Fisher Maritime's Fairleads

'Lessons Learned' Strategies & Ideas for the Marine Industry

Owner Furnished Equipment

A tanker owner’s plan to modernize a vessel resulted in the decision that the owner would supply a certain large item of new equipment to be installed by the US west coast shipyard.

The owner selected a vendor based on low pricing, anticipating a savings of about $60,000 below what the shipyard’s charge would have been. After the project commenced, however, the owner’s team discovered that the selected vendor was unable to demonstrate that the component met the required testing and certification standards. The vessel owner’s team then had to re-order the component from another manufacturer, paying a premium for rushed completion. Moreover, because the newly selected vendor was far from the shipyard, the vessel owner’s team had to charter an aircraft to rapidly transport the component from Texas to the US west coast.

In the end, the anticipated savings of about $60,000 was replaced by extra costs in excess of $100,000 above what the shipyard’s charge would have been. If instead the vessel owner’s staff  had spent time to write a precise specification and had given the shipyard the responsibility to acquire the component in accordance with that specification, any and all those extra costs would have been for the shipyard’s account.

The lesson learned: vessel owners should not use anticipated cost-savings as a basis for deciding to provide equipment as owner-furnished.

Lesson Learned: Use Fisher Maritime for Contract Preparation

A Fisher Maritime assignment involved project management and, later, litigation support on behalf of a ship owner embroiled in a major vessel construction dispute. Fisher Maritime had been engaged mid-way through the project to assist the owner’s project management team in order to get the vessel completed as rapidly as possible without further delays and additional costs.

Once the vessel was delivered, Fisher Maritime reviewed and evaluated, in the challenge of litigation, the contract, specifications and plans along with the considerable correspondence generated by differing interpretations of owner and contractor. Senior consultants from Fisher Maritime then presented expert testimony in the legal proceedings.

Subsequently, in preparation for another, larger and more-complex shipbuilding project, the owner obtained a draft contract as well as draft specifications and plans. As is often the case,  each of these documents was prepared by different sources. The owner, already having learned a lesson, asked Fisher Maritime to prepare a review of the draft contract, specifications and drawings. The review revealed numerous inadequacies in the draft documents’ language and inconsistencies between different documents. These were presented to the owner and the recommended corrections were implemented, effectively eliminating a number of potential disputes before they ever had any chance to surface.

Maritime organizations do not have to go through such costly and burdensome learning experiences to know to call upon Fisher Maritime for pre-contract reviews of the contract documents. Lesson learned: call Fisher Maritime if you are about to develop contract documents for a new or conversion project.

Emergency Response — Restoring Contractual Relationships

A client ship owner was facing a small number of very large value change orders that appeared to be outrageously priced by the shipyard. Specifically, within the first two months during a major offshore conversion, two change orders totaling over $4.2 million (about 20% of the initial contract price) were presented to the ship owner on a take-it or leave-it basis. Needless to say, the ship owner was extremely annoyed with the shipyard’s change order pricing. Similarly, the shipyard was upset with the owner for questioning the price and administration of its change orders.

The on-site relationship between the shipyard and ship owner quickly deteriorated on all matters, including the change order process. Fisher Maritime was selected by the ship owner to stabilize the contractual relationship before further deterioration, and to then correct the misunderstandings that led to the nearly-irreconcilable situation. Working out of the ship owner’s on-site office, Fisher Maritime’s personnel brought a cool, professional approach to all the issues that were bringing the contractual relationship to the boiling point.

Within the next several weeks, Fisher Maritime analyzed and exposed the shipyard’s erroneous pricing assumptions, leaving the shipyard no choice but to reduce the price on those two change orders to $44,000 (one percent of their original value). The continuous back-and-forth process of discussing the factual and contractual information relevant to those two changes helped restore a working relationship between the ship owner and shipyard. Fisher Maritime accomplished its task of restoring order by a cold, hard analysis of the facts as opposed to making self-serving, one-sided arguments for the sake of posturing.

Fisher Maritime routinely provides analyses of change order pricing issues. These analyses focus on contractual and technical facts rather than emotional and argumentative issues. Fisher Maritime’s staff is comprised of professionals able to bring a quiet certainty to otherwise emotionally-charged project disputes. They have the requisite technical background and project management experience needed to stabilize the contractual relationships and rapidly defuse the most serious disagreements.

