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

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

Risk Avoidance by Vessel Owners and Shipyards

The provision of owner-furnished equipment (“OFE”) and owner-furnished information (“OFI”) after a ship construction or conversion contract has been signed introduces multiple risks into the contractual relationship between the vessel owner and the shipyard that has to use that OFI and/or install the OFE. If any of these risks transition from the ‘possible’ to the ‘actual’, the cost and schedule impacts can quickly escalate to disproportionate magnitudes.

Understanding this, there should be a tendency to a general reduction in the use of OFE and OFI, giving the shipyard the responsibility to obtain all that equipment and information and therefore bear the associated risks. However, vessel owner’s staffs recognize that shipyards rarely understand the particulars of the specialized equipment that is being integrated into ships with increasing frequency. Accordingly, owners sometimes cannot afford the risk of allowing shipyards to acquire such specialized equipment since the shipyard will be looking for low cost. Thus, the shipyard-selected equipment may not necessarily incorporate all the features and characteristics that owners look for when acquiring such equipment. Therefore, the use of OFE and OFI will continue.

In view of that fact—the continuing use of OFE and OFI—it appears desirable to identify the causes of problems that have arisen so that the owner’s participants in the OFE/OFI acquisition process can better understand these potential risks to avoid their onset. This also educates shipyard personnel in the identification of the early signs of OFE/OFI-related problems, thereby allowing them to prod their client owners to attend to the matters in order to avoid development of the risks, or at least to limit the cost and/or schedule impacts on the ship construction or conversion project.

Based on Fisher Maritime’s extensive experience (43 years) of assisting project management teams cope with the problems arising from mis-managed or un-managed OFE and OFI acquisitions, this article lists and describes the major aspects from which OFE/OFI problems tend to arise. With this information in mind, both the owner’s and the shipyard’s participants in projects involving OFE/OFI will be more likely to work from the outset to avoid such problems, or at least to identify the problems as they begin to emerge, rather than fail to understand the origin of such problems until the impacts have already become unmanageable or unacceptable.

The Motivation Behind the Use of OFE/OFI

Some owner’s are motivated to acquire the equipment because it necessitates a long lead-time for acquisition; the purchasing process for the equipment has to commence earlier than the awarding of a contract to a shipyard to install the equipment. This appears to be a reasonable basis for the use of OFE/OFI. Another equally valid reason is the specialized nature of the equipment, necessitating considerable dialogue between vendor and purchaser (the future user of it) to ensure that the precisely-needed product is acquired, instead of a less-costly, not-quite-adequate substitute selected by the shipyard. Some owners, however, are motivated by cost considerations and fantasies of savings; they think they can avoid the shipyard’s mark-up of eight-to-20 percent by providing the equipment to the shipyard. If cost considerations are the primary basis for the owner’s decision to acquire the equipment, this is realized to be faulty reasoning when the components of the shipyard’s mark-up are considered.

When an item of equipment comes to the shipyard, the shipyard has to receive it, warehouse it, track it, and possibly maintain it until installation. The costs of these services are part of the mark-up; but if the owner buys the equipment instead, the shipyard includes these costs elsewhere in the contract price because those costs will be incurred regardless of which party actually purchases the item. Later, the item of equipment has to be transported from warehouse to the ship, which transportation costs are routinely covered as part of the mark-up; but if the owner purchases the item, the shipyard will include that transportation cost elsewhere in the contract price. Once the item of equipment comes into the shipyard, the shipyard is responsible for its care and well-being until the ship sails away with the equipment installed.

The shipyard has insurance to cover repair or replacement costs of damaged equipment; and the shipyard has to maintain that coverage for all equipment coming through the shipyard regardless of whether it was purchased by the owner or the shipyard. Accordingly, the portion of the markup that contributes to the cost of the insurance policy is included in the contract price when there is OFE instead. A shipyard always gives a warranty on its workmanship for installation of the items of equipment; so the shipyard needs a contribution to its warranty reserve fund regardless of whether the equipment was purchased by owner or shipyard. Accordingly, that portion of the mark-up is also included in the contract price where there is OFE.

