Fisher Maritime's Fairleads

'Lessons Learned' Strategies & Ideas for the Marine Industry


Unusual Contracting Brings Risks to Owners and Builders

The most costly lessons learned by both ship owners and shipyards occur when they venture into territory that is new to them or when they try to accelerate traditional activities Significant cost and schedule overruns are the predictable result of contracting decisions based on hopeful outcomes instead of basing them on careful analysis of capabilities, experience and risks. Examples of high-risk situations include:
  • Owners purchasing their first large vessel after owning smaller vessels of the same type.
  • Organizations undertaking major conversions, such as a VLCC to an FPSO.
  • Shipyards accepting fast-track construction or conversion projects predicated on significant owner-provided engineering.  They often find that the owner’s delayed engineering output impacts the shipyard’s engineering and production schedules.
  • Subcontractors taking on assignments larger than prior jobs also face considerable risk of overruns.
  • Design firms accepting assignments from a new category of client incur risks of misunderstandings, under-budgeting and time extensions.
  • Shipyards subcontracting engineering to design consultancies must be sure those designers have the shipyard interests in mind (least cost solutions consistent with all contract requirements). Shipyards must also ensure that the designers do not inadvertently improve the vessel’s design details at the shipyard’s expense.
The two highest risk project types are 1) major conversions and 2) projects relying on a lot of owner-furnished equipment (“OFE”). These risks exist in conversions because the starting point for conversions is often ill-defined, although the end-point of the conversion is well-defined. The highest risks that arise in conjunction with OFE are those of system integration involving products from many vendors.
To minimize project and contract risks, organizations should invest in industry-specific contract management (“CM”) training for all their involved personnel, not just the front-line staff that interacts with the other parties. Shipyard estimators and purchasers benefit just as much from the CM training as do the project managers. The ship owner’s technical staff need to understand the impacts of their role in on-going projects just as much as the owner’s representative. No profession in the marine industry is exempt from the need for continuing industry-specific project and contract management training.