Naval Architects Should be Indemnified Against Errors and Omissions

Professional errors and omissions insurance is commonly carried by our land-based brethren, the civil engineers. Naval architects designing vessels that are to be constructed sometimes do not carry this coverage; either they have no coverage or they may be a named insured under the shipyard builder’s policy, since the design is part of the final product (the vessel).

In a recent product liability case, Fisher Maritime served as an expert in naval architecture and small craft design on behalf of a defendant naval architect. The incident centered around a fatality that occurred aboard a dinner/ cruise vessel for which the naval architect assisted a shipyard with the design. In this situation, we demonstrated that the naval architect had committed no wrongdoing and was not responsible for the conditions which contributed to the fatality. However, lacking professional insurance, the naval architect had to pay for his attorney and related fees out of pocket. Had the naval architect been covered under the shipbuilder’s policy or otherwise indemnified by the yard, the naval architect would not have had to face that financial burden.

In this litigious society, as attorney Bill DeGarmo once addressed a Maritime Product Liability conference, in our industry, it is not a question of whether or not you will you be sued, it is just a matter of when you will be sued. Since it is almost inevitable it will occur, attorney fees and costs will be incurred regardless of the final outcome which may find no liability on your part. Accordingly, steps should be taken to guard against the possible incurrence of such costs if and when you are named as a defendant in a lawsuit. The lesson to be learned here is that naval architects must carefully review the terms of the design contracts they engage in, and if necessary, modify them to ensure that their insurance needs are covered.

Business-wise naval architects, even one-man firms, often have a standard contract form for use in negotiating contracts with their clients, which form serves as a check list to ensure that all appropriate matters are addressed by the agreement executed between the parties. If the prospective vessel owner is the client, the contract can state that the vessel owner will not engage in a construction contract utilizing the architect’s product unless the architect is indemnified under the builder’s policy. Alternatively, if the builder is the architect’s client, this can be addressed directly. Failure to address this issue most often does not create a problem. But when something goes wrong aboard the vessel in subsequent years, the naval architect may be named as a defendant, in which case he will regret not having arranged for such coverage.

Asserting & Defending Contractual Rights

#1 –– A Shipyard

A shipyard called in Fisher Maritime when a client ship owner become unreasonable. The yard had employed a specialist subcontractor to undertake a complete lead-abatement of the entire interior of the hull of a large service vessel. The vessel was being completely re-engined, with every item of mechanical and electrical equipment in the hull being replaced with modern outfit. The interior hull lead-abatement program was just about complete with all new coatings applied to the interior hull, and the shipyard was starting to install the new propulsion, electrical and ancillary equipment, when the ship owner changed its mind.

Namely, the owner wanted a comparable, complete lead-abatement program undertaken in all spaces above the main deck. With the specialist subcontractor no longer available to accomplish the additional lead-abatement, the shipyard came to the owner’s rescue and undertook the additional lead-abatement project itself. Not wishing to unnecessarily delay the project, the shipyard commenced the extra work based on the owner’s commitment to negotiate a change order.

This effort by the shipyard disrupted all of its planned work, its drydocking schedules, as well as significantly impaired the efficiency of the work which was continuing during the extra abatement program. When the shipyard proposed a price and schedule impact for the already- started work, the owner simply rejected it and refused negotiations.

Despite the on-going dispute, the project was completed in such a manner that the owner wrote praiseworthy letters to the shipyard — but still didn’t want to pay full price or recognize the entitlement of delay. Fisher Maritime prepared the shipyard’s formal claim. With our participation in a mediated settlement, the shipyard received nearly all the funds for shipyard expenses and delays that were set forth in the claim developed by Fisher Maritime.

#2 –– A Vendor

A major propulsion system manufacturer supplied a considerable amount of owner-furnished equipment for inclusion in a large vessel. The shipyard encountered significant delays and cost overruns, alleging that about half of those extra costs and delays were due to problems created by the ship owner’s propulsion system vendor.