The shipyard does not need the part of its normal mark-up to help cover the costs of its purchasing department, since the purchasing of OFE is accomplished by the owner, not the shipyard. So, while the owner will save only this last portion of the shipyard’s normal mark-up, the acquisition of OFE places a burden on the owner’s purchasing staff which not only causes the owner to incur greater costs, but also – and this is very important – transfers to the owner all of the purchasing, content, form and integration risks that would otherwise have been the responsibility of the shipyard. These risks are discussed below.

However, having assisted many project management teams to cope with the results of improperly managed OFE acquisitions, Fisher Maritime has concluded that the almost inevitable development of these risks always outweighs the cost savings. That is, the owner’s cost considerations (not having to pay the shipyard’s mark-up) should never be the basis for introducing OFE into a project, since such savings are not actually realized.

Purchasing Risks

Regardless of which party purchases the item of equipment, risks start developing at the commencement of the purchasing process. If the owner is providing the equipment as OFE, the management of the risks becomes the duty of the owner, and the consequences of any problems are the responsibility of the owner. Thus, understanding the possible origin of these risks will assist the owner’s project team in the management of the process which is necessary to minimize, if not eradicate, the possible development of problems originating with purchasing risks.

The first component of the purchasing risks is ensuring that the requested item is actually purchased. The owner’s purchasing department sends out a request for quotation (“RFQ”). The vendor’s responding quotation is supposed to be consistent with the RFQ’s attached (requested) technical specifications and with the owner’s terms and conditions (“T&Cs”), also attached to the RFQ. However, many vendors do not provide the exact form of response that has been sought. Instead a vendor may offer one of its standard models, which is close to, but not exactly in conformance with, the requested technical specifications. Unless the owner’s purchasing department asks the project team to compare the vendor’s offered technical specifications to the owner’s requested ones, the owner’s purchasing department may end up acquiring something different from what was expected by the project team.

The second component of purchasing risks is timing. The owner’s project team may recognize that the OFE has to be delivered to the installing shipyard by a certain date, but the owner’s purchasing department may not have given this acquisition process sufficient priority. The result is that the purchasing department starts the process later than is compatible with the project schedule. It may be that the owner’s purchasing department kept shopping around to get lower prices or extended negotiations to get better pricing, which delay in actually issuing the purchase order (“P.O.”) resulted in late delivery of the OFE to the shipyard.

The third component of purchasing risks is the “battle of the forms” which focuses on payment terms and warranty issues, among other matters. The RFQ anticipated that the item of equipment would be purchased in accordance with the owner’s T&Cs that address, among other factors, the timing of payment as well as the commencement and duration of the warranty. However, the vendor’s response to the RFQ may not have been merely a quotation, but instead was an offer-to-sell in accordance with the vendor’s T&Cs. The likely differences are timing of payment (vendor wants it sooner) and warranty (commencement and duration are different from that sought by owner). Also, the vendor’s T&Cs may state that no warranty is given if prompt payment is not received.

When the owner issues the P.O. at a later date, it is thought to be issued in accordance with the owner’s T&Cs, thus appearing to re-establish control of the payment and warranty terms per the owner’s ideas of what is needed. However, the vendor may not be content to accept those limitations. The vendor ships the equipment to the owner or shipyard, and has the recipient execute a delivery receipt, which states that the delivery is accepted in accordance with the vendor’s T&Cs attached to the delivery receipt. Thus, if this battle of forms has occurred, it remains unclear whether the owner’s or vendor’s T&Cs will control the payment and warranty issues. Accordingly, the owner’s project management team and purchasing department have to jointly monitor the potential development of these purchasing risks involving technical content, delivery timing, warranty (commencement and duration) and payment timing. 

