Consultants & Contractors Guide 2023: Forms of Contract – 50 Years and Still Going Strong

Article by John Challenger CEng FIChemE

John Challenger recounts the development of IChemE’s Forms of Contract and trails the launch of a new Blue Book covering EPCM contracts

IT’S appropriate that in IChemE’s centenary year, we celebrate the continuing success of the Institution’s Forms of Contract, which are among its oldest publications. It’s 54 years since the publication of the first edition of the Model Form of Conditions of Contract for Process Plant suitable for Lump Sum Contracts, now commonly known as the Red Book. This set a trend for a series of publications that covers most of the established methods of contracting for the design and construction of chemical plant. This form of contract was one of the first truly specific performance-based contracts which dealt with the full execution of engineering, procurement, construction, commissioning and performance testing of complex chemical manufacturing facilities. It proved so popular and successful that it prompted IChemE to prepare an equivalent set of conditions initially for use on reimbursable contracts, which ultimately led to the complete suite of contracts that is available today.

How it all started

It should be remembered that prior to the 1960s, there were few standard forms of contract that fully dealt with the complex requirements of chemical plant design, procurement and construction, let alone the essential element of performance testing. In the UK, the first standard contracts were all developed for the building industry. The first form that resembled the modern range of contracts was published under the sanction of the Royal Institute of British Architects (RIBA) in 1902. This was followed in 1931 by a building contract published by the Joint Contracts Tribunal (JCT) and in 1945, the Institution of Civil Engineers released the Conditions of Contract for Works of Civil Engineering Construction. The International Federation of Consulting Engineers (FIDIC) also commenced publication of a contract for civil works in 1957. These forms were primarily for general building projects that had been drafted by independent organisations. Some of the major manufacturers had developed bespoke forms to service their own corporate requirements but nothing was available to the wider chemical industry.

The Institution recognised that the chemical industry needed an independently-published contract with balanced terms and conditions for process plant projects. In 1964, IChemE appointed a special committee to review the question of contract conditions for chemical industry. A committee of experts from industry and academia were brought together to start the drafting process and this was completed in 1968. The logical drafting and integrated structure of the new form was recognised as being ideal by the chemical industry. Importantly, the sequence of clauses and the inclusion of the specification and schedules were arranged to mirror the sequence of development of a typical chemical industry project and the inclusion of guide notes helped to pilot users through the various stages of drafting and execution. As a result, the 1976 publication of the Green Book for reimbursable contracts followed closely the principles established in the Red Book. Pressure from the industry led to a subcontract form, the Yellow Book, which was introduced in 1992 and provided a “back-to-back” subcontract for use with the main forms.

Prior to the 1960s, there were few standard forms of contract that fully dealt with the complex requirements of chemical plant design, procurement and construction

These three contracts attempted to deal with the complex way in which purchaser, contractor and subcontractor divide the responsibility for creating a new process plant, providing a fair and balanced framework where each party could understand its responsibilities and achieve its objectives in a cooperative manner. It is great credit to the foresight of the original drafting panel that the general structure of these contracts has changed little over the intervening 50 years of their application.

The increasing use of the Forms of Contract by industry led to the publication of a minor works contract known as the Orange Book; a subcontract for civil engineering works called the Brown Book; and a target cost contract named the Burgundy Book.

International versions of the Red, Green, Burgundy and Yellow Books were published in 2007. The formation of a separate group, the Disputes Resolution Committee, was established to draft supporting rules to be followed in the event of a dispute arising under a contract.

Up to 2013, the IChemE Contracts Committee devoted itself to the general revisions required to the Red, Green, Burgundy, Yellow and Brown Books resulting from changes to UK legislation.

Further expansion of the IChemE’s suite of contracts is underway with two new forms under development

Recent and future developments

There was a recognisable gap in the existing suite of contracts and in 2017, the Professional Services Contract, named the Silver Book was published. This covers the provision of consultancy, project management, design, contract management and other professional services applicable to the process and related industries. This form was drafted to cover the essential work necessary as a precursor to the main forms of contract, from project inception and concept development to project definition, in addition to providing a contractual mechanism for general project management and technical services.

Further expansion of IChemE’s suite of contracts is underway, with two new forms under development. The first, which is in the final stages of review, will cover engineering, procurement and construction management contracts (EPCM), known as the Blue Book. Following this will be contract forms that are aimed at providing independent and balanced contracts for the procurement of equipment and materials. These new contracts will maintain the tried and tested approach adopted for the existing contracts published by IChemE.

This feature is from our annual Consultants & Contractors Guide. Download the full guide and search for providers who can help you complete your project goals here

Article by John Challenger CEng FIChemE

Engineering and Project Management Consultancy and Chairman of IChemE’s Contracts Committee

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