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Article by John Challenger

How you can get involved in shaping IChemE’s forms of contract

For those of you unfamiliar with the workings of the Contracts Committee, I will explain the organisation and scope of activities undertaken.

The committee is wholly responsible to IChemE’s Council for the content and structure of the forms of contract published by the Institution for use in the process and related industries in the UK and internationally. The choice, content, risk allocation, layout, style and frequency of revision of the contracts is left to the professional judgement of the committee. The committee currently has 11 members drawn from a wide range of organisations and with an equally wide range of qualifications and working experience. It should be noted that IChemE operates a separate Dispute Resolution Committee, under the chairmanship of Paul Buckingham, which is responsible for dealing with contract disputes and related matters that may arise from time to time.

Committee members are all highly knowledgeable professionals, and reflect many years of experience gained from senior roles within client, contractor, consultant/advisor and legal organisations that regularly work with the IChemE forms of contract.The drafting process is very much enhanced by the fact that several of the committee members are qualified both as chemical engineers and legal professionals. Importantly, all of the committee members are appointed for their personal expertise and do not represent any particular company, trade organisation or sector of industry and it is this philosophy which helps to ensure that IChemE’s contracts are both fair and balanced in the context of client, contractor and sub-contractor interests and relationships. In recent years, the committee has experienced some difficulty in recruiting new members mainly to the pressure on senior professionals’ working lives. We would particularly like to strengthen the committee with experienced chemical/process engineers from operating companies with hands-on project management, contract and operational experience of the process, utilities and manufacturing industries.

The chair of the Contracts Committee is appointed by IChemE’s Council for a period of three years, which is often extended. Deputy chairs are appointed on a similar basis and where possible any new chair or any deputies are appointed from the existing membership of the committee.

The work of the Committee is considered to be of a confidential nature and that confidentiality is respected by the committee members exercising their reasonable discretion. The meetings of the committee are open only to the committee members and IChemE staff. However, the chair may, from time to time, invite other specialists to attend  – particularly if expert knowhow is required.

Using knowledge and experience

Members of the Contracts Committee at the launch of the Silver Book in February 2017

The drafting process for most model forms of contract varies depending on the history and intent of the organisation publishing the contracts. Since its formation, IChemE’s committee has always maintained a very relaxed, open and considerate approach to discussing any subject brought to the table and throughout the whole drafting process. We also acknowledge the fact that the initial structure and intent of the first contract, the celebrated Red Book published in 1968, set the basis for most of the future contracts. In fact when the current Red Book is reviewed against the original published version, there are so many similarities in the structure and drafting that the knowledge and experience that was introduced by the original committee is much admired by the current committee.

When the original Contracts Committee was first formed, senior specialists were drawn from a wide range of professional and commercial backgrounds, and the current committee is very grateful for the thoughtful approach adopted in the initial drafting which introduced very practical structure and content into the initial forms, much of which is still in use today. The first edition of the Red Book created an excellent platform on which all future work has been undertaken. Since those early days, IChemE has expanded the forms of contract that it publishes from the original fixed price lump sum application to include contracts for reimbursable (Green Book), target price (Burgundy Book), subcontract forms (Yellow, Brown Books), minor works (Orange Book) and professional services (Silver Book).

It is a major requirement of the Contracts Committee to monitor trends in the process industries and any legislative changes to ensure that when circumstances or industry requirements change, the forms of contract are suitably updated. The general updating activities when linked to the drafting of any new forms of contract means that the committee members need to meet on a monthly basis, in addition to any work that is done during their own time. Considerable credit needs to be given to all of the Committee members, especially those that are also working full time and who give their time freely for this important activity. What is gained from this activity is a continuous learning process in which professionals are able to maintain up-to-date knowledge of contractual and project execution matters in a sort of symbiotic process. Certainly from the time that I became a member of the committee, I have gained considerable insight in a wide range of contractual matters which undoubtedly helped in successfully managing a variety of projects and business activities in the process industry.

Keeping current

During the past three years or so, partly resulting from the drafting of the Professional Services Contract (Silver Book) – the first completely-new form to be published since 2003 – the committee has taken the opportunity to analyse the structure and content of its existing contracts and the need for new or revised forms in the future. One of the key changes introduced in the Silver Book has been the consolidation of the UK and international conditions into a contract. Those familiar with the existing forms will be aware that IChemE has since 2007 published separate editions for the Red, Green, Burgundy and Yellow Books for international applications. When the initial forms were first mooted and after some considerable discussion, it was at the time considered to be too difficult to combine the UK and international versions. In spite of these earlier concerns, when the committee first considered drafting the new Silver Book, it became apparent that we could structure all future contracts with special conditions that deal with the specific requirements of UK legislation and the more general optional requirements for international application.

The Contracts Committee is currently revising the Minor Work Contract (Orange Book) which was originally drafted for simple or small-scale construction works in which design did not feature. User feedback tells us that the Orange Book is increasingly being used both in the utilities industries and for small design-and-build applications in the process sector. The revised form will have a similar structure to that of the Silver Book and will contain special conditions, Part A for UK application and Part B containing optional clauses which deal with potential international or operational requirements. Drafting is at an advanced stage and we hope to published later this year.

It’s likely that all new future forms will be drafted in this two-part approach and that ultimately the complete suite of existing contracts will be consolidated in the same way with no loss of fidelity to the intent of the original IChemE UK and International Forms of Contract.

Training

Alongside this workload, the committee members also provide training courses on the IChemE forms of contract and general training on contract application and legal matters for engineers and project managers. In the chemical, process and manufacturing industry sectors this type of training is considered by IChemE to be crucial since there appears to be much less opportunity in recent years to learn about the practical matters of contract formation, application and management which are so essential to successful project outcomes.

As a committee we are interested in what appears to be a growing trend in appointing project managers with limited in-depth knowledge of the chemical or manufacturing industries to run process-based projects. Projects in the process industry are often complex – requiring a high degree of commercial awareness with both technical and contractual experience to deal with the issues encountered. We’d be interested to hear from you as to whether you share this view and what steps the industry and IChemE can, and should, be taking to help our project managers face this challenge.

In this context IChemE already offers courses which help engineers and managers understand the complex nature of process plant design, procurement, construction, operation and the required commercial control and management techniques essential for the future success of chemical and process-based manufacturing in the UK.   

I hope this article will be the start of a regular series on the subject of contract application and related project matters, and some of the above issues will be explored in greater depth. The Contracts Committee also sees this as an opportunity to communicate with users of contracts in the process and manufacturing sectors and to encourage feedback on matters that may affect the structure and content of the IChemE’s forms of contract. Clearly the Contracts Committee, through the working experience of its members and input from the members of the Disputes Resolution Committee is able to establish an up-to-date view of the factors affecting project execution, but additional input from the market is always welcome so please do contact us with your views.

You can reach us via the Contracts Committee secretary, Tracey Donaldson, email: tdonaldson@icheme.org

Article by John Challenger

Chairman of the IChemE Contracts Committee

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