Amidst a reduction in new commercial developments, a growing number of developers are steering clear of turnkey projects due to substantial financial outlays and operational complexities. Turnkey projects, a construction delivery method where a contractor manages all project stages, from detail engineering to construction, under a single contract, have witnessed reduced adoption despite being a historically practical solution.
Typically favored for small and medium-scale projects seeking rapid and straightforward implementation, turnkey projects were once an attractive option for property owners looking to accelerate commercial property development. Project owners offered differential service contracts to contractors, making their properties more appealing on the market. The turnkey approach aimed to streamline processes and free clients from bureaucratic complications.
However, industry experts reveal that the major deterrent for developers is the volatility in prices, exacerbating issues related to project budgets and cost overruns. Kazeem Owolabi, Managing Partner at RefinHomes, notes that the model became cost-inefficient due to unpredictable fluctuations in material prices. The volatility could result in the project exceeding the initially agreed budget.
Owolabi emphasizes that while the turnkey concept involves a one-time lump-sum payment to the contractor, ensuring speedy project completion, challenges arise when dealing with material cost variations. Developers might resort to using inferior products or executing additional projects with the allocated funds, compromising quality.
Developers are now favoring incremental project development to ensure quality, addressing potential trust issues that may arise during the project. Dotun Bamigbola, former Chairman of the Nigerian Institution of Estate Surveyors and Valuers, notes that real estate projects often require specialized and technical engineering inputs, making turnkey projects appear expensive.
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Tola Oyenekan, Head of Research at Diya, Fatimilehin & Company, acknowledges that some developers are still open to turnkey projects but at a cautious pace. He advocates for increased professionalism and awareness regarding turnkey projects to address challenges and improve adoption in the industry.