In our previous blog, we discussed the interface between the different forms of contracts used for construction projects within the drinks sector, and in particular the interface between civil works and process plant for distilleries.
The industry has developed a number of standard form contracts (such as IChemE/ MF/1 and FIDIC forms) which can be used to address the requirements of process plant projects (such as new distilleries). These standard forms often incorporate comprehensive testing procedures and commissioning regimes to ensure delivery of a fully functioning process plant (which are not found within other suites of industry form contracts such as NEC and JCT).
Unlike JCT/SBCC standard form contracts that are specification based, process plant contracts are largely output based and rely on the completed plant meeting various performance guarantees / standards. Whether the plant achieves the required performance standards / guarantees in operation is critical and depends on whether the plant passes the testing and commissioning process.
The content of the schedules to the contract that set out the testing and commissioning process and any performance requirements / guarantees are absolutely crucial to the successful delivery of a fully functional distillery. Their importance cannot be emphasised enough, and we are often reminding clients to scrutinize and double check these to ensure they are sufficiently detailed and accurate.
Some contracts (such as IChemE or MF/1) offer a more prescriptive set of schedules than others as a starting point for clients. This is largely because IChemE and MF/1 contracts have been developed with process plants in mind. As a result, the terms and conditions refer to specific schedules when dealing with the tests required pre and post taking over. For example, IChemE includes the following schedules in the Red Book standard form which is accompanied by helpful and detailed guidance on the appropriate content of each:
- Schedule 13 – Pre-installation tests and procedures
- Schedule 14 – Criteria for the completion of construction
- Schedule 15 – Take Over procedures
- Schedule 16 – Performance tests and procedures
- Schedule 17 – Performance guarantees and damages for failure.
While completion of these schedules may be daunting to some clients, the benefit is that as the content is prescribed there is less risk of accidentally omitting key elements of the performance and testing regime. On the other hand, a FIDIC contract (such as the Yellow Book) can be used for a wide variety of projects and on its face may appear to be simpler to pull together. There are no prescribed schedules, and it is up to the parties to determine the quantity of, and level of detail required in, the schedules. It would therefore be imperative when using a FIDIC contract for a distillery project to ensure that specific, measurable testing and performance schedules are developed by the client's technical team that reflect the client's operational requirements.
While each of the three standard form contracts referred to in this article deal with testing, commissioning and performance requirements in slightly different ways, they each envisage the following steps to be taken:
- Pre taking over tests
- Test for taking over
- Performance based tests after taking over.
As a result, deciding between the standard form contracts will often come down to (amongst other things) client (or technical team) preference and familiarity with the nuances between the testing regimes.
When choosing between standard forms of contract, the testing regime offered by each standard form contract will undoubtedly be one of the key factors to consider. As is often the case, but more pertinently when considering performance-based contracts, the strength of the final contract will depend on the comprehensiveness of the technical schedules (particularly the testing schedules). If the completed plant does not perform as expected, it will be the testing, completion and performance schedules that dictate what recourse is available to the client. Parties will need to spend sufficient time pre-contract to thoroughly consider performance objectives (including levels and standard of performance) in order to incorporate an adequate regime that will meet the project's requirements.
In the next blog we will look at some of the other key provisions in typical process plant contracts.