IChemE Red Book 4th Edition - Overview

© Daniel Atkinson 2001 01 December 2001

The title for the 3^rd Edition was the "Model Form of Conditions of Contract for Process Plants Suitable for Lump Sum Contracts in the United Kingdom" the contract being originally published by the Institution of Chemical Engineers in 1968. A revised version, the 2^nd Edition, was published in 1981. The 3^rd Edition was published in 1995. There were reprints in 1996, 1997 and 2001 and now in November 2001the 4^th Edition.

The most important change in the 4^th edition from 3^rd Edition for those running contracts is the major overhaul to the dispute resolution clauses. The stated contract philosophy at Guidance Note Q is that the project is best served by teamwork and cooperation between the parties, not by confrontation. The best approach is stated to be to avoid disputes.

Does the 4^th Edition achieve these objectives and help the parties to avoid disputes? My own view is that more could and should have been done. This can be seen from the provisions for the two main types of dispute - payment and delay.

A claim for payment starts at Clause 18. The Contractor must give notice of an intention to claim. It must be within 7 days of the occurrence of the event. If he does not give proper notice, the contractor loses the right to additional payment (Clause 18.3). This is clearly an important provision which a contractor will need to observe carefully. If the contractor is not aware of the particular event, this does not appear to excuse him from failing to give notice, a rather harsh provision.

The notice needs to comply with Clause 2.6 which requires any communications which could have a contractual effect to be in writing and expressly includes secure e-mail. There is no requirement that notices should be in separate communications. Faced with a rejection of a claim due to lack of notice, a contractor is likely to present various communications, minutes of meetings, programme submissions and e-mails between the parties to demonstrate that effective notice has been given.

Faced with a Clause 18.3 rejection, the contractor will look for other remedies. For instance Clause 18.3 does not appear to exclude the contractor’s right to claim damages if the event is a breach of contract. There is no exhaustive remedy clause as found in Clause 44.4 of MF/1 Rev4 published by the IMechE and IEE in 2000, to limit such claims.

If the contractor is dissatisfied with the rejection of his claim, then he must refer the issue of proper notice of a claim to the Project Manager under Clause 45.3. He must give full details of the nature of the matter. The Project Manager then has 28 days to make a decision. The status under the contract of such a decision is not entirely clear, although common sense suggests that it will be effective unless revised by a later decision of an arbitrator or adjudicator. If the decision of the Project Manager is not accepted by one of the parties, the matter can be referred to arbitration, but there is no time limit for doing so. There cannot however be an immediate referral to arbitration. Under clause 45.4 the parties agree that there can be no dispute until either the 28 day period for the Project Manager’s decision has elapsed or the Project Manager has given his decision and a Notice of Dispute is served.

Clause 45.5 requires the parties to attempt to negotiate a settlement in good faith and Clause 45.7 allows the parties by agreement to refer the matter to mediation. Clause 48.1 appears to suggest that an attempt to settle must be made before the dispute is referred to arbitration. It is likely that the contractor would be faced with a challenge to the jurisdiction of the arbitrator if it could not be shown that some attempt at settlement had been made. Unfortunately no period is stated either in Clause 45 or 48 for the settlement process.

I suggest that these are complicated provisions which will not assist in the resolution of disputes, but instead create confrontation borne of frustration with the process. There is however a possible alternative of adjudication under Clause 46. Adjudication has been introduced in recognition of the effect of the Housing Grants Construction and Regeneration Act 1996. Adjudication has proved to be a very rapid and in the main satisfactory way or resolving disputes and in essence solving contractual problems by an impartial third party.

Clause 46 gives effect to the 1996 Act. An adjudicator’s decision is made within 28 days of the referral and is binding on the parties until finally determined by legal proceedings or arbitration. The provisions of Clause 45 do not fetter the right to refer a matter to adjudication at any time (Clause 46.2).

Clause 46.1 limits the right of adjudication to construction contracts as defined in the 1996 Act. There has been considerable caselaw generated by the definition of a construction contract. This has led to the unsatisfactory situation of mixed sites in which some contracts on the project are under the 1996 Act and others not. Many standard forms have avoided the problem by making adjudication available as a contractual right. Not the IChemE 4^th Edition.

If a contractor wishes to use adjudication under Clause 46 to resolve matters he is likely to be faced with arguments on the jurisdiction of the adjudicator. He may have to resort to enforcement proceedings if the Purchaser refuses to comply with the decision on grounds of lack of jurisdiction. The limitation in Clause 46.1 only appears to increase the possibility of disputes.

If the dispute is about valuation of variations or claims instead of notice, then there is a further possible method of resolution. If the contractor does not agree with the Project Manager’s valuation, the dispute may be referred to an Expert under Clause 47. This is not an immediate right. It appears that the matter must first be referred to the Project Manager for his decision under Clause 45.3, for a Notice of Dispute to be issued and for attempts to be made to settle. Once the Expert makes his determination his decision is final, conclusive and binding and is no longer referable to arbitration.

It is by no means clear what is the relationship between the Experts Determination and the Adjudicator’s Decision. If the Adjudicator has made his decision, it could be argued that there is no longer a dispute referable to the Expert. The Adjudicator’s decision becomes part of the contractual machinery and is binding until finally determined in legal proceedings or arbitration or by agreement (Clause 46.8). There is no mention of Expert Determination. If on the other hand the Expert decides before the Adjudicator has made his decision then it could be argued that there is no longer a dispute since the Expert’s decision is final and conclusive (Clause 47.2).

I suggest that there is no reason why the role of Expert Determination and Adjudication should not have been combined by suitable drafting. The 1996 Act allows parties to agree that an adjudicators decision should be final and binding. In practice many professionals available to act as experts also act as adjudicators.

Another potential area of dispute is in the assessment of the entitlement to extension of time under Clause 14. There have been largely textual changes from the 3^rd Edition, but no significant change in approach. Notice in this case is not stated to be a condition precedent to the right to extension of time. Disagreements are to be decided by Expert Determination subject again to the procedures under Clause 45.

The obligations of the contractor to progress the works are stated in terms of the Approved Programme (Clause 13). It is unfortunate that the opportunity was not taken to require the assessment of extension of time to be based on an impact analysis on the Approved Programme. Instead the provision is unchanged from the 3^rd Edition. A decision is required within 14 days of the time that the extent and consequences are known. This therefore requires a retrospective analysis.

The IChemE Red Book is a comprehensive and respected Standard Form of Contract used in a wide number of industries. In my view the changes made will in the main benefit users, but the dispute resolution provisions I think are too complicated and diverse. Maybe it is time for the industry to consider whether or not it wishes to opt-in to the Housing Grants Construction and Regeneration Act 1996.