already defined in the contract or that the preparation of the design forms the object of a separate, preliminary contract. In any event, even where the contract is only for the construction of the facility, the contractor normally has to prepare the detailed design.
The technology component, i.e., patents, know-how, etc., in so far as it concerns the completed works, can be seen as incorporated already in the design. However, in certain cases the contractor uses the technology of their parties by virtue either of his own contractual arrangements or as requested by the employer or his engineer.
Supplies, construction and erection, form also part of contractor´s obligations. Even in the more restrictive definition of a turnkey contract, the contractor owns the construction of the complete facility ready to be operated. Nevertheless is not infrequent for the employer to require from the contractor the he retains specified subcontractor or to limit the choice to certain supplies. In this manner, the employer may wish to assure himself of the quality of certain components or negotiate directly the price of certain subcontractors.