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'Lessons Learned' Strategies & Ideas for the Marine Industry


Repaired During Construction: Is it ‘New’?

When a vessel under construction, or major component of it, is seriously damaged before delivery, an owner may question whether the vessel that is delivered later is actually “new” or if it is less-than-new. Three incidents in which Fisher Maritime was called upon by the owners to answer key questions and give guidance for the outcome illustrate some of the considerations that must be addressed to determine if contractual requirements that the vessel be “new” are achieved.

In the first of the three incidents, a 73 m. platform support vessel experienced structural damage as well as machinery damage and misalignment during a launching casualty. Specifically, while being transferred from a building platen ashore to a  launching pontoon, the vessel uncontrollably rolled off the end of the pontoon, shearing off the two thrusters and causing internal and external structural damage along its bottom from sliding contact with the edge of the pontoon as it slid into the water.

The second incident involved a 15 m. composite boat that slid out of its lifting sling as it was being transferred from a transporter to a cradle. It landed on the underside of the stern, resulting in damage to the rudder, propulsion train and supporting structure.

The third damage-during-construction was a fire on a nearly complete 60 m. custom steel yacht, causing complete loss of the internal distributive systems and joiner work, along with structural deformations from the heat of the fire.

In all three situations, the fundamental question was whether the damaged portions of each vessel practicably could be “renewed” or if they could only be “repaired” to a lesser standard. The heart of the matter is, of course, the contractual requirement that all materials and equipment be new when the vessel is delivered, except for reasonable use and exposure incurred during vessel construction and testing.

The acceptance of the vessel by regulatory and classification organizations as a “new” vessel is the first of several hurdles that have to be achieved. However, most of those organizations do not differentiate between new or repaired as long as the underlying intents of their standards and rules are achieved.

Another objective measure is the issuance of warranties by equipment manufacturers and material vendors. If they are satisfied that the equipment and materials they supplied are still “new,” then the post-delivery warranty may still be applicable. However, if too much time passes before the damaged vessel is ready for delivery, some of the warranties may have expired before delivery is achieved. The lack of warranty period having the same post-delivery duration as if the vessel had not been damaged may contribute to an owner’s perspective that the vessel is not the equivalent to being new. Fisher Maritime has recommended that a satisfactory solution may be that the shipyard purchases extended warranties from the manufacturers and vendors so the vessel owner benefits from the same post-delivery duration of warranties as if the damage had not occurred.

Steel that has been distorted by the damage is sometimes wedged back into position or is force-straightened by the shipyard. If that “working” of the steel during construction materially reduces its fatigue strength or fatigue life, it certainly would not be equivalent to new. In those situations, Fisher Maritime has recommended that the steel be replaced in large sections (no postage-stamp inserts, please). Whenever structural distortions have occurred as a consequence of damage during construction, Fisher Maritime has recommended a fairly complete examination and testing of all piping and cabling that may have been affected by distortions. This is a condition that the owner may impose if he is going to accept the vessel as “new” even though significant damage occurred during construction.

The cosmetic quality of the finishes on the damaged, nearly-complete, high-value, custom yacht presented a special problem. The surfaces of nearly all the extensive, custom manufactured, stainless railings were etched by the acidic tars and ash of the products of combustion. While they could be polished to a shiny finish, they would never be as smooth as when new, suggesting that they have to be replaced, not merely polished, if the vessel is to look “new” in all regards. Other cosmetic features were also impacted. The hull, house and bulwark sides are not merely painted. Instead, two layers of high-quality filler are used to create absolutely smooth finishes at every section and joint, followed by the application of several layers of finish to create a highly reflective appearance. Repairs to those surfaces, without complete renewal, present a cosmetic finish that is somewhat less perfect than the new finishes; but complete renewal of them is a very expensive matter that may not be justifiable from an insurance perspective.

Even if the damaged vessel is, after corrective action, accepted as “new” by the owner, there may be a contractual assessment of liquidated damages due to late delivery resulting from the damages and renewals. Thus, even if a shipyard recovers the extra direct costs to renew the vessel from the underwriter of the builder’s risk policy, it may still have to pay liquidated damages.

