The IChemE Red Book is a lump sum contract setting out general conditions for the design and building of process plant.
This post discusses some of the aspects you need to consider when choosing the Red Book as part of your contract strategy.
Introducing the Red Book
The Red Book is a lump sum contract for the design, construction and commissioning of performance-based process plants (2013, published by IChemE). It is designed for all sort of projects in the water, pharmaceutical, and waste industries.
The Red Book is suited to projects requiring extensive commissioning – tests that prove the performance of the plant and works following take over.
The General Conditions have been developed to “reflect best practice and relationships with the process plant sector which are generally far less adversarial than in other parts of the construction industry… Anyone contemplating modifications to the General Conditions should take care not to introduce provisions which may conflict with these well-established practices and relationships” [Introductory Note]
The key roles are the purchaser, contractor and the project manager – who administers the contract.
As an process engineering standard form, IChemE has some major differences to typical construction standard forms such as JCT:
- Variations: the Project Manager (16.1) has a power to vary the works. Variations cover the plant and works, as well as the site, methods of working, sequence and timing of work. The contractor has the power to propose variations (17.1) as well as object to proposed variations (16.6) including where their combined value exceeds 25% of the contract price.
- Fitness for Purpose: The Red Book requires the plant when completed to ‘be in every respect fit for the purpose for which it is intended as defined in the Specification and any other provision of the contract’ (3.4).
- Testing: The Red Book, like MF/1, contains a series of performance tests. There are inspection and pre-installation tests (22.1), tests as part of the completion criteria (32.2), tests as part of the take over procedures (33.2) and performance tests (35.1).
- Completion: The works are not passed to the purchaser when completed, but when they meet certain completion criteria set out in Schedule 14. This is known as take over.
- Defect Periods: The Red Book provides for a new defects period when plant is repaired or replaced due to defects (37.5). This means there can be multiple defects periods for one plant running simultaneously.
- Construction Acts: Many of the projects to which the Red Book applies are excluded from the provisions of the Construction Acts 1996 and 2009.
- Termination for convenience: The purchaser can terminate the contract without cause (43.1) and the contractor will be paid costs but not lost profits (43.5).
- Liability limits: The Red Book contains clear limits on the parties’ liabilities to each other (45).
Limits on Liability
Unlike IChemE Silver Book, the Red Book has a clear series of limits which balance risk and reward. The contractor has a single chance to make a profit in designing, installing and commissioning the plant, whereas the purchaser can earn profit from the plant during its entire asset life.
There are two key limits:
- No indirect or consequential loss: Liability for loss of profit, loss of use, loss of production and any indirect or consequential loss is excluded for both parties (45.1).
- Limit on any claim: The contractor’s aggregate liability is limited to an expressly agreed amount (clause 45.3).
This contract should be considered for projects where its performance is vitally important and can be measured through commissioning and testing.