How The Turquoise Book Aims to Simplify Material Supply Contracts

John Challenger explains how IChemE’s latest Contract provides standardised terms, optional conditions and guidance to reduce disputes and support smoother project delivery

THE IChemE Contracts Committee has long recognised the need for a form of Contract for the supply of materials that meets the Institute’s standards of clarity and fairness for the process industry. Considerable concern has been raised by suppliers, contractors and buyers regarding bespoke contracts that can be unfair, often appearing to favour one party over another. The latest addition to the IChemE suite of Contracts – The Turquoise Book – has been developed for the purpose of the supply of materials, components, equipment and, if required, installation, testing, site attendance and associated activities.

This form of Contract is intended for supply-only arrangements, or for low-complexity, low-value installations where the risks to both procuring and supplying parties are limited. The scope of supply may typically comprise activities such as process equipment, systems or materials to be used in the construction of a new plant or for the provision of spare parts, replacements and repair of existing equipment or materials. If design is to be included within the Supplier’s scope of work or scope requires clarity of supply and operation, the drafting of a specification and data sheets will be required.

The general conditions and format

The Turquoise Book contains a set of General Conditions of Contract, a form of Agreement, Optional Conditions, guidance upon drafting the Schedules which form an essential element of the Contract, and brief Guide Notes on contractual issues. It is recommended that all users of this Contract should read and take note of the guidance before completing contract documentation. This new form reflects current best practice and contains many features in line with the other forms of Contract published by IChemE. It should be noted that the new form is drafted to be standalone Contract. However, if used as a subcontract, special conditions will be required to reflect any main contract or higher-tier subcontract conditions applying to the supply of the materials.

No specific form of payment is prescribed between the Buyer and the Supplier. The Conditions accommodate a range of payment structures, from fully reimbursable to fixed lump sum, and allow for entitlement to progressive stage payments. The precise details of the Contract price and payments are to be included in Schedule 6 (Cost elements, rates, charges and payment).

The Contract includes examples of Optional Conditions which are divided into two sections:

Part A – Installation

For cases where the Supplier must carry out installation, testing or site attendance, tailored clauses are provided to supplement the General Conditions.

Part B – Project-specific matters

These clauses help address issues such as:

• local laws or regulations
• project location requirements
• additional codes of practice

The guidance and example clauses for inclusion in the Optional Conditions have been provided to assist the user when compiling the Contract. In this context that Contract has been structured so that it may be used in any location, but the parties will need to consider Special and/or Optional Conditions to deal with those matters which are specific to the chosen governing law and/or location of any intended project. In view of the wide variations in law and practices in different countries, advice should always be sought as to the appropriateness of any terms or the need for additional matters, having regard to the law of the Contract and the legislation in the countries or specific locations where the supply is to be undertaken.

Although the General Conditions are suitable for the supply of materials for any manufacturing facility, they have been drawn up primarily for application to work within performance-based process plants. Such plants generally comprise a number of equipment items, process systems, storage facilities, pipework, mechanical handling systems, structures, instrumentation and control systems and auxiliary mechanical and electrical equipment and systems. There may also be associated utilities, general off-site facilities plus civil, structural and building works.

User requirements and driven changes

The intention is that the General Conditions should be used in their entirety without alteration. The Specification (if required), Schedules and any Optional Conditions are to be drafted on a case-by-case basis. Anyone contemplating modifications to the General Conditions or the inclusion of Special Conditions to modify or amplify them, should be aware of the risk of introducing inconsistencies within the Contract, or that may be legally unenforceable. Users of these General Conditions are cautioned that IChemE has not authorised or approved any amendments unless they are published by IChemE. The integrated nature of the IChemE Contracts is such as not to require significant amounts of bespoke drafting other than the completion of the Specification (if required), Schedules and the Agreement. It is important that any necessary additions or alterations must be integrated into the Contract by references in either the General or Special Conditions.

While acknowledging that a contract can be made in a number of ways, it is strongly recommended that a formal Agreement, provided in the form, should be used. The Agreement contains information which is essential for the proper working of the Contract and, very importantly, defines the various documents which together form the Contract and establishes an order of precedence to be used in the event of conflict between any part of the Contract. Furthermore, the documentation that is to be developed during the project execution and as required by the Contract such as drawings, specifications, operating procedures, manuals and the like should be restricted to those that are necessary to aid both the use and installation of the materials.

For users familiar with previous editions of the IChemE Contracts, the general format and content will be recognisable. The Contract has been drafted to simplify its provisions in line with the scale and nature of the materials being purchased. While it does not resemble the standard terms and conditions typically included as small print on a purchase order, The Turquoise Book is broadly balanced in its approach and aims to provide a reliable set of conditions that should help reduce disputes and operational difficulties for both suppliers and their clients.

The Contract recognises that the Supplier may be required to undertake the design, supply and installation of all or parts of the Materials supply, particularly in the case of specialised or technically complex systems. The Contract was primarily drafted for the supply only of materials that are of a limited complexity and value or for which the risk to the parties is of a moderate nature. It is therefore anticipated that for complex process plants or materials, other contracts are likely to be more appropriate, such as the IChemE Minor Work Contract (The Orange Book) or one of the main Engineering, Procurement, and Construction (EPC) suite of Contracts. It is recognised that the supply of material may typically involve some site works such as general attendance, minor installation works and testing, of relatively small process plant, modifications to previously installed materials and the repair and maintenance of equipment or plant.