With the recent claims of government projects being stalled or marred by corruption, I think it’s time we consider the turnkey model as a procurement solution for our infrastructure projects. A turnkey model is a break from the build-to-order tradition used in major infrastructural projects where the government employs a team of consultants to develop the design and specification and who then later contract a contractor to do the job. In a turnkey model, the design and construction bids are issued jointly as a design and build contract. The contractor will sell the final finished product to the government at a fixed price unlike a build-to-order which allows room for variations in price and delivery schedule.
The concept behind the turnkey model is that the purchaser, in this case the government, will only need to “turn a key” to start operating the facility, thus the only point of interaction is at the tender stage and no interim payments, awards or deals are made and thus reducing the level of corruption. In addition to delivering the complete facility, the contractor must deliver that facility for a fixed price, fixed date and specified requirements. Failure to comply with any requirements will usually result in the contractor incurring monetary liabilities.
Risk allocation under a turnkey model differs from risk allocation under the build-to-order model. In a turnkey model, the contractor bares all the risk of delivering the specified facility. The purchaser will only pay once guaranteed and satisfied with the facility. The build-to-order model however shares the risk to both parties, allowing corrupt individuals to transfer all the risk to one party, in this case, the government.
In comparison to the build-to-order model, Turnkey model ensures that;
- The contractor is responsible for all design, engineering, procurement, construction, commissioning and testing activities;
- The contract price is fixed and therefore risk of cost overruns and benefits of any cost savings are to the contractor’s account. The contractor’s only resource to claim additional money is limited to circumstances where the developer has delayed the contractor;
- A fixed date or period for completion of the works is provided, failure to which liquidated damages are payable to the developer by the contractor; and
- The contractor will provide a performance bond for the entire project.
However, it’s worth noting that under a turnkey model;
- The contractor will have to factor into its price the cost of absorbing the risks and this results in a higher contract price quotation from the contractor.
- The turnkey model may contain more restrictive employer rights but this is counter-balanced by the imposition of greater obligations on the contractor.
- There are very few design and build contractors in Kenya and thus the government may need to accept and encourage consortia and joint ventures as part of the tenderers.
In conclusion, Kenya’s momentum towards infrastructure development is only set to increase, and a turnkey model can be a great solution in ensuring value for money of all these projects.