In the end, when a vessel has been significantly damaged while under construction, there will have to be a common agreement between the owner, the shipyard and the builder’s risk insurance interests as to the outcome. The owner may agree to take the vessel at full price or at reduced price if the repairs have been substantial, reducing the value of the vessel. If the owner no longer wants the vessel because it cannot be practicably renewed, the yard may offer it on the market while returning the owner’s payments. The standards for final acceptance of a vessel damaged during construction will vary for different categories of owners. The owner of a work boat that has been repaired during construction will not be as demanding as the owners of a custom yacht or a cruise ship that need extensive renewals. To the best of our knowledge, this is an area that is relatively undefined by prior legal precedents. Thus, thorough analyses of contractual and technical issues have to be integrated in order to ascertain what is technically accomplishable, what is practicably and financially feasible, and what is contractually appropriate.

No one wants vessels damaged while under construction; but Fisher Maritime is ready to assist shipyards or ship owners in the development of those analyses when the need arises to assist in facilitating a workable agreement between the interested parties.


The Flow of Contract Information – Content, Form, & Timing

Many aspects of contracted workscopes for shipyard projects involve the flow of information between the parties, with the information  being as diverse as drawings, engineering calculations, noise measurements, test results, steel-and-air temperatures, megger readings, classification comments on drawings, and many others. These requirements are presented in the project’s specifications. In general, the flow of information requires a mutual understanding of the content, form and timing of the conveyance of the information, and sometimes the medium by which it is conveyed.

Specification writers often assume that the shipyard will understand why the owner’s staff needs the information required by some of the specification items. Implicit in that assumption is the premise that the shipyard will provide the correct information in a form that is useful to the owner and, moreover, will provide it on a timely basis. However, while the shipyard anticipates expending the fewest possible resources on the development and communication of that information, the owner anticipates something else.

Often the differences between the shipyard’s plan of action and the owner’s expectations for such communications become apparent in form and timing, as well as sometimes in content. When such misunderstandings arise, they are usually the responsibility of the specification writers’ implicit assumptions, rather than explicit requirements for the information. Avoidance of a misinterpretation, omission or delay in the  flow of the information arising from a specification item often is essential, if not critical to the project. Because of differing perspectives between owner and shipyard as to the resources needed to address information flow, a specification should separately address the content, form and timing of the requisite information to ensure that the owner’s needs for that item are fully and clearly communicated in the specifications.

Content

While technical content of information is typically well defined, most persons in the industry can cite  examples where insufficient definition of the information’s content has been the basis of disputes, large and small.

For example, when a large change order during ship repair would impact vessel re-delivery date, the parties agreed that the extent of the contract extension was “to be determined,” with no further description given. Later, in arbitration over that issue, the owner said a pre-completion formal schedule impact analysis was expected; while the shipyard said the extension was to be determined by the sequence of actual completion events, however it turned out. This is but one example of the necessity of defining the content of information that is to be communicated at some later time.

Form

Once the content of a given specification item has been nailed down, the next point to consider is that of form. Especially since the advent of computers and related technologies this point has become increasingly more important – and complicated. Paper or electronic? Merely using “electronic” may result in a non-searchable ‘pdf’ file. Instead, identify the application and the version of it by which the information can be effectively used.

Example: As-fitted drawings were to be provided in both printed and “electronic form.” When the owner received the drawings as a ‘pdf’ file, the owner’s unhappy response was initially directed toward the contractor, but later toward his own specification writers. (The shipyard had asked for an additional fee to provide them in a more useable electronic format.)

Timing

When is the most appropriate time for the owner to receive the information? An example of that question not being explicitly answered in the specifications involved the conversion of a RO/RO to a training ship, requiring much more accommodation space. All design engineering was provided by the owner except that the shipyard was to accomplish the HVAC engineering and design. The contract did not require that the HVAC engineering be done before assembly of the new accommodation structure. So after the structure was  mostly fabricated (to accelerate cash flow), the shipyard performed the engineering, only to learn that the HVAC distribution system would not fit. This led to the necessity of an extensive alteration in the configuration of the already fabricated deckhouse. If the engineering had been required to be accomplished pre-fabrication, a much less costly ‘fix’ could have been arranged.

Lesson learned: get the engineering done before the construction begins. This is an example of why the flow of information (HVAC engineering) should include the timing of when it is to be accomplished (before fabrication of the deckhouse).

