Thursday, February 16, 2023

Make it a 'turn-key'

You may say -- you may have heard -- "make a 'turn-key' project".
Fair enough.
What does that mean? 

Actually, there are a few things built into that expression:
  • You're throwing off risk by pushing scope and cost to someone else, presumably with a proven track record of expertise and performance.
  • You probably mean 'fixed price' for a 'fixed scope' of work. There's no 'bring me a rock' uncertainty; you know exactly what rock you want, and 'they' understand and commit to deliver it.

  • "Call me when its done". You expect them to handle their work like a black box; the internal details are unknown to you, or even if not, you've given up all executive supervision.
  • They carry the insurance. Liability, property damage, workman's compensation, OSHA penalties, and the like are all on them. Of course, there's no free lunch, so the cost of those insurance plans are built into the price you pay for the 'turn-key'.

  • Cash flow is largely their problem, though you make be asked for a down payment, and you may be asked for progress (aka, earned value) payments. As cash flow is their problem, so is credit with lower tier suppliers, financiers, and the like.
  • Capital investment for special tools and facilities, and expense for special training (and these day, recruitment and retention) are all on them. These financial details will come back to you, proportionately, as part of their overhead figured into their fixed price for the job.

That all sounds swell as a way to offload issues onto others. But, at the end of the day, you as PM for the overall project still are accountable to your project sponsors. No relief on that score!

Here are a few of the risks to you should be aware of:
  • Contractors have biased interests also. The contractor may prioritize some part of the project to serve their interests more so than yours. So, don't be blind to that possibility
  • Fixed price is not always a fixed price. Any small change in scope or schedule can be leveraged to the advantage of the contractor for them to 'get well' from a poorly estimated base contract.

  • Scarcity provides leverage: If they've got it and you need it, and there is a scarcity of supply, your contractor is at an advantage. 
  • Cash talks: Cost of capital is often no small matter to a contractor. The cash customer is always favored; the customer with a short invoice-to-payment cycle is favored. When you need a contractor for a turn-key, cash talks.

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