Fisher Maritime was retained by the vendor to defend its actions, the quality of its equipment, and the completeness of the services provided in association with the equipment. Fisher Maritime rebutted those portions of the shipyard’s claim that the ship owner was attempting to pass through to the vendor. Fisher Maritime also developed the vendor’s limited counter-claim.

The failure of the ship owner’s staff to ensure complete compatibility between its shipyard contract (including changes), on one hand, and its purchase contract with the vendor, on the other, was found to be a major factor which was beyond the control of the vendor. The ship owner’s inability to effect consistent and complete communications between all three parties also contributed to the portion of the shipyard’s claim that focused on the propulsion system vendor. By its active participation in a mediated settlement, Fisher Maritime was able to convince all parties to let the propulsion system vendor depart from the fracas without making any payments to the owner or the shipyard.

#3 –– A Ship Owner

A vessel owner undertook a conversion project involving three shipyards, five engineering organizations, and a number of vendors and subcontractors. When the project fell behind schedule due to a breakdown in communication between the various parties, the owner called Fisher Maritime to assist in regaining control over the project.

Fisher Maritime was required to immediately assess the status of the project from an overall perspective. It was readily apparent to Fisher Maritime that focusing solely on the primary shipyard’s effort was precluding a complete assessment of the status of the overall project. To realistically assess the state of the project, each contributor’s efforts, including the owner’s, had to be scrutinized. A realistic assessment of the project was the first step in formulating a plan to bring the project under control.

Through a comprehensive understanding of where the weaknesses were with respect to satisfactory project performance, a plan was formulated to mitigate the damages being inflicted by those parties providing less-than-satisfactory project performance. The project ultimately was moved to a new primary shipyard in order to obtain better performance by removing uncompleted work from a host of nonperforming parties.

#4 –– A Supplier

A shipyard encountered significant problems applying coatings to a series of several new ships. The need to remove or repair and recoat a significant percentage of the coatings on the hulls, decks and bulkheads led the shipyard to assert a claim against the coating supplier, alleging the coating materials were defective products. The shipyard had a fully-protected blast-and-coat facility in which much of the coating work was accomplished.

Fisher Maritime’s review of records led to the observation that nearly all of the alleged product failures occurred, however, to the coatings which were applied outside of the protected facility. Fisher Maritime also observed from a review of the supervisors’ logs, the labor reports and other documents that the incidence of coating failures was clearly of greatest frequency during cold weather, and second-most frequent during hot, humid weather. Fisher Maritime’s report identified the application of coatings onto steel that was colder than the air as a major cause of repeated occurrences of amine blush. Other sources of failures, in addition to temperature-related ones, were insufficient curing time between successive applications, and too much application to overcome shadowed areas. The matter was resolved by a negotiated settlement reflecting the shipyard’s almost-complete withdrawal of its claim.

Shipyard Safety Concerns –– Put it in Writing

As a ship owners’ representatives walk through the ships during on-going work at shipyards, they may observe conditions or situations that are not consistent with the contractually-required means of assuring safety to both personnel and the vessel. A few words to the production supervisor often is sufficient to achieve a correction to that deficiency, at least temporarily. But more likely than not, a temporary correction is not sufficient; it has to endure for as long as the shipyard’s work continues, although that implementation has a cost impact on the shipyard. The challenge is for an owner’s representative to effectively convince the shipyard to implement for the duration of the contract all the safety features that it contractually promised.

Fisher Maritime’s expertise was called upon to help resolve a dispute centering on a vessel which experienced a significant fire stemming from hot work during the repair process for which there was inadequate fire watch and fire protection. During the ensuing litigation over responsibility for the cost and schedule impact of the fire and subsequent repairs, an owner’s representative alleged that he had passed through the space before the fire occurred, asking for improvement in the fire watch situation and the greater use of appropriate fire blankets. The shipyard denied that they had been advised of those alleged deficiencies.

Orally calling safety issues to the attention of the shipyard is often believed sufficient. However, these conversations are often subject to differing recollections, especially as time passes, memories fade and unfortunate events occur. In order to ensure that the communicated concern is properly preserved, a safety issue which has been verbally communicated to the shipyard probably should be followed up immediately in writing to shipyard project management. This process achieves four objectives:

  1. It ensures that the shipyard management, beyond the production staff, is notified immediately upon detection of perceived safety hazards.
  2. There is no misunderstanding regarding the particulars of a given issue.
  3. The issue has been preserved in the event of future disputes.
  4. Perhaps most importantly, knowledge of the existence of this contemporaneously-developed document puts pressure on shipyard management to implement for the duration of the contract all the safety features that it contractually promised.