Regarding the medium for the transmission of information, Fisher Maritime’s recent review of a proposed ship construction specification noted that it required that a certain dynamic test result be ‘tape recorded.’ At a number of other places it specified that data be stored on ‘magnetic media.’ With the appreciation that the owner did not want to receive these documents on an outdated floppy disc or magnetic tape, it was recommended that these specifications be updated to identify a more modern means of data storage. This illustrates why the medium by which information will be conveyed sometimes needs to be defined, as well.

There are numerous opportunities for inconsistencies and incompleteness in specifications for shipyard projects. Often they may be largely avoided by having persons other than the specification writer independently reviewing the specifications. Fisher Maritime routinely provides specification quality assurance services, ensuring uniformity throughout the specifications. To assist owner’s during the contract development and execution processes, Fisher Maritime also has a number of other resources available including training programs and publications.


Color Coded Features – The Vanishing Information

During the conversion of a vessel, a shipyard installed incorrect fire-rated bulkheads in several of the vessel’s spaces, delaying the issuance of the flag-state Certificate of Inspection, as well as being costly to both parties. Fisher Maritime’s analysis of the underlying facts revealed that the cause of the error was found to be vanishing information.

It was learned that the fire boundary plans supplied to the shipyard by the owner utilized different colors to delineate the different fire ratings required in several locations. The shipyard’s project management office had photocopied the drawings in black-and-white, sending those copies to the purchasing and production departments. With all the fire boundaries now appearing as the same gray, the shipyard’s subsequent use of these black-and-white reproductions resulted in a single (lower) fire-rating of bulkheads being installed throughout.  This confusion in fire ratings was not discovered until well after the bulkheads and other outfitting had been installed, leading to extra costs and delays to effect a correction.

There is a lesson to be learned from this experience. With the availability of low-cost color printers, and the ease of using different colors in drawings, charts and tables, the use of color-coded information appears to be a means of emphasizing the needed differentiations. But this is appropriate only when viewing the originals of those drawings, charts and tables. As soon as black-and-white copies are made, that differentiating information vanishes. Accordingly, when color-coded information is presented, consider sending it back to its authors and asking for revisions to incorporate a differentiation of features that will survive black-and- white copying. This might mean using different forms of lines, gradients, fill patterns, or more extensive word-labeling. For those cases where certain constraints limit the application of these suggestions, it may be appropriate to include a highly visible notation stating that the document must be reproduced in color to ensure clarity.


Equipment Integration and Interfaces

Contract Mismanagement by Assumptions

A multi-million dollar ship conversion project had gone considerably over budget and over schedule, with the shipyard and ship owner each alleging the other to be responsible. The project involved significant participation by several specialized subcontractors, who also provided key elements of new equipment, all working under the direction of a small contracting shipyard whose general manager was also the project manager.

The work that primarily caused cost and schedule overruns was the integration of the subcontractor-supplied equipment, as well as the last-minute development of electrical, electronic, and mechanical interfaces between the new items of equipment. The existence of the problem was realized late in the project when the subcontractors complained that they were being asked to perform greater workscopes than what was included in their bid proposals.

The shipyard originally issued purchase orders in response to the subcontractors’ bid proposals, which in turn were based on the prime contract specifications. The subcontractors’ bid proposals, adopted verbatim by purchase orders, did not adequately address the equipment integration process, including the supply of interfaces with other equipment. In other words, the sum of the parts (from the subcontractors) did not equal the whole requirement of the prime contract — but the shipyard did not otherwise plan for that shortfall.

Upon analysis it was observed that the fundamental cause of the problem was that, during the bidding stage, the shipyard assumed that the subcontractors were bidding on the entirety of the workscope related to the equipment they were to supply. Instead, the subcontractors’ bid proposals addressed only those elements that were independent of the work of other subcontractors.

Component and system integration, installation and testing are often found to be areas that have been partially overlooked or incompletely addressed, especially when subcontractors and vendors are involved. To avoid such problems, Fisher Maritime’s pre-contract reviews on behalf of shipyards ensures that the entirety of the prime contract’s workscope is addressed and bid by the shipyard itself or its subcontractors. If your organization is bidding on a complex contract requiring multiple subcontracts, a pre-bid review by Fisher Maritime can minimize the likelihood of errors in the bid due to such oversights.


