Construction Insurance and UK Construction Contracts

Marshall Levine and Roger ter Haar KC

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CHAPTER 26 IChemE Lump Sum (Red Book), Reimbursable (Green Book) and Burgundy (target cost) Contracts

General

26.1 The Institution of Chemical Engineers (“IChemE”) publish two suites of contracts (contracts for use within the UK and for use overseas) which, like the FIDIC contracts, are referred to by the colour of the cover with which the contract is bound. The contracts are tailored to the design, construction and delivery of process plants and equipment and are very much “performance based”: Clause 3.4 imposes an obligation that the “plant as completed by the Contractor shall comply with the Contract and shall be in every respect fit for the purpose it was intended”. 26.2 In 2013, IChemE overhauled all of its contracts, save for Yellow Book: this change is to be welcomed as it has resulted in a more cohesive contract, particularly as regards the allocation of risk and insurance. The IChemE contracts in the UK suite of contract are:

Form of Contract for Lump Sum Contracts: Red Book 5th Edition (2013) Form of Contract for Reimbursable Contracts: Green Book 4th Edition (2013) Form of Contract for Target Cost: Burgundy Book 2nd Edition (2013) Subcontract (compatible with Red, Green and Burgundy): Yellow Book 4th
Edition (2013)
Civil Engineering Subcontract (compatible with Red, Green and Burgundy):
Brown Book 3rd Edition (2013)
Minor Works (to existing plant): Orange Book 2nd Edition (2003).

26.3 This chapter focuses on the Red, Green and Burgundy Books. The provisions relating to insurance and risk within these three contracts are the same. All three forms of contract contain a short formal agreement, referred to as the “agreement” in the rest of the document, between the purchaser (as the employer is called in these forms) and the contractor. The agreement first lists all the documents that constitute the “contract”, namely:

the Agreement;
the Special Conditions (if any);
the General Conditions of Contract (1-49);
the Specification; and
the Schedules to be compiled individually for each Contract (1-21).

26.4 The works are defined within clause 1 as including the “design, engineering and other services to be provided by the Contractor including the provision

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and construction of the Plant and Temporary Works”: as such they are design and build contracts. It should be noted that clause 31.6 expressly provides that the contractor is not required to take out and maintain professional indemnity insurance, and that by clause 31.1 the purchaser is required to insure against physical loss caused by defective design. However, this is balanced by the provisions of clause 3.4 which, as set out above, imposes a fitness for purpose condition.

IChemE Red, Green and Burgundy Books insurance provisions: General

26.5 The clauses relevant to risk and insurance are:

Clause 30: Care of the Works; and
Clause 31: Insurance.

Given the manner in which the contract is drafted, it is convenient to consider the clauses in relation to risk and insurance side by side and as such these clauses are considered by reference to (a) plant, site materials and temporary works; (b) death, illness and physical injury; (c) contractor’s equipment; (d) third party liability; (e) purchaser’s property; (f) documentation.

Specific clauses

(a) Plant, site materials and temporary works

Risk allocation

26.6 By clause 30.3, the plant and temporary works are under the care and control of the contractor until the purchaser takes over the plant (as defined by clause 33.7). However, the contractor’s obligation to make good any loss or damage is subject to the provisions of clauses 30.4 to 30.7. Where words are emboldened, they are defined terms within clause 1 of the conditions.

30.4 Subject to Sub-clause 30.8, the Contractor shall make good any loss or damage to the Plant, Site Materials and Temporary Works that may occur:

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