Fisher Maