Turnkey Construction Contracts

When the price of materials that are used in construction are changing daily on world stock exchanges, and when construction expansion is happening, it is of particular importance every article that is going to be stipulated in the contracts for hiring a contractor that will perform works for building a construction from the beginning until the final handover of the construction.

One of the most common clauses found in the contracts with which a contractor is hired for the building  of a certain construction as well as in the contracts concluded with investors for the purchase of real estate that is under construction – is the “turnkey” clause.

The “turnkey” clause is specifically defined in the Law on Obligations and it means that the contractor is obliged to perform independently all the work necessary for the construction and use of that construction as a complete facility. This means that if a contract contains a „turnkey“ clause, then the agreed price includes the value of all contingencies and surpluses, excluding the impact of deficiencies.

Contracts containing the “turnkey” clause mean that the contractor must perform all works until obtaining a use permit and finally handing over the constructed facility to the agreed price, ie the contractor can not request an increase or change in price if unforeseen things to be done occur or if there is an excess of work to be done.

However, the Law on Obligations provides cases that allow the agreed price to be changed despite the existence of the “turnkey” clause in the contract.

One of the cases when the agreed price can be changed is when works are performed at the request of the client or the investor and those works were not contained in the contract or in the project that was  submitted to the contractor by the client or the investor.

The second case when the contractor can request a price change is when the price of the materials has increased to such an extent that the price of the works can be higher by more than 10%, in this case the contractor can only request the difference in price which exceeds 10%, unless the increase in the price of the materials occurred after its fall in delay. If the price of the elements increased by 10% within the deadline by which the construction of the building was planned, but the construction was not completed by that deadline due to the fault of the client, then the contractor also has the right to change the price even though the works are completed after the deadline specified in the contract for hiring the contractor.

Therefore, the correct definition of the „turnkey“ clause and its observance is of particular importance to avoid any misunderstandings that may arise between the client and the contractor as well as between the buyer and the investor.

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