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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.