The Institutional of Chemical Engineers (IChemE) provides a globally recognised series of model forms of agreement to provide optimum delivery in the process industries. These Standard Forms of Contract widely adopted as they provide a consistent and reliable approach to contractual agreement.
Process engineering involves the design, optimisation, and improvement of industrial processes, within oil, gas, pharmaceuticals, waste treatment facilities, biomass, and food production industries. The primary focus of process engineering is optimising and delivering production that adheres to relevant specifications rather than how the project looks. In this field, physical completion represents an intermediate stage that necessitates extensive testing and commissioning.
Key Features of an Engineering Contract:
IChemE standard forms of contract deal with many key aspects in an engineering project; for example:
- Multi-Disciplinary Approach:
Process engineering contracts require a multi-disciplinary approach as they involve various professionals, such as civil, mechanical, and electrical engineers, instrumentation control experts and more. The team collaborates in the design, operation, and testing phases of the project.
- Handover Regime:
The handover regime involves the procedure of transferring a project from the contractor to the purchaser. However, reaching an agreement can be challenging, due to differing perspectives. While the purchaser desires prompt completion of the plant, the contractor prefers to ensure that the equipment is fine-tuned and operating at its optimal performance level before the transfer takes place.
- Restricted Liabilities:
Process engineering projects can experience significant production losses due to delays. The inclusion of restricted liabilities in the contract are essential, as contractors often lack the financial capacity to absorb extensive liabilities.
Different IChemE Standard Forms of Contract:
IChemE have many different forms of agreement to tailor especially to your project:
- THE RED BOOK: This contract form is designed for lump sum agreements, where the contractors agree to provide set works for a fixed price. It offers a higher level of price certainty for both parties.
- THE GREEN BOOK: This contract form is used for cost reimbursable agreement, where the purchaser pays for all project costs that have been incurred. This is commonly used to provide greater flexibility when the project scope has not been defined.
- THE BURGUNDY BOOK: This contract form is used to establish the target cost at the time the contract is created, or at a later stage when the project details are finalised.
- YELLOW & BROWN BOOKS: These are forms of sub-contracts that include design construction and testing of the main plant or the process plant elements.
- ORANGE BOOK: This contract form is less detailed than others as it is designed specifically for minor works with a maximum cost of £1 million.
- SILVER BOOK: This contract form is for professional services. The short form agreement is used for consultancy services on smaller projects, whilst the long form agreement can be used on more complex projects.
The Blue Book: A new IChemE Standard Form of Contract?
The traditional IChemE Standard Forms are used as a template for Engineering, Procurement and Construction turnkey contracts, which involve a single contractor assuming responsibility for the entire project. However, a significant amount of risk is transferred to the contractor, as they take responsibility for any shortcomings in the project’s design, engineering, material procurement, construction, and commissioning.
Many contractors choose the Engineer Procure Construction Management (EPCM) contract because they lack the financial resources to take on the responsibility that an EPC contract requires. When using EPCM, the client enters into multiple agreements with various contractors, distributing the risk. Additionally, this gives the client the option to choose which subcontractors they want to use. Only recently have IChemE introduced a standardised EPCM form, the blue book, which aims to set out clear and reasonable terms for such projects.
IChemE forms of contract was discussed in our IChemE Forms of Contract and Whipps Cross – collaboration in practice webinar with Paul Buckingham KC and David McMahon. To view the webinar and detailed notes click here.
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