A “turnkey” agreement, as its name implies, co-ordinates the purchase and supply of all hardware and networking equipment, the licensing or sub-licensing of software, its installation and testing together as a system and finally when all tests are passed, its “bringing into service” or commissioning and handing over “the key” (metaphorically) to the customer. There may also be continuing obligations to maintain the hardware and support the software, certainly for at least a post-commissioning warranty period. As such, this type of agreement is designed to implement an end-user customer’s new system requirement.
The liability and responsibility involved in such an arrangement is extensive so in order for the contractor to minimise its risk in such an agreement it is absolutely vital that the customer has firstly, had a thorough requirements document and comprehensive specification prepared by professionals (whether the customer’s in-house or a third party specialist organisation) and which has been accepted by the customer so as to ensure that, at the outset, the customer has become a party to the choice of the new system. Unless the contractor has such expertise, then it should not undertake drawing up the specification for the customer especially as the customer’s entire business will no doubt be dependent on that new system thus the liability involved in its delay or failure is enormous. If the contractor does have that expertise to ascertain the customer’s requirements and draw-up the specification as well as supply the appropriate system for its needs then Contract 35 is more appropriate.
Secondly, as this contract is drafted for the contractor’s benefit, the contractor should ensure that the payment terms are such that the contractor receives stage payments upon delivery of the various parts of the system and payment for work carried out by the contractor on a regular basis (e.g. monthly) rather than having to wait until the whole System has been installed satisfactorily and has been accepted by the customer before any payment is received by the contractor, especially where acceptance is not scheduled until many months into the contract term.
Thirdly, to reduce the contractor’s exposure under this version of turnkey arrangement, the contractor should not undertake responsibility for third-party hardware and software but should introduce those third-party terms and conditions into the contract as a schedule, with a reference in the Agreement that those terms are applicable to such third-party’s product and not the contractor’s terms, for example, only providing the same warranty period and repair/fix obligations as the supplier/manufacturer. Further, when the contractor orders such third-party products, it does so as agent for the customer.
Finally, the services to be performed by the contractor during the agreement should be charged on a “time and materials” rather than fixed-price basis. (See, as a comparison, the customer’s requirements contained in Contract 35.)