An owner’s representative may even find it useful to create a form in advance in order to easily record such important parameters as:

  • the nature of the issue
  • reference to particular contractual and statutory requirements
  • identification of the:
    • location
    • date
    • time
    • person notified
    • corrective actions to be taken
    • other possible factors

Dovetailing into this issue is the confusion regarding the intent of occupational safety and health regulations pertaining to ship repair, conversion, construction, and breaking. Those regulations have been promulgated to ensure the safety and protection of shipyard employees from unsafe working conditions. That is, those regulations exist to protect the shipyard employees, not the vessel, from unsafe working conditions. With this in mind, the owner may find that those regulations fall short of adequately protecting the vessel from unsafe conditions. Accordingly, many owners find it important to contractually define supplemental requirements that focus on the safety of the vessel above those regulations that focus on safety for shipyard employees.

False Economies Prove Costly

Fisher Maritime’s analyses of more than 100 marine casualties and personal injuries have generally led to an inescapable conclusion: cutting corners on safety-related matters aboard ship can prove to be a very costly false economy.

Among the most common corners which have been cut are:

  • inadequate or insufficient handrails
  • insufficient coverage with anti- skid surfaces
  • inconsistency between signage and design features
  • thinking that a nonsensical manual does not indicate a nonsensical design.

This last item arises when the vessel operator thinks that perhaps the manual is written awkwardly, but does not make any effort to see, objectively, if perhaps some design features of the vessel are the things that don’t make sense. A low cost safety review of the vessel and its manuals by should be part of a cost-effective claim mitigation program.

Meanwhile, in shipyard projects, equally false cost-savings measures are taken more often than is wise. An insufficiency of fire watch personnel, or not keeping the fire watch personnel around for 30 minutes after cessation of hot work, is often viewed as a savings. The lack of on-hand fire extinguishing equipment also is thought to reduce costs. But when a fire does breaks out, as it will once in a while, the savings on all the other projects are immediately overwhelmed by the direct and indirect, non-reimbursable costs that the shipyard incurs. More importantly, concern about personnel safety is an immeasurable consideration.

VLCCs for FPSO Conversions

The Risks of Multi-Type Assumptions

A vessel owner sold two VLCCs for conversion to FPSOs.  Although they were each over 20 years old, they had been maintained in excellent condition. The seller warranted to the purchaser that each vessel would not need more than 100 tons of steel, and guaranteed payment for any steel work in excess of that amount that was attributable to the condition of the vessels. However, it was later learned that each conversion to the FPSOs required over 1100 tons of steel work, thus placing the seller in an unexpected predicament.

Fisher Maritime was retained by the seller to analyze why there was such a discrepancy. Following review of the owner’s technical practices and the classification rules for both VLCCs and FPSOs, we were able to advise our client that the 100-ton amount was predicated only on each vessel going through a classification Special Survey for the vessel to remain as a VLCC. In contrast, nearly all the 1100 tons of new steel was required to satisfy classification as an FPSOs that would be on station 15+ years, not as a VLCC that is drydocked every 4-5 years.

We then supported our client in subsequent negotiations to resolve that misunderstanding between the seller and purchaser of the VLCCs . The lesson learned is that a reasonable expectation applicable to one vessel type undergoing conversion may not be a reasonable expectation applicable to the converted vessel type. This observation may also apply to emergency electrical requirements, fire-suppression systems, battery back-up requirements, redundancy of bilge systems, and other safety features.

Damage Due To Erroneous Docking Plans

Symptomatic of a Larger Problem

Erroneous docking plans lead to costly damage more often than most professionals expect. This is the result of surveys conducted at Fisher Maritime’s Contract Management training programs. The docking plans were not always erroneous; but they weren’t updated when modifications were undertaken at previous shipyard periods.