Proper Staffing for Conversion Projects

Success is dependent on having appropriate staff

When ship owners arrange for conversions and/or major refits to vessels already within their fleet, they typically expect that their usual contingent of ship superintendents can oversee the project. After all (so goes their thinking) it is just another project at another shipyard involving a vessel with which the superintendents are already quite familiar.  This belief is not well-founded. It often is, in fact, counter-productive. How do we know this? Fisher Maritime has been called in to act as project management support to “rescue” a number of ship conversion projects that were in dire straits (considerable cost and schedule overruns) due to the fact that the project was beyond the ability of the owner’s on-site staff to keep up with the project’s demands.

The Responsibilities May Go Beyond the Scope of the On-Site Staff

The problems start with a failure by ship owning organizations to recognize that a major refit or conversion requires firstly the development of a contract and specification that adequately describe all of the work necessary to complete the vessel to the owner’s satisfaction. Too often, the staff that oversees routine maintenance is called upon to develop specifications for a much different type and extent of work. Then, once the work commences, owner’s staff must respond to each and every communication from the shipyard; and each such response has to be well founded, complete and based on the contract terms, not simply an informal or offhand reply. This places a burden on the owner’s on-site staff that goes far beyond the responsibilities that have to be satisfied during smaller-scope ship repairs.

Thus, the ship owner’s use of the normal complement of ship repair superintendents for major refits and conversions effectively constitutes an understaffing by the ship owner that will almost certainly lead to an unsatisfactory outcome.

A Real Example of a Refit/Conversion Project Gone Awry

Here is an example. A ship owning organization was acquiring a laid-up vessel for conversion to its own needs. The ship repair superintendents that had overseen the operation and maintenance of the predecessor ship were placed in charge of this project. Problems began almost immediately as they failed to appreciate that there were really two projects being applied to the same vessel at the same time. Namely, reactivation of a laid-up vessel is, by itself, a major refit. Then, the conversion of the ship to be able to accomplish its new mission profile was a second major project, albeit concurrent with the reactivation.

The owner’s project team went into the project with only a small on-site supplemental staff—the repair superintendent, his small staff and a few of the crew members as inspectors. When design modification questions arose due to incomplete conversion design and specifications, the owner’s team too often gave off-hand oral responses. By itself, that was a recipe for overruns and disputes. But also, the reactivation requirements had been underestimated by the owner’s design agent; so numerous growth work items arose at the shipyard.

The members of the team who were initially on-site were competent, but overwhelmed. Missing from the on-site project team was sufficient professional resources. This deficiency began with the initial planning of the reactivation/conversion, resulting in an inadequate contract and specification. Even very competent persons too few in number are just not sufficient for conversions and major refits, particularly when the contract documents are flawed.

Further aggravating the situation at the shipyard, the ship’s crew was independently undertaking work on the vessel without having integrated their schedule and resource requirements with the shipyard’s. The two parties were often in each other’s way, leading to a loss of productivity and sometimes to the necessity of rework.

The use of ship’s crew to act as inspectors, overseeing the shipyard’s work, initially seems
to make sense, since the crew is familiar with the vessel and is already on the payroll. However, without strong guidance from project management, the crew (when acting as inspectors) almost always expects the shipyard to accomplish what is needed to make the vessel essentially 100% functional in a manner that the crew members wish for, instead of limiting their criticism of the shipyard’s work only to ensuring compliance with the written contract specifications.

When the rapidly increasing budget requirements challenged the coffers of the owner, and when the anticipated delays meant cancellation of near-term revenue-earning charters, the owner’s team finally appreciated that it needed professional project management support (and turned to Fisher Maritime for that rescue mission).

