The conceptual difference between the unit rate contracts and turnkey contracts lies basically in sharing of associated risks. In turnkey mode of execution, the contractor has to assume more risks on her/his side. As such s/he has to be given adequate opportunity to study and examine the bidding documents as well as local conditions and also adequate time to interact with her/his back-up agencies in the market. Let us now make a point-wise comparison of the two.

• Different Bidders Price the Risks Differently: The bidders are expected to complete a project in time. Therefore, their assessment of site-specific risks and related costs vary. Specifying site visit conditions in the tender document and better understanding of site conditions and statutory regulations is likely to bring optimum cost proposals. Information on sources of material and services from local agencies and facilities to be provided by the Utility could minimize coverage of risks to be assumed by the contractors. All risks cannot be taken care of by insurance (in which a premium amount and deductible franchise is the only liability of the contractor). Greater clarity on these aspects would fetch better competitive price. Remember that the suppliers are used to supply items and get penalized for Liquidated Damages due to delay.

• Direct and Indirect Cost (Management Fee): Turnkey modality of execution is often brought under criticism for being costlier. The prices quoted against various items suggest so when compared by the employers with in-house database of unit rate execution of projects or purchase items. But in making such comparison one important aspect gets normally ignored: the cost taken from the employer’s database is merely their direct cost of materials/services and does not include the valuable person-hour cost of employer’s personnel involved in engineering, procurement activities (which often includes a number of press advertisements) and supervision. The price quoted by a bidder in turnkey contracts combines his/her direct as well as indirect costs (suchas cost of workforce for design and execution of work at site, establishment cost at site, local transport, communication facilities, etc.).A fair comparison between unit rate and turnkey contract can be possible, only if the employer’s indirect costs are also taken into account. This point is to be given due consideration but in any case the two institutions should not be compared.

• Fixed Liability of Expenditure: The turnkey contracts are normally better in terms of knowing the financial liability of the utility.

• Performance Guarantee: Getting the Performance Guarantee for the project is the key driver for switching from unit rate to turnkey contract.However, we first need to freeze the specifications that highlight performance guarantee parameters for distribution system requirements. For example, consider the installation of 11kV/ 440 V distribution transformers (which number over 2 million in the country). Do utilities buy them after comparing and loading iron and copper losses