Owner Furnished Equipment — Opportunities for Contract Risks

The provision of equipment by vessel owners for incorporation into ship construction or conversion projects creates multiple opportunities for contractual difficulties. The avoidance or those difficulties requires that each of the potential forms of those risks be adequately addressed in the contract package. The risks of owner-furnished equipment (OFE) arise in association with each of these topics:

  • time of OFE delivery
  • place of OFE delivery
  • exact content of the OFE
  • form of OFE at time of delivery
  • responsibility for vertical integration of OFE
  • responsibility for horizontal integration of OFE
  • requirements for testing, commissioning and grooming of OFE
  • warranty claims and warranty administration.

Integration addresses fit of the OFE in terms of the physical layout, structural adequacy, electrical service, mechanical connections, fluid services, electronic controls, monitoring, alarm systems and testing. Vertical integration specifically refers to ensuring the fit of the OFE into the existing ship or into the portions of the ship being provided by the shipbuilder. Horizontal integration specifically refers to ensuring the compatibility of multiple OFE components with one another. Because the contractor or shipyard is not automatically vested with integration responsibilities, the contracting party that has such integration responsibilities has to be clearly identified in the contract documents, and has to be given authority to seek necessary alterations if there is not a good fit in all those areas.

Fisher Maritime has often been called upon to assist in troubled contractual relationships when, the owner alleges, the shipyard is creating difficulties over the OFE. Sometimes our analyses result in the appreciation that the ship owner did not clearly nominate the shipyard to be the OFE integrator, thus causing the integration process to have been overlooked. Fisher Maritime then has developed recovery plans to minimize the impacts of the late-assignment of integrator responsibilities.
In one matter, the owner provided a complete propulsion system (diesel generators, motors, thrusters, power management system, etc.) for a dynamically-positioned vessel conversion project. The OFE vendor’s testing and commissioning requirements had not been communicated to the shipyard. Major schedule problems developed at the end of the conversion project when the owner’s vendor required far more time for testing and certification (several weeks) than the shipyard had been told to allow (several days).
Fisher Maritime was called in by the shipyard to help develop a revised schedule that minimized the total delay. Fisher Maritime then developed an assessment of the impacts on both cost and schedule that resulted from having overlooked the commissioning requirements for the OFE. That analysis was used to negotiate a resolution of the responsibilities for those costs and delays.
Organizations planning to incorporate major OFE items into a vessel construction or conversion project should consider having Fisher Maritime review the planned acquisitions and deliveries to ensure minimization of the risks associated with OFE, and to make certain that they are wholly compatible with the shipyard’s contractually-defined responsibilities.


OFE in a Design-Build Contract – Confusion All Around

A client ship owner needed four test-bed vessels for its specialized equipment. The general design of the vessels was not important, as long as certain vessel performance criteria were satisfied. More importantly, a pair of unusual OFE sets were also to be incorporated in a precisely-defined manner in each vessel.
Several contractors bid the job, and one received a contract. The ship owner accepted the shipyard’s proposed design. The shipyard had to complete the design, incorporating the OFE. Other design criteria had to be satisfied as well, including certain marine safety regulations. Almost predictably (especially after awarding the contract to the lowest bidder who left 20% of the contract price lying on the table) contract disputes arose. The shipyard claimed that more funds and time were needed to achieve the installations because the OFE installation requirements could not be fully appreciated from the bid package. Moreover, the shipyard contended, the eight sets of OFE arrived in varying forms – some sets required more preassembly than others. (The organization preparing the OFE worked to a different contract, and was not obligated to prepare and ship them identically.)
The lesson to be learned here is that the pre-contract OFE detail should be enough to ensure that bidders fully appreciate all the installation requirements. Also, varying delivery forms of identical OFE items indicates that the OFE acquisition is not well-controlled. This is a contractual weakness that can only harm the owner. Past contract disputes consistently reveal that whenever there is OFE there are likely to be major disputes over:
  • its form at arrival
  • the delivery schedule
  • the installation requirements
  • its integration into systems
  • the associated testing requirements.
For new ship construction, owners should approach the use of OFE with extreme caution. Any anticipated savings through direct acquisition may not be worth the risks of extra shipyard costs and litigation.


