Understanding IChemE Forms of Contract: A Guide for Quantity Surveyors

4 months ago
Ashley
6 minutes

The Institution of Chemical Engineers (IChemE) forms of contract are widely used in process industries, such as chemical, energy, pharmaceutical, and food production sectors. For Quantity Surveyors (QS) working on projects in these fields, understanding the IChemE forms of contract is essential for effective cost control, risk management, and contract administration.

These contracts are designed to address the specific needs of process and engineering projects, where technical complexity, safety, and environmental considerations play a crucial role. This guide will explore the various IChemE contract forms, their options, and their applications, particularly within the UK.

What are IChemE Forms of Contract?

The IChemE forms of contract are a suite of contracts specifically designed for the procurement of process plants and engineering services. First developed in 1968, they have evolved to reflect changes in project management approaches, procurement strategies, and risk allocation. The contracts are frequently used for the construction, design, and operation of facilities in sectors such as chemicals, pharmaceuticals, water treatment, energy, and food processing.

The IChemE contracts are distinct because they focus on process performance, commissioning, and plant reliability, unlike more general construction contracts like the NEC or JCT. They also provide clear mechanisms for managing technical specifications, safety requirements, and compliance with environmental regulations, which are key concerns in process industries.

Key IChemE Contract Forms

There are several forms of IChemE contracts, each suited to different types of projects and procurement strategies. The main contract types include:

  1. Lump Sum Contracts (Red Book)
    • The Red Book is used for engineering, procurement, and construction (EPC) contracts where the contractor takes on the design and construction responsibilities for a fixed lump sum price.
    • This form is suitable for projects where the scope is well-defined, and the client seeks price certainty. It places the bulk of the risk on the contractor, making it essential for QS professionals to carefully evaluate the tender and pricing mechanisms.
  2. Cost Reimbursable Contracts (Green Book)
    • The Green Book is for cost reimbursable contracts, where the contractor is paid for the actual costs incurred, plus a fee.
    • This contract is used where the project scope is uncertain or subject to significant change, such as in research and development or innovative plant designs. For QS professionals, the challenge lies in monitoring and controlling costs throughout the project lifecycle to prevent cost overruns.
  3. Target Cost Contracts (Burgundy Book)
    • The Burgundy Book is a target cost contract that sets a target budget agreed between the client and contractor. The contract incentivises both parties to keep costs below the target through a pain/gain share mechanism.
    • Quantity Surveyors need to ensure robust cost monitoring, as any savings or overruns are shared between the parties according to pre-agreed formulas. It requires a proactive approach to risk and cost management throughout the contract period.
  4. Professional Services Contracts (Silver Book)
    • The Silver Book is designed for professional services, including consultancy, engineering, and design services. It defines the responsibilities of the professional service provider and ensures their performance meets the client’s requirements.
    • This form is particularly useful for engaging design teams, specialists, or project managers. For QS professionals, ensuring that fees and services are aligned with project deliverables is crucial for managing budgets effectively.
  5. Subcontract (Yellow Book)
    • The Yellow Book is used for subcontracting within larger projects, allowing the main contractor to engage with subcontractors for specific parts of the work.
    • It mirrors the terms of the main contract, ensuring consistency and flow-down of obligations. For QS professionals, managing these subcontracts requires careful attention to alignment with the main contract terms, cost controls, and delivery schedules.

Options and Flexibility within IChemE Contracts

The IChemE contracts are known for their flexibility and ability to be adapted to different project needs. Some key options include:

  • Turnkey vs Design-Build: Some forms, particularly the Red Book, allow for either a complete turnkey solution where the contractor delivers a fully operational plant, or a design-build model where the contractor is responsible for design and construction only.
  • Single-Stage vs Two-Stage Tendering: The forms of contract can accommodate both single-stage tendering, where the contractor provides a fixed price based on the full scope of work, and two-stage tendering, where a contractor is appointed early to assist in design and pre-construction before finalising costs.
  • Pain/Gain Share Mechanisms: Particularly in the Burgundy Book, IChemE contracts provide mechanisms for sharing cost savings or overruns, incentivising contractors to deliver projects below budget. This encourages collaboration and joint responsibility for cost control.
  • Risk Allocation: Each contract form clearly defines risk allocation between the client and contractor, allowing QS professionals to negotiate favourable terms that manage risk appropriately, particularly in areas such as process performance and commissioning.

Application of IChemE Contracts in the UK

The IChemE forms of contract are widely used in the UK’s process industries, especially for projects involving chemical plants, pharmaceutical facilities, energy plants, water treatment facilities, and food manufacturing. They are often the preferred contract suite in these sectors due to their specialised focus on process performance and engineering outcomes.

In the UK, QS professionals working with IChemE contracts must be well-versed in the technical aspects of process plants, as well as the regulatory framework governing environmental and safety compliance. The contracts are designed to help ensure that these critical aspects are managed efficiently and within legal requirements.

When compared to other standard contracts like JCT or NEC, IChemE forms offer more tailored solutions for process-driven projects, focusing heavily on commissioning, operational reliability, and plant performance. For Quantity Surveyors, this requires an additional layer of technical understanding and the ability to manage cost controls in a highly specialised environment.

Key Considerations for Quantity Surveyors

For QS professionals engaged in projects using IChemE contracts, several key considerations are vital:

  • Understanding Process Complexity: The nature of process plants means that project scope can be technically complex. QS professionals must have a clear understanding of the technical deliverables and the associated cost implications.
  • Effective Risk Management: With different risk profiles across IChemE contracts, from lump sum to cost-reimbursable forms, QS professionals must negotiate terms that fairly allocate risk while ensuring cost certainty for the client.
  • Commissioning and Performance Testing: Unlike other contract forms, IChemE places a strong emphasis on plant commissioning and performance testing. Ensuring that these stages are clearly defined and accounted for within the cost plan is essential for QS professionals.
  • Managing Cost Reimbursable Contracts: For contracts like the Green Book, careful cost control and monitoring are required to prevent overspending, especially when project scope is uncertain or evolving.

Conclusion

For Quantity Surveyors working in the process industries, understanding the IChemE forms of contract is essential for effective project delivery. These contracts are tailored to the specific needs of sectors like chemicals, energy, and pharmaceuticals, providing flexible options for managing costs, risks, and technical requirements. With their emphasis on performance, safety, and compliance, IChemE contracts require a specialised approach to cost management and contract administration, making them a vital tool for QS professionals in the UK.

Are you working with IChemE contracts? Share your experience or ask any questions in the comments below!