While constructing a house, one of the important decisions that you need to take is that of the type of contractor that you would like to go for. Should you go for Turnkey Project Contractor or Labour Contractor? There are typically two types of building contracts, Turnkey contract and Labour contract.
Any project activity typically includes three types of works viz.
– Engineering (architecture, structure design, electrical design, plumbing design etc.),
– Procurement (sourcing of all raw materials, equipment, tools & tackles, labour etc.),
– Construction (placing all materials/resources as per completed design to obtain the desired structure)
To simplify it for you, here are the definitions and basic differences that can help you decide which contract would be suitable for your house construction contract.
- Turnkey Contract
As the name suggests, a turnkey contract literally means that all you have to do is “turn the key” to enter your home. The rest of the work shall is the contractor’s responsibility. Thus, in this type of contract, you transfer the entire responsibility of performing Engineering, Procurement and Construction (EPC) to the contractor’s scope.
A turnkey contract is an agreement in which the building contractor completes the project and hands it over in a fully operational form. For the turnkey contract, you need to provide the building contractor with your requirements regarding the dwelling unit and the choice of materials in the initial phase only. The contract price can be lump sum price or based on a price per square foot of construction. Payment terms are decided and the project is executed as per these agreed specifications.
A turnkey project reduces your effort tremendously. It’s the contractor who has to arrange for all the requisites. All that you need to do is to pay the money as agreed in the payment plan.
- Labour Contract
A labour contract is one which involves only the labour that is required for construction. In this type of contract, the sourcing of construction material and equipment is undertaken by the owners.
The building contractor will inform you about the material requirement from time to time during the construction stages. This type of contract usually requires weekly payment as the labour has to be paid daily wages for the work done.
In this type of contract, you will be involved in every step of the construction process and can decide on the cost and quality of the materials used. This contract, although a very cumbersome affair, is more cost effective as compared to a turnkey contract. However, it requires you to devote significant time on sourcing all materials himself. In addition, site supervision also requires knowledge and experience of building materials and construction.
Deciding between Turnkey & Labour Contract
For those who do not have time to involve themselves in the construction process, the turnkey contract can prove to be highly advantageous. Complete responsibility is taken by the building contractor who is much more knowledgeable and experienced for the given task. It gives the client a single point of contact for achieving all objectives. It saves the client from coordinating with multiple agencies.
The labour contract, on the other hand, is an engaging one, as you will be required to closely monitor and provide materials for the construction process. It can also be a learning experience for those of us who want to get into the details of building their house, provided they have time and knowledge to do so. While you can control costs, you also need to have a regular cash flow due to weekly payment and material costs. You also might face price fluctuations in case of building materials.
Whatever contract you choose, be sure to get the agreement in writing with all the details mentioned so that there are no hassles later. This agreement needs to be signed and acknowledged by you and the contractor.
Analyse what type of contract would suit you best, based on the time and effort required. Ensure that the construction of your house is not negatively affected due to the type of contract that you choose. Weighing the pros and cons carefully is important to make your home building experience a joyful one.
Further Read: Estimating the budget of your home