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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.