Lump Sum Turnkey and Reimbursable Project
Lump Sum Turnkey and Reimbursable Project
(OP)
Hi,
Can anybody share some experience with regards to the above type of contracting strategy e.g. when is appropriate to have lump sum turnkey and reimbursable project
Thanks
norzul
Can anybody share some experience with regards to the above type of contracting strategy e.g. when is appropriate to have lump sum turnkey and reimbursable project
Thanks
norzul





RE: Lump Sum Turnkey and Reimbursable Project
Just be careful on a lump sum contract or you may find yourself meeting and justifying every decision to the n th degree to death.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
www.kitsonengineering.com
RE: Lump Sum Turnkey and Reimbursable Project
Thanks
RE: Lump Sum Turnkey and Reimbursable Project
Stacy
Project Management Knowledge Base
RE: Lump Sum Turnkey and Reimbursable Project
No matter what sort of contract you have you never get the final result that you expect but the final result that you inspect.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
www.kitsonengineering.com
RE: Lump Sum Turnkey and Reimbursable Project
laying a household gas distribution network 600km long calls naturally for a unit price type of contract, e.g. price per km of finished pipeline.
maintenance service of a fire protection system for 1 yr, also calls for reimbursement.
both examples above are more related to services rendered than products delivered.
powerplants, refineries, chemical installations are usually contracted turnkey mostly because the owner wants to limit the exposure to delays during commissioning/start-up AND there is a nice round number to look at as the budget.
the owner buys a product, not a service.
e.g. what would you say if you go to the car dealer and instead of buying a car, where you turn the key and she starts, the dealer tells you: - let's do this: we will bill you during the construction of the car... as soon as the frame is ready we call you and you inspect it, then once we finish the body, later when we install the motor, we call you again. by the way, when we do the wiring and the loop checks we need your signature to approve the protocol. start-up and commissioning will not take place unless all the previous activities have been documented... you get the idea...
granted, cars are consumer products and industrial installations are not... firm price, turnkey projects are the means for the owner to give these products a "package" quality.
nevertheless, the turnkey projects usually have milestones for payments so the EPC does not have to finance the whole project.
saludos.
a.
RE: Lump Sum Turnkey and Reimbursable Project
Lump Sum Turn Key (LSTK) projects are suited in cases where:
- things are well known ahead of time (e.g. a compressor package "just like this one")
- things are well defined and many people understand what the terms mean (e.g. a gas compressor package for "X")
- can be quantified
- can be measured, demonstrated
- usually more commodity type than engineered type (e.g. more compressor package than gas plant)
- no "Change Orders" are anticipated
People tend to concentrate on a LSTK's problem of having to justify changes, additional money etc. People sometimes forget that a bidder may also have the right to refuse a Change Request.
Most owners use LSTK to limit their exposure to cost and schedule overruns. The other side of this is also true for the bidder - they limit their exposure to scope changes, unreasonable delays, etc.
Just one word of caution. I believe that Stone & Webster got into a huge penalty due to a LSTK job. I believe the result was either bankrupcy, and/or a large portion of the company being sold. You need to google this as I am trying to recall from memory somthing that happened a few years ago?