Hercegovacka Pivovara is a family owned brewery in the heart of Hercegovina in Bosnia and Herzegovina. They use a seven hundred year old spring as their source of water and prioritize organic ingredients. This family owned business is emblematic of the quality and precision that small breweries provide to the current market every day. Indeed, the food and beverage industry demands high standards of production, cleanliness, and quality, and turnkey contract agreements can provide them.
Turnkey contract agreement is an agreement under which a business, usually an undertaking of construction, is contracted on the guarantee of being completed within a certain time frame. In return, the contractor must deliver a “turnkey” building, being one which is completely ready for occupation without requiring the purchaser to undertake further work to be able to use the building. As a consequence, the owner company is relieved of the role of coordinating the multiple contracts and subcontractors. Instead, the entity that enters into the turnkey agreement is responsible for everything from contracting, ordering and payment for equipment and labour, to the coordination of all of it. The benefit to turnkey contracts is that the owner company does not need to plan for any of it, but can instead focus on what they do best.
The first step in using a turnkey contract agreement for a business like Hercegovacka Pivovara is to understand what types of projects lend themselves well to this kind of contract. This means first considering what aspect of the business needs to be expanded. If it’s brewing capacity, then it may be beneficial to build more brewing capacity at another location. If it’s distribution, then it may be valuable to consider increasing the number of distribution points by building out new facilities. Either way, some level of construction and coordination will be required, and that level of coordination may be difficult for a smaller brewery that does not have staff dedicated to managing projects. A turnkey contract agreement alleviates that burden.
A second benefit of a turnkey contract agreement for a company is self-reporting on cleanliness, quality, and freshness. By using a contract manufacturer to create a product, and by having an ongoing agreement with them, a brewery can easily monitor the inventory and shelf-life of products. If there’s an issue with cleanliness, or if there is a recipe error, the brewery can address it simply by addressing the contract manufacturer. This will mean that the partnership needs to be built on trust, but trust is often one of the greatest assets of a business. Some companies even build out their own offices on-site to have a presence at their contract manufacturers facility. That way, they are truly personnel and visible to ensure quality and timeliness in correspondence.
A final benefit of using a turnkey contract agreement when launching a new beverage line is that it supports diversification. Frequently, businesses are concerned that launching a new line may take away from existing lines. They fear that customers will be confused by the new product and create tension in the market. By using a turnkey agreement, the brewery can introduce new product without confusing customers or disrupting manufacturing. Since the contract manufacturer has a separation from the primary brewing company, this means that customers will never be confused about the origin of the product, and the old and new beverages can exist in harmony while the new product builds its own market.
When considering a turnkey contract, it is essential to anticipate potential problems. Will it be necessary to continue to work with the company after the completion of the project? If so, this will impact the length of time of the contract and the ability to leave that contract. It also means that future contracting costs may be increased if work must be divided into subsequent contracts. Will it be beneficial to be located close to the project, or will personnel be needed to work on the project? What types of reports will need to be provided, and how will the company measure progress or quality? Each of these issues needs to be anticipated prior to entering a project that uses a turnkey contract agreement. For example, a company entering the turnkey contract might want to ensure that the contractor agrees to provide a bond or guarantee of completion for the project.
Many people assume that turnovers are often most frequently encountered by people of wealth and power. In reality, turnovers happen in every industry. Using a turnkey contract agreement, a company can ensure that their project is finished right and on time. They can also be sure that their new product, project, or facility is ready for consumption. For small breweries like Hercegovacka Pivovara, the use of a turnkey contract is an easy way to ensure that their world-class standards are met at every level of physical production.
For more information on contract agreements, you can visit Wikipedia.