The fact that the drawing no longer matches the ship is not limited to docking plans, but applies to many of the other as-built (or as-fitted) drawings as well. When a ship owner is having minor modifications made to the ship, it always seems to be too costly to have drawings modified by the shipyard. The ship-owning organization will get the drawings updated later, it is usually planned and believed. But the updates never get done, of course, due to higher-priority work for the appropriate staff that could otherwise accomplish the drawing updates.

A ship begins to depart from the once-accurate as-built drawings with every minor as well as major modification made during the ship’s lifetime. The potential benefits of the drawings for all future maintenance, repair and modification are lost to the owner. Any such work will then cost a lot more because the contractor that would otherwise rely on such accurate drawings will either:

  1. rely on inaccurate drawings and thereby incur extra re-work costs to correct the work that was erroneously accomplished because of the errors in the drawings, or
  2. have to develop its new work by onsite reverse engineering to know what is already there in order to proceed with the new work, with such reverse engineering being a source of delay and extra costs.

Moreover, emergency repairs will certainly take longer when the drawings cannot be relied upon. For ship repairs and maintenance, the recommended means of dealing with drawing issues is to ensure that the specifications for work items that will physically modify the ship include a requirement that the shipyard performing the modifications also update the relevant drawings; otherwise the gap between drawings and the ship will continue to grow.

If the drawing modification costs are not included in the workscope, then it becomes the owner’s obligation to get the drawings modified at a later time to ensure that the drawings continue to match the ship. But since many owners’ organizations do not follow-through with the drawing modifications after the ship leaves the yard, the gap between drawings and the ship is essentially guaranteed to grow. This is not a good way to manage the ship for future repairs and maintenance because, in addition to  causing damage, it will cost several times as much later to make up for a lack of accurate as-built drawings than it would to keep them up to date in the first place.

The Risks of FPSO Conversions

Multiple Interests Lead to Challenging Coordination

FPSO conversions from VLCCs are particularly challenging due to the overlapping roles of multiple participants on each side of the contractual relationships.  Fisher Maritime has assisted several clients, both shipyards and their customers, in projects for the conversion of VLCCs into FPSOs.  Our work has been in each of contract formation, assistance in contract management, and resolution of contractual disputes.

On the purchaser’s side, there are three main groups, each of which wishes to have their perspectives be primary in the conversion from the owner’s perspective:

  1. The marine group addresses the hull and machinery conversion
  2. The exploration group focuses on the topside production/processing equipment additions to the vessel
  3. The operations group addresses the mooring system, turret, riser attachments, and accommodation requirements.

There may be inconsistencies between the objectives of each group. Further, the need to coordinate the provision of owner-purchased equipment, the use of multiple subcontractors, consultants and engineering specialists makes the owner’s management of the contracts more challenging than most other forms of vessel conversion.

On the shipyard’s side, there also are multiple interests:

  1. The hull and machinery work, being within the shipyard’s ordinary scope of work, is addressed in the normal manner.
  2. The topside production/processing equipment, being beyond a shipyard’s normal scope of work but appearing to be sufficiently close to it, creates challenges to the shipyard in its estimating and scheduling efforts, especially when the owner provided equipment has to be integrated into the shipyard’s efforts.
  3. The turret, riser connections, and extensive mooring arrangements add further challenges to the shipyard’s ordinary scope of work.

The shipyard also engages multiple subcontractors, consultants and engineering entities to assist them.

The success of an FPSO conversion project is dependent on the coordination of the engineering, design, material procurement, equipment supply, production work and testing output of all those interest groups, regardless of which side of the contractual relationship they are on.

Fisher Maritime has assisted participants in such conversions understand where conflicting requirements had to be resolved, where conflicting schedules had to be sorted-out, why one party or the other had to bear certain unanticipated costs, which party was reasonably or unreasonably interpreting specifications, and which party was ultimately responsible for delays.

Although FPSO conversions have many facets which are unique to such vessels, the fundamental principles guiding the resolution of potential disputes, as well as the pre-contract quality assurance and due diligence requirements, are essentially the same as for other ship conversion projects. As with all vessel conversion projects, the key to success is a well-defined specification package. Fisher Maritime provides quality assurance and risk-minimization reviews of conversion specifications before contract formation.