In summary, going into a conversion or major refit, the owner’s team has to assemble all of the necessary resources. Those necessary resources include:

  1. well-developed specifications and plans based on a lengthy and careful comparison of them to the ship
  2. use of designers who have experience in ship conversion projects (not just in newbuilding projects)
  3. onsite availability of a sufficient number of professionals to develop considered and well-thought-out responses to the shipyard’s need for additional information
  4. integration of the crew’s workscope with the shipyard’s workscope
  5. training of the ship’s crew on how to act as true project inspectors instead of merely as critics of the shipyard’s work.

Fisher Maritime’s experienced personnel have the ability to analyze the contract and separate the work that is clearly described in the contract from unforeseen tasks that were not envisioned by the contract. It is then a matter of negotiating with shipyard representatives a reasonable addition to the contract price and the added time needed for the unforeseen work. Too often Fisher Maritime has only been called after the fact to assist in litigation with the other party after everything has gone wrong. At this stage the solutions are more difficult as an adversarial relationship has developed between the parties to the contract.


Fisher Maritime Celebrates 43 Years and over 600 Engagements

Creating Better Shipyard Project Outcomes

In 2019 Fisher Maritime celebrates its 43rd anniversary. Founded in 1976, it is a firm of maritime project management consultants and analytical naval architects, marine engineers and marine technologists. The firm is focused on giving more high-level analysis to ship-related matters than is normally given in an engineering environment. Having completed over 600 engagements during those years, Fisher Maritime has amassed considerable experience with clients on five continents. The firm is widely known for four major capabilities:

  • resolving shipbuilding and conversion contractual problems and disputes.
  • expert witness services for ship conversion, construction and operation.
  • pre-contract Quality Assurance Reviews of proposed contracts, specifications and drawings.
  • training to improve project management skills for shipyard projects.

Resolving Shipbuilding and Conversion Contractual Problems and Disputes

Fisher Maritime regularly provides project and contract management assistance to ship owners, shipyards and major subcontractors, especially when the contractual relationships are deteriorating.  When we are engaged after the commencement of a troubled project, we first use analytical skills to determine why the project is not working out as planned. We also identify inconsistencies between actual performance and contractually-anticipated performance by each party.  We then identify the most appropriate procedural corrections to the on-going project to achieve a delivered vessel as close to targeted cost and schedule as possible, benefiting both parties.

Expert Witness Services for Ship Conversion, Construction and Operation

There is a theme common to nearly every disputed or troubled matter addressed by the firm. That theme is to seek what did not occur as planned; why did it not occur as planned; what should have been done to increase the likelihood that it would go as planned; and identify which party had responsibility to address the possibility that it might not work as planned.  Our considerable experience in developing such analyses creates a solid basis for the expert witness services provided by the firm’s principal consultants in many technical and operational areas of the marine industry.  We have provided such expert witness services on numerous occasions pertaining to contract disputes, vessel operations, vessel design, and vessel maintenance issues.

Pre-Contract Quality Assurance Reviews of Proposed Contracts, Specifications and Drawings

One result of having helped remedy numerous contract disputes is our ability to identify potential risks that, if they do occur, will have significant consequences for one or both contracting parties. Our pre-contract quality assurance reviews of those draft documents identify ambiguities, inconsistencies and errors that create unnecessary risks. Those risks are eliminated or mitigated by suggesting alterations to the proposed contract documents.  The risks are reduced even further because, through the suggested alterations, both parties will be mindful of their possibility.

Training to Improve Project Management Skills for Shipyard Projects

As an outgrowth of analyses of project disputes and working to get them resolved, Fisher Maritime developed and provides to the maritime industry several lessons-learned training programs. They include one for managing shipbuilding contracts (Contract Management for Ship Construction, Repair, & Design), a second program for improving shipyard profitability (Shipyard Management of the Customer and the Contract), and a third program is for the development and implementation of ship conversion and repair specifications (The Port Engineer’s Course). Over 150 organizations in 21 countries have had these programs presented on an in-house basis 260 times over the past 29 years, in addition to about 200 open-registration programs.  Total attendance has been almost 6000 persons world-wide.

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.