July 01, 2024
Why should I read this?
At the start of this year, the Institute of Chemical Engineers (IChemE) released a new form of standard contract for Engineering, Procurement and Contraction Management (EPCM) projects, known as the Blue Book. The Blue Book fills a gap in the market as the industry’s first EPCM contract. Where parties previously tended to amend the IChemE Silver Book (drafted for professional services) or adopt a bespoke form to suit their EPCM projects, the Blue Book now provides a dedicated standard form for process plant projects, which can also be used more widely.
As the months pass by and the Blue Book comes into use on projects around the world, the application of the Blue Book’s dispute resolution mechanism looms on the horizon and remains to be tested.
Nuances of EPCM
Under an EPCM contract, the EPCM contractor is appointed to design, procure and manage the construction rather than undertaking those works itself. As a result, this procurement model brings with it very limited contractual responsibility for the quality of the works or timing of their delivery. Save for instances of its own negligence, the EPCM contractor is not liable for the acts of the contractors involved in the delivery of the works (often referred to as the works contractors), as these works contractors are directly employed by the purchaser.
The EPCM contractor is also generally responsible for roles such as project management, controlling the site and associated health and safety, budget monitoring, certification and managing defects.
The purchaser must therefore look directly to its individual works contractors for their respective breaches of the contract connected to the physical on-site works. In the event of a dispute, the purchaser could potentially be facing a series of disputes with one or more of the works contractors and potentially also with the EPCM contractor. It is therefore crucial that the underlying EPCM contract and the contracts with the works contractors deal with the spread of liability and wherever there are gaps in the liability coverage, that the purchaser understands what these are. In addition, understanding how the dispute regimes in the EPCM contract and the various works contracts operate – and how they operate for a dispute across multiple contracts – is a key issue for all parties involved in the project.
IChemE Dispute resolution – Focus on Collaboration
IChemE’s overarching philosophy is that a project is best served by teamwork and co-operation between the parties, rather than by confrontation. This philosophy is reflected in the tiered dispute resolution mechanism which prefers the use of negotiation at the outset of a dispute, followed by the option to refer the dispute to mediation (if the negotiation fails and both parties agree to refer the dispute to mediation). Otherwise, the IChemE blue book promotes arbitration as the final level of dispute resolution. For UK projects with a cross-border element, parties may wish to consider carefully whether an amendment to designate court litigation as the final form of dispute resolution may be appropriate to overcome potential hurdles such as enforceability of the final award.
The use of a tiered dispute resolution mechanism allows a process of escalation with opportunities for conciliation built in. For instance, sub-clause 2.1 of the contract expressly requires co-operation between the parties with the aim of achieving the satisfactory completion of the project. Clause 46.1 places a duty on the parties to endeavour to avoid disputes and attempt in good faith to negotiate a settlement or dispute.
However, it is fair to question whether the presumption of collaboration accords with reality – particularly in a scenario where relationships between the parties have become strained – to the point where the tiered dispute resolution mechanism becomes little more than a road block to swift dispute resolution.
Additionally, sub clause 2.2 requires parties to deal fairly, openly and in good faith and to share relevant information – however, this wording in itself may prove to be contentious, particularly because the law of England and Wales has yet to evolve a concept of “good faith” and what that means in practice.
Optional tiered dispute resolution provisions
Similar to other IChemE forms, the Blue Book allows several optional clauses to be incorporated into the main contract, enabling parties to select the forms of dispute resolution which best suit their projects. The optional clauses include:
- Optional Clauses in Part A – which provides the option for adjudication to be commenced at any time (consistent with the provisions of the Housing Grants, Construction and Regeneration Act 1996) irrespective of whether the initial procedure has been instigated or concluded;
- Optional Clause C52 Dispute Review Board – which inserts the Dispute Review Board (“DRB”) as a pre-cursor to arbitration. Where this option is selected, there are limited rights to refer a dispute to arbitration as an arbitration can only be commenced if: (a) the DRB fails to give the decision in the prescribed time; or (b) the decision is deemed unacceptable by both parties; or (c) the decision has not been implemented within 21 days of issue; and
- Optional Clause C53 Reference to Expert – which inserts reference to an expert for specified disputes and, if such reference is made, those disputes cease to be referable to arbitration unless stipulated conditions are met.
The IChemE blue achieves jurisdictional impartiality by including the UK requirements in relation to adjudication in a separate set of optional clauses – this allows the Blue Book to be deployed for projects all around the world.
Tiered dispute resolution helps further the case for co-operation between the parties, as it places ADR on the agenda and provides the parties with mechanisms of dealing with disputes and disagreements prior to becoming entrenched in their positions. The Blue Book (including where the optional clauses are used), envisages that the tiered mechanism will be mandatory (with the exception of the right to adjudicate which applies at any time), thereby pushing the parties to resolve dispute as early as possible to allow parties to continue working with each other effectively until completion.
However, there is always the risk that a staged approach to resolving disputes can be remoulded by a party to serve as a delating tactic to prevent an injured party from getting proper and effective recourse. There is also an inherent risk in tiered dispute resolution that parties may well end up arguing about where to argue and whether the stages of the dispute clauses have been correctly followed. It should be noted that the Blue Book does try to head off disputes over the correct venue by stipulating clear steps and timelines to be followed. It should also be noted that both parties are expected to continue to perform their obligations under the contract whilst any dispute is being resolved.
Multiparty disputes
Due to the nature of EPCM procurement, the purchaser is likely to bring claims against both the EPCM contractor and individual works contractors – paving the way for multiparty disputes. Under the Blue Book provisions, only the purchaser and the EPCM contractor are obliged to participate in the tiered dispute resolution clause as all dispute resolution rules are drafted from the perspective of a two-party dispute. This may be problematic where the purchaser is facing disputes with works contractors as there is no obligation for them to be party to these disputes provisions, unless there is a corresponding obligation within both the separate works contractor appointments and the EPCM contract. This may pose a risk of the clauses between various contracts being misaligned and a purchaser becoming embroiled in multiple related disputes across different fora – with the potential for different decisions applying to different contracts.
It will therefore be crucial to ensure all dispute clauses act in compliance with one another across the works contracts and with the EPCM contract itself. This is acknowledged as being an issue in the IChemE’s Guidance Notes, which state that the parties may want to make express provision for third parties to be joined to arbitration proceedings, thus ensuring that there are no inconsistent awards
Conclusion
The dispute resolution procedure of the Blue Book certainly reflects the philosophy this form seeks to embody. This first standard form for governing EPCM projects places a strong emphasis on collaboration between the parties. However, like any standard form contract it is crucial that the clauses are amended to ensure that the essence of the underlying project and relationship between the parties is properly captured and conceivable risks are effectively managed. Specifically in the context of dispute resolution, the Blue Book provides parties with multiple options in terms of the procedures that could be put into place and it is key that these are tailored to each project.
[1] See inconclusive litigation over the principle in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (Trading As Medirest)[2013] EWCA Civ 200).
Further reading on the IChemE Blue Book
Please refer to our Business Topic Page on EPCM.