The IChemE EPCM Contract 1st Edition 2023 (Blue Book) was published earlier this year, and is a welcome addition to the standard form contracts available, particularly given the increasing popularity of EPCM-based contracting.
Not only will the new Blue Book help to create a more consistent approach and speed up the drafting process, it will also assist in clarifying what the EPCM role involves, which can often cause confusion amongst project teams.
Like the other IChemE Contracts, the Blue Book is designed for use on pure process plant projects, but can be tailored as appropriate to be used on other projects which include civil works, and on projects where there are more complex structures with third party stakeholders. In fact, the IChemE suite has been used for many years, not only in the chemical and process industries but also on energy projects which involve process plant, such as energy from waste and anaerobic digestion.
What is an EPCM Contract?
An EPCM Contract is a services contract like the IChemESilver Book, but as you would expect obligations and liabilities are more extensive to reflect the EPCM role. It will usually cover services such as project management, design, procurement, construction supervision and commissioning - but it will not include construction or installation as this will be covered by separate works contracts entered into directly by the Purchaser. Risk of performance of the plant therefore sits with the Purchaser, not the EPCM Contractor, to be backed off under the works Contracts.
In brief, the difference between the EPC and EPCM approach is this:
- In an EPC structure, the Purchaser may have a Project Manager managing the EPC contract on its behalf, but one EPC Contractor is appointed to carry out the design, construction and commissioning of the plant and they take the risk on that
- In an EPCM scenario there will be several works contracts, and the EPCM Contractor takes a key role in managing those.
Blue Book - key points to note
Looking at the layout of the new contract, the Blue Book is structured so that it can be used in any jurisdiction with the use of optional provisions so there is no separate international form, unlike some of the other IChemE contracts. However, it should still be reviewed in the context of the relevant local laws.
The Blue Book also takes the same format as other IChemE contracts, with an agreement and general conditions of contract and it uses many of the same provisions as the other IChemE contracts so they will be familiar to users of those forms. It is aligned more in style with the Silver Book which was published more recently than the IChemE works contracts (Green, Red and Burgundy books).
Other key points to note are:
- Optional conditions - The agreement has additional wording allowing optional conditions to be selected, dealing with UK specific clauses (Part A), Target cost (Part B) and Project Specific Clauses (Part C).
- Payment - The payment provisions are flexible and are intended to cover a variety of payment mechanisms - lump sum, reimbursable and target cost. There is also guidance on the adoption of mixed payment options
- Disputes - The dispute resolution mechanism is arbitration, or adjudication followed by arbitration where the relevant adjudication optional drafting is adopted. Again, this is the same as the Silver Book approach, but different to the works contracts where adjudication provisions are in the main conditions but with a caveat that they only apply if the disputes arises under a "construction contract" as defined in the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996). The new approach is welcome, as it means reduces the risk of confusion where the contract is a hybrid one, with parts of the works being within the remit of the HGCRA 1996 and others outside of it. There are also optional provisions dealing with Reference to an Expert and a Dispute Review Board. Be aware that the Blue Book doesn’t include the courts as a method of final dispute resolution, which the parties may want to consider carefully on UK projects without a cross border element.
If you would like to find out about the Blue Book (or other IChemE contracts) in more detail, or if you would like to speak to someone about engineering or energy projects, Vicky McCombe, Partner in our Construction and Engineering team, will be able to assist.