How can you maximize your turnkey contract?
Turnkey project delivery models (i.e., energy performance and design-build contracts) are becoming more and more common in today’s commercial construction industry. These delivery models simplify the construction process by having one company responsible for both the design and construction. This streamlined delivery process is necessary to meet tight deadlines with limited resources. However, the owner tends to lose control over the project scope and cost. In the end your c-suite may be wondering “did we get the best value?”
Thankfully, there is something you can do to ensure you are getting the best value. You just have to incorporate requirements upfront during the request for proposal process. There are three key requirements you should include in your RFP that will ensure you end up with a transparent turnkey project. The images below are snippets from an existing RFP that you can replicate in your next RFP to maximize your turnkey contract.
1. Stepped Delivery Process
This starts with a stepped delivery process. Often times many ESCOs or design-builders offer a guaranteed max price (GMP) early on in the project. While this is great from a budgeting prospective, this actually transfers control of the scope and cost from you to the contractor. This limits your ability to audit, assess options and manage costs. A better alternative is to establish the GMP following the design step.
Make sure your RFP introduces transparency through competition. How do you know your contractor is getting you the best price? Have the contractor require at least three quotes for all scope of work items. This will validate you are getting the best value. Employing competition will also drive down the cost of construction.
3. Open Book
Now it is time to build. Things are going to change throughout the project, this happens. How can you make sure you’re still getting the best value? The answer is open book project accounting, which requires the contractor to disclose all subcontractor costs and mark-ups. Pay applications should include all invoices and subcontractor schedules of values. A reserve fund is typically established to cover any issues during construction. The use of this reserve fund is fully disclosed to the owner. At the end of the project, any money remaining in the reserve fund will be turned over to the owner at project close out.
Written by: Jason Denue, PE, REP, Associate Principal