The following Construction guidance note Produced in partnership with Peter Jansen of Keystone Law provides comprehensive and up to date legal information covering:
This practice note covers the 2nd Edition of the Burgundy Book published in 2013, focusing in particular on its characteristics as a target cost contract.
As with all IChemE contracts, the Burgundy Book has detailed provisions for testing on completion and commissioning making it well suited to the process engineering industries including nuclear, water, petrochemicals, and food.
These contracts all follow a virtually identical format in their clauses, layout and schedules. The drafting only departs from a standard text where necessary to capture the mechanism for implementing the risk/reward system covered, in this case payment on a target cost basis. See also Practice Notes: IChemE Conditions 5th Edition—'Red Book' and IChemE Conditions 'Green Book' 4th Edition.
Target cost means that the contractor is paid the ‘actual cost’ it incurs (as defined) in a similar way to a reimbursable contract but subject to a pre-agreed target cost. When the actual cost exceeds the target any further amount paid to the contractor is reduced - often to zero. If the cost is lower than the target cost the contractor and the purchaser share the saving achieved. The target cost (in the same way as the contract sum under a lump sum contract) is adjusted to take account of changes and additional cost for which the purchaser is responsible. Therefore
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