Abstract. Based on the concept of generalized stresses as proposed by Gurtin [6] and Forest [4], we extend an existing model for strain rate-and temperature-dependent asymmetric plastic material behaviour accompanied by phase transformation with a gradient term of phase fraction. To this end a chemical variable, representing the austenite volume fraction, is treated as an extra degree of freedom, and the influence of its first gradient will be studied. A generalized principle of virtual power is postulated involving generalized stresses and used to derive the constitutive equations. The bulk model is formulated within a thermodynamic framework. For the scenario of a cutting process we have a martensite-austenite-martensite transformation. Finally, a cutting simulation is investigated to test our model and the different mechanisms are illustrated.