Contract update — Cecily Davis guides us through the Institution of Chemical Engineers’ suite of contracts for international projects. Not only are they as clear and as simple as their domestic forms, but they also come in pretty colours
The popularity of the standard conditions of contract produced by the Institution of Chemical Engineers (IChemE) has not diminished since their first publication in 1968. In fact, the conditions are attracting users from an increasingly wide arena, beyond the IChemE’s small target sector. The launch in mid-November of a suite of contracts specifically for international projects was timed beautifully to capitalise on the growing appetite for process-related projects in India, China and Africa.
The international suite of contracts includes a red lump-sum contract, a burgundy target-cost contract, green cost-reimbursable contract, a yellow subcontract agreement and an orange minor works agreement. This rainbow approach draws inevitable comparisons with the forms produced by FIDIC.
Our historically “small island” view of what constitutes an international project has changed. It is quite possible that the owner and contractor will be from different countries and the project situated in a place neither call home. Mindful of this, the IChemE has continued the simplicity and clarity of language that has contributed to the success of the domestic forms.
In the still booming UK market, the use of cost-reimbursable contracts has grown in popularity. Their central theme is that the contractor is reimbursed for all costs incurred in providing the services and works. The finesse on this is to introduce a type of arrangement to incentivise the contractor to keep costs down and the project on schedule.
Whether the use of the cost-reimbursable forms overseas will grow is dependent, at least in part, on the economies in which those projects are sited. Anecdotal evidence suggests that there is an increasing appetite for this type of procurement in the Middle East.
The international cost-reimbursable form now incorporates sensible amendments to clause 3 (contractor’s responsibilities). Two notable ones are in clauses 3.5 and 3.6.
Clause 3.5b includes an obligation on the contractor to tell the project manager if it can see changes to work, design or the method of operation of the plant that would improve operating or lifecycle costs. Clause 3.6 states that the contractor’s obligation to provide adequate resources for the proper and timely execution of the works includes competent, appropriately experienced and physically capable staff. It might be sensible to require the contractor to provide a resource capable of communicating effectively in the chosen language, for efficiency, health and safety.
Our view of what makes an international project has changed. The owner and contractor may be from different countries and the project situated in a place neither call home
The term “good engineering practice” is much used, without definition. Does this mean what would constitute good engineering practice in the country in which the contractor commonly operates? Or good practice in the country in which the project is built? The form is silent on this.
Notably, in the international green book the term “cost” is now defined. It is likely that parties will amend this for greater precision or to better serve their purpose.
More consistent with what appears to be the modern approach, contractors are obliged to provide information about possible delays as soon as they become aware of them. The project manager now has 14 days to provide the contractor with an initial assessment of its views of any extension. Its final determination is not timetabled, although the form requires that any later review must not reduce an extension that was previously notified.
Ground condition risk is now stated to be a matter entitling the contractor to an extension. The contract also allows an extension in circumstances where there is a change of law, although this would, in any event, have been captured by the reference to a variation order by the project manager. It is interesting that the contract does not seek to impose on the contractor the risk of reasonably foreseeable changes in law nor the risk in ground conditions of which it ought reasonably to have been aware of, or which it was notified of. Again, these are changes the market will probably bear.
Predictably, much more detail has gone into provisions concerning the delivery of materials to site. There are, in clear terms, rules dealing with who has responsibility for freight forwarding, shipping and inboard transportation. Also, there is specific mention of the contractor having to warrant that it is aware of, and has taken into account in his rates, the national and local regulations relevant to temporary or permanent importation of its equipment.
The IChemE plans to promote the international contracts in roadshows in India and Africa next year. These are well thought out documents that will continue, no doubt, to gain in popularity.
Cecily Davis is a partner in DLA Piper