Out-Law / Your Daily Need-To-Know

The Institution of Chemical Engineers (IChemE) was founded in 1922 and is a global professional engineering institution for professionals involved in the chemical, process and bioprocess industries. It has created two sets of forms of contract, one set for use on international projects and one set for use on UK projects.

These forms of contract are intended for use in the process industries such as food production, chemicals and pharmaceuticals but can be used to procure other infrastructure works.

These are 'turnkey' contracts, intended to be used for projects which are turned over to the buyer in a ready-to-use condition.  

This guide provides a brief look at the UK versions of the three main IChemE forms of contract.

The three main forms of contract

The three main forms of contract are colour-coded according to the pricing mechanism which applies.

Red Book - lump sum, or fixed price contract:

• one fixed price for the whole works;
• contractor takes risk of any additional costs over the fixed price save where certain prescribed events occur (for instance, the buyer instructs a variation to the works).

Green Book – cost reimbursable contract:

• there is no up-front fixed price;
• contractor can claim back costs incurred in carrying out the work (subject to certain provisions which identify costs which are not recoverable by the contractor);
• employer has no assurance of final cost.

Burgundy Book – target cost contract:

• a type of cost reimbursable contract;
• costs can be claimed up to a fixed (target) level;
• where the final cost is above or below this target, the difference – gain or loss – is shared in an agreed proportion between the employer and the contractor.

There are also international forms of the Red, Green and Burgundy Books.

Contract structure

The IChemE suite of contracts follows the same basic structure:

• agreement;
• conditions of contract which comprise two parts: general conditions and an option for the parties to agree and include special conditions;
• specification;
• 21 schedules; and

There are also detailed guidance notes to assist the user in preparing a contract.

Notable clauses in IChemE contracts

• there is a more thorough testing procedure, for both pre and post completion, than some other standard forms of contract;
• fitness for purpose obligations imposed on the contractor;
• aggregate cap on the contractor's liability;
• exclusion of liability for defects once the defects liability period has expired and a final certificate has been issued.