For those involved in heavy engineering projects whether domestic or overseas, choosing a form of contract that is most apt or suitable for the particular job is of fundamental importance because the parties will be accepting substantial risks and liabilities, and invariably these flow from the terms of the contract entered into.
While there are a number of standard form contracts on the market, if the project concerns the design, construction, commission and operation of a process plant or the building or modification of plant or equipment that will produce a product, the IChemE forms would be the obvious choice by the parties. Unlike various building and civil engineering industry contracts that are essentially “work-based” forms, the IChemE forms are fundamentally “out-based” forms designed for use in performance or “results-based” projects. But while the IChemE forms have been drafted for delivery of process plants, they have been successfully used for a variety of projects including LNG (Liquefied Natural Gas) plants, CHP (Combined Heat and Power) plants, WTE (Waste to Energy) plants and STW (Sewage Treatment Works) plants.
The IChemE publishes a range of forms of contract, with a suite of contracts for use in the UK and overseas. The three main forms for use in the UK comprise a lump sum contract (Red Book), reimbursable contract (Green Book) and a target cost contract (Burgundy Book). There is also a “back-to-back” subcontract.
There is a common structure across the main contracts, namely:
- An Agreement
- The Special Conditions (if any)
- The General Conditions (1 – 49)
- The Specification
- The Schedules (1 – 21)
The parties will need to complete the Agreement, draft any Special Conditions that they wish to include and prepare the Specification and the 21 Schedules. To assist in doing this, each of the published books contains:
- Introductory notes, including a comparison of the three main forms.
- Detailed guidance on completing the Agreement and on drafting the Specification and each of the 21 Schedules.
- Further Guide Notes on a number of matters concerning the form of contract.
The General Conditions aim to promote a high degree of co-operation between the parties and are intended to be fair to both Purchaser and Contractor.
Unlike other contracts, the General Conditions require the completed Plant to be “fit for purpose” and this strict liability requirement is one that process plant Contractors are willing to accept, perhaps because of the limitations on liability that provide the contractor a level of protection that is not found in other engineering contracts.
The IChemE UK forms were updated in February 2013 to take account of industry best practice and changes in legislation, most notably the Local Democracy Economic Development and Construction Act 2009.
The IChemE contracts have been considered by the English courts comparatively rarely.
The terms of the IChemE Red Book were considered by the Court in Matthew Hall Ortech Ltd v Tarmac Roadstone.
There, Ortech had been engaged to provide a mineral processing plant for Tarmac, including the design and construction of several steel bunkers. Upon discovering structural damage in those bunkers, Tarmac alleged that Ortech was liable for defective work and obtained an interim award from an arbitrator to that effect.
Ortech subsequently appealed to the courts on the basis that Tarmac had failed to issue a final certificate for Ortech’s work under the contract. The Judge allowed Ortech’s appeal, holding that Tarmac had acted in breach of contract in failing to issue a final certificate when it ought to have done pursuant to clause 38.5 of the IChemE contract. Since clause 38.5 provided that the final certificate was to be conclusive evidence that all work had been completed in accordance with the contract, it was held that Tarmac had, by its breach of contract, wrongly deprived Ortech of immunity for defective work.
In Yorkshire Water Services Ltd v Taylor Woodrow Consultation Northern Ltd, the Court offered guidance on another IChemE provision, this time considering clause 44.2 of the IChemE Red Book (3rd Edition). In that case, Taylor Woodrow had been engaged to construct sewage treatment works in Leeds. Yorkshire Water claimed damages for breach of contract, arising from what it alleged was necessary remedial work to a batch reactor comprising part of the works. The claim was rejected, as was permission to appeal. The issue of general importance emerging from the Yorkshire Water case was that because clause 44.2 limited remedies to the “expenses, charges, damages and reimbursements expressly provided in the Contract”, it was held that it was not open to a party to that contract to bring a claim for breach of contract at common law.
The IChemE Brown Book was subsequently considered in AE Yates Trenchless Solutions Ltd v Black & Veatch Ltd. There, the Court held that sending the IChemE Brown Book to a future subcontractor could be classified as an offer to that subcontractor to carry out work on the terms of the Brown Book. Similarly, the subcontractor’s return of the self-billing form and commencement of work under those terms was held to amount to acceptance of the Brown Book as the relevant subcontract for the relevant works.