A new option for EPCM contracts

A couple of months ago the Institution of Chemical Engineers (IChemE) published a new form of contract – the Engineering, Procurement and Construction Management (EPCM) Contract – also known as the Blue Book.

EPCM contracts are for use where the client (or purchaser, in IChemE terminology) appoints the contractor for design, engineering and project management/supervision services, but crucially not for carrying out the works itself. These are performed by works contractors engaged directly by the purchaser.

The structure of the Blue Book and order of the clauses will be familiar to users of the IChemE forms. This article looks at some of the areas of difference from the usual IChemE approach.

As the Blue Book is for use internationally as well as in the UK, some of the key provisions which are needed where the project is in UK (for example, in relation to dispute resolution and health and safety) are contained in optional clauses in Part A rather than being embedded within the main terms. As the booklet notes, other amendments to the main terms will almost inevitably be needed for compliance with local laws if the project is outside the UK – and those amendments may require a significant shift away from the allocation of liability set out in the main terms.

There are other key differences between the Blue Book and other IChemE standard forms.

The ethos behind the Blue Book is that the EPCM contractor will be part of the purchaser’s team, in much the same way as a construction manager may be regarded as part of the employer’s team

For example, there are differences in relation to payment. Rather than using different forms for different payment methods, the Blue Book standard terms allow the parties to adopt a cost reimbursable or a lump sum approach (or mix of the two) through the pricing mechanisms to be included in the relevant schedules. Part B sets out alternative drafting to be used if parties want to adopt target cost principles.

There are also some key differences in relation to liability. The ethos behind the Blue Book is that the EPCM contractor will be part of the purchaser’s team, in much the same way as a construction manager may be regarded as part of the employer’s team where a construction management approach to procurement is used, and this principle has knock-on consequences.

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For a start, the co-operation provisions found in IChemE contracts as standard will be even more important for this method of procurement.

In addition, given that under this method of procurement the works contractors are engaged by the purchaser rather than the EPCM contractor, there are a number of consequences, including:

• The EPCM contractor provides services rather than carrying out any works.
• As a result, the EPCM contractor’s role can be considered more akin to that of a consultant, and the Blue Book provides that the standards with which the EPCM contractor must comply are skill and care based. It follows, then, that the standards do not include any “fit for purpose” obligations. Perhaps more surprisingly the Blue Book does not require the EPCM contractor to perform its role in accordance with good engineering practice either.
• It also follows that the EPCM contractor does not provide any “wrap” around the works carried out by the works contractors. For example, the EPCM contractor manages the process for dealing with performance test failures but it is for the works contractors to take the measures necessary to sort those failures out. In a similar fashion, the EPCM contractor arranges for defects to be made good (rather than itself making them good) – and will be paid for doing so unless the defects can be shown to have been caused by a breach of its skill and care obligations  
• The EPCM contractor’s liability for loss and damage to the works is very limited even though the project will be under its control.
• The EPCM contractor will be liable for delay liquidated damages but only in relation to delay in carrying out its services and not delays to any works or the project as a whole.

The Blue Book also includes the usual IChemE aggregate cap on liability and the clause which (broadly speaking) limits the parties’ rights to those expressly set out in the contract. It also includes the usual provision stating that the issue of the final certificate is (in general terms) conclusive evidence that the works have been carried out and defects made good in accordance with the contract. Clause 45 of the Blue Book goes further to limit the EPCM contractor’s liability by, for example, including a net contribution clause.

The IChemE says – with some justification – that the Blue Book is the first published standard form of EPCM contract. While it is specifically for process plant, given that it is the first published standard form specifically for EPCM and is also said by IChemE to be usable both for UK projects and overseas, it will be interesting to see the extent to which it is taken up – and the extent to which its terms are amended.

Victoria Peckett is a partner in the global projects and construction group at Clyde & Co