Sisters, Not Twins – A Source of Specification Errors

A common source of repair specification errors is the mistaken assumption that ships are identical twins. That is rarely correct. Sister ships are just that: sisters, but not identical twins.
When specifications and/or plans for a vessel’s modification are prepared for the owner, they are often based on the configuration of a sister vessel. During contract performance, the shipyard calls to the owner’s attention the fact that the specifications and/or plans do not match the ship, thereby leading to an unexpected extra cost.
In the construction of multiple ships under a single contract, the shipbuilder is obligated to ensure that the major features of the ships are the same. The contractor is given the right to determine all the lesser features as long as they are consistent with the contract documentsDue to production anomalies, design developments, and the passage of time, the secondary features of sister ships are often different from each other, but still consistent with the contract. For example:
  • the placement of auxiliary or minor components may be different
  • the brand name or model of equipment items may vary
  • the location of bulkhead penetrations for piping or cables may be altered
  • the routing of cabling, ducting, and/or piping may have been altered
  • secondary features of alarm, control and monitoring systems may not be consistent.
Consequently, to avoid unexpected extra costs, base your contract specifications only on the ship being modified, not on a sister ship for which such details probably are different.


Definitions vs. Controversy in Ship Repair and Construction – Which Do You Prefer? (Part 2 of 2)

If you haven’t done so, be sure to check out Part 1 of this article.  Here are some more examples and lessons learned in regards to definitions vs. controversy:

  • Generator Load Test: A specification called for the replacement of a SSDG, with testing after to confirm proper operation and controls. The means and extent of testing were not defined. After installation, the shipyard sought to test the SSDG using ship’s equipment for the electrical load. The vessel’s chief engineer as well as the port engineer would not allow that; they expected that the shipyard would use a test load bank instead. The shipyard pointed out that because the specification did not mention a load bank, the rental of one was not included in the bid. This problem involving both cost and delay would have been avoidable if the means of the test was defined. This was another opportunity for the ship owner to appreciate that the contractor would select a least-cost solution unless the specification clearly required otherwise.
  • What is New? A shipbuilder committed to constructing several new vessels, each of which was to include an item of special equipment. The vessels were produced, including the items of special equipment; but the vessel owner complained that those items were not new. The shipbuilder pointed out that the items were new, as evidenced by the fact that they had never been used, never installed on any other vessel, and had arrived at the shipyard in their original packing crates. The problem, as perceived by the owner, was that they were manufactured over 20 years earlier, but had never been sold by the supplier, only warehoused. To exclude the possibility of such event recurring, an owner can specify that all materials and equipment being usedshall be new and manufactured not more than [number] years prior to installation.”
  • Interpretation of Rules: Some ship owners want to benefit from having their new vessel constructed to the standards of a classification organization, but they do not wish to pay the organization’s fees that are incurred in granting the vessel classification status. In those instances, the construction specification states something like, All workmanship accomplished and all materials and equipment supplied and incorporated into the vessel shall conform to the classification rules of the [name of classification organization].”
    Without the direct involvement of the classification organization, the debate that ensues centers on whose interpretation of those rules will apply: the shipyard or the owner? This form of dispute is completely predictable when an owner attempts to get something for nothing. Even if the owner does not intend to maintain the vessel in class after delivery, there is nothing barring the construction and delivery of it in class, as determined by the classification organization. This assures a certain level of design, workmanship and material selection consistent with classification rules, but requires that the classification organization be duly involved during construction and delivery. Simply, there is no short cut to obtaining the benefits of classification.
  • Ambiguous Specifications (Oxymoron): Grammatically, the phrase “ambiguous specifications” is an oxymoron because the components of the phrase are inconsistent. Something that is specific cannot concurrently be ambiguous. Yet, numerous repair, conversion and construction specifications have been ambiguous, causing disputes, costly ‘fixes’ and substantial delays to completions of the projects. Some ship owner’s representatives express the attitude, “I know what that specification means because I wrote it.” This, of course, does not alter the fact that the specification as written is ambiguous; it simply confirms that it has to be interpreted. The shipyard already knew that and planned to achieve its interpretation of the specification using a least cost solution. The remedy at that point, if essential to the owner, is a costly and perhaps project-delaying change order.
  • Specification Quality Assurance: For major shipbuilding and offshore construction and conversion projects, significant contract price growth can be minimized by subjecting the proposed contract specifications and drawings to an independent quality assurance review process. A thorough review of proposed contract documents should be undertaken to identify ambiguities, incomplete items, and inconsistencies in order to assure a less-troublesome contractual relationship than may otherwise develop.


