Fisher Maritime's Fairleads

'Lessons Learned' Strategies & Ideas for the Marine Industry


The Art (and Risks) of Managing Owner-Furnished Equipment – Part Two

Editor’s Note:  This is Part Two of a three-part series focusing on the management of Owner-Furnished Equipment.  Once posted, Part One can be found here, while Part Three can be found here.

Understanding the Content of the Owner Furnished Equipment (“OFE”)

As obvious as it may seem that the shipyard has to know what OFE will be delivered to it for installation, this is often a source of misunderstandings. The problems start with the fact that the owner’s staff is under the impression that the OFE vendor understands the shipyard’s perspective; but it doesn’t. The shipyard needs to know what hardware is being provided as OFE, because if some additional hardware will be needed for installation, then the shipyard has to know that in advance for pricing and ordering purposes. The physical interfaces are often the setting for the issues to develop. One way to avoid these problems is to first think of a large clear plastic sack around the OFE and ask: what is inside the sack; what is outside that connects to the OFE; and what penetrates the sack that connects to both the OFE and the ship? Then clearly identify the party that is supplying the hardware in each category.

If the item of OFE is going to be affixed to a foundation, which party supplies the foundation? Which party supplies the bolts that connect the OFE to the foundation? If control cables are needed to connect an OFE console to an OFE item, which party supplies those control cables? If power cables are needed to connect an electrical panel to the OFE, which party is supplying those electrical cables? Ask the same questions regarding piping as well as for the small transition pieces between shipboard piping and OFE piping. If the OFE item has to be re-painted after installation, which party is providing the paint? If the hydraulic piping within the OFE has to be flushed several times, which party is providing (and disposing of) the flushing fluids? For clarity and to avoid misunderstandings once the project is underway, it is essential to have the bid package and contract specifications indicate clearly the answers to these and similar questions regarding the content of the OFE and the supply of supporting hardware that will be needed to finalize the installation and testing.

OFI — Information

Usually the provision of OFE requires a supporting provision of owner-furnished information, “OFI”. An appreciation of the potential scope of this information stems from the fact that the installing shipyard may need to know:

  • foundation design and manufacturing requirements if the shipyard is to provide the foundation for the OFE
  • specific requirements for structural and arrangement modifications to the existing vessel
  • electrical power requirements so it can modify panels and install the cable as needed
  • fluids inflow and outflow requirements so it can prepare piping, valves and connections as needed
  • heat dissipation requirements so it can modify or add ducts and fans as needed
  • testing and trials procedures for which it will have to supply testing equipment and personnel, among other possible information requirements

The owner’s organization has to recognize that the shipyard will assume that it does not have to procure or provide any of that information unless the requirement to do is clearly identified in the contract workscope and specifications.

Form

Another commonly-incurred origin of problems associated with OFE is, from the shipyard’s perspective, a surprise to see the form in which the OFE arrives at the shipyard. The following are some of the form-related concerns that have been the source of problems:

  • Will the OFE arrive assembled or unassembled?
  • Will the OFE arrive in weather-proof covering, or does it have to be kept out of the weather by the shipyard until it is finally installed in the vessel?
  • Will the item of equipment have to be repainted by the shipyard or can it remain with the manufacturer’s paint on it?
  • Will the OFE require any special services prior to installation, such as dehumidification or power to heater bars to prevent condensation?
  • Will preservatives have to be removed and disposed by the shipyard as part of
    the installation process?
  • If the OFE is heavy, what lifting equipment will be needed?

Time of Delivery

When can the shipyard reasonably expect that the OFE will arrive at the shipyard? If this question cannot be answered by, “Read the contract,” then the issue is a candidate for differing interpretations by the parties. Sooner or later, the shipyard has to know when to expect the arrival of the OFE in order to plan and implement a timely and efficient installation. Best practice, of course, is to have a date-certain established in the contract documents, such as “April 3, 20—.” Second best is for the use of a target date-relative, such as “not later than 21 calendar days after vessel arrival at the shipyard.” When the contract appears silent about the date of OFE arrival at the shipyard, the reality is that a required date is being established by an indirect but binding mechanism, as described below.

Typically, the owner contractually requires the shipyard to develop a detailed vessel construction or conversion schedule, and to provide copies of it to the owner. At the moment the schedule is transmitted to the owner, the shipyard has thereby announced the date it is nominating to receive and start installing the OFE, as indicated by one or more activities on that schedule. If the owner’s team responds within a few days to the effect that the vendor’s delivery date will be later than nominated by the shipyard, then the shipyard has to revise its schedule to reflect the later date indicated by the owner. However, if the owner’s team is silent about the date the OFE is to arrive at the shipyard after receiving the requested copy of the shipyard’s schedule, then the owner is implicitly acknowledging the acceptability of that date. This means that the owner’s team has to be aware, in the absence of a contractual date-certain or date-relative for arrival of the OFE, that it has given the shipyard the right to nominate the date for arrival. If there is going to be a different arrival date, the owner’s team has a duty to advise the shipyard as promptly as possible of a more-realistic date in order to mitigate damages and minimize schedule disruptions. This is the fundamental reason why the owner’s team has to set up and maintain a delivery control system for each item of OFE and OFI.

Location of Delivery

Although it may, on first consideration, appear to be a trivial matter, the location for delivery of OFE can become a troublesome issue if the parties do not stick to the script, i.e., stay consistent with the contract. Even when the shipyard’s warehouse is the contractually-designated delivery location, sometimes a different location is orally arranged. For example, the owner arranges for the OFE to be flown in to the nearby airport in order to save time of overland transportation. The owner then asks the shipyard to send a truck to pick up the OFE at the airport freight depot. When the loaded truck rolls over due to an errant driver of another vehicle, the OFE is damaged and no longer suitable for installation on the vessel. Now there will be extra costs and delays while the OFE is repaired or replaced. Which party is responsible for those impacts?

The owner’s perspective will be that the shipyard is responsible because the OFE had been satisfactorily received by the shipyard’s employees at the airport. The shipyard’s perspective may be that the contract requirement to have the OFE be accepted at its warehouse has not yet been satisfied, so the continuing delay is the owner’s responsibility. The truck was sent to the airport, the shipyard may allege, under a separate oral transportation contract, unrelated to the ship construction or conversion contract. Unfortunately, there is no reliable means of predicting the winner of these arguments. Accordingly, to avoid this risk, the shipyard should insist that the owner accomplish delivery of the OFE to the shipyard in accordance with the written contract.

Additional OFI subjects will be presented in next month’s edition of Fairleads.