Fisher Maritime's Fairleads

'Lessons Learned' Strategies & Ideas for the Marine Industry

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.