Definitions vs. Controversy in Ship Repair and Construction – Which Do You Prefer? (Part 1 of 2)

The question in the title of this article is, of course, almost nonsensical. Given an opportunity to choose between definitions or controversy, professionals in the marine industry would chose definitions over controversy. Examination of many ship repair, conversion and construction specifications leads to the observation that, perhaps inadvertently, controversy has been selected instead. Here are some examples and lessons learned.
  • Electronically Transmitted Drawings: A shipyard commenced construction of large vessel. It also arranged with the vessel purchaser’s staff to receive electronically the entire set of contract drawings. From these drawings, the shipyard would proceed to develop the design details as needed for construction. The drawings were received electronically, but not as a CAD files, which could be utilized by the shipyard. The drawings were PDF files, which are essentially just ‘pictures’, not files that can be altered. Those ‘electronic’ files were no more useful than if the shipyard had received paper printed drawings. Lesson learned: Define ‘electronic’ with greater precision so there is no misunderstanding about the form that the information will be transmitted and received.
  • Renew: Due to grounding in a channel, the rudder of a ship was damaged. The repair specification called for the shipyard to “renew” the rudder. What is meant by “renew”? The ship owner’s representative rejected the shipyard’s repair of the rudder, stating that “renew” meant to build a new one. In contrast, the shipyard said renew meant to make the old one like new by repairing it, making new only the damaged portions. Perhaps the ship owner’s idea would have been better expressed by stating that the shipyard was to “replace the rudder with one of all new materials.”
  • Pressure Test of Hydraulic Piping: The specifications called for a pressure test to confirm the integrity of joints in a hydraulic piping system. However, that specification did not define the nature and type of test. A dispute arose about what medium to use to create the pressure: air, water or hydraulic oil. A naïve owner’s representative argued that hydraulic oil should have been used. The shipyard pointed out that if there was any leak, it would be detected by seeing oil spray onto nearby fittings and equipment (hopefully without a resultant fire). If water was used for pressure tests, contamination of the subsequently-used hydraulic oil may result. Perhaps a combination of air test (with soap solution on the exterior of joints) followed by an oil pressure test may be the preferred solution. Other possibilities exist, too. More to the point, a specification requiring tests should state the testing mechanism. Otherwise it can be expected that a contractor will select the least-cost solution for the test.
  • Generator Load Test: A specification called for the replacement of a ships service diesel generator, with subsequent testing to confirm proper operation and controls. The means and extent of testing were not defined. After installation, the shipyard sought to test the SSDG using ship’s equipment for the electrical load. The vessel’s chief engineer as well as the port engineer would not allow that; they expected that the shipyard would use a test load bank instead. The shipyard pointed out that because the specification did not mention a load bank, the rental of one was not included in the bid. This problem involving both cost and delay would have been avoidable if the means of the test was defined. Again, this was an opportunity for the ship owner to appreciate that the contractor would select a least-cost solution unless the specification clearly required otherwise.

To read more, see Part 2 of this article.


Amateur Contracts a Cause of Disaster

Ship construction, conversion and repair contracts developed by persons who lack experience with the marine industry are the ones most likely to result in contractual disasters. These typically result in the owner and shipyard clashing over responsibilities, costs, schedule and vessel performance.
The shipbuilding industry has encountered such contracts on a much-more frequent basis than might be imagined. These situations need the help of “disaster relief” professionals experienced in “stabilizing” the parties’ contractual performance to avoid litigation.
If contractual relations have deteriorated too severely, these amateur contracts may become the focus of litigation. These situations need both the specialized consultants as well as attorneys.
It would have been far more cost-effective to use professionals skilled in shipbuilding contracts to develop the contract, rather than saving some costs at the commencement of the project and paying many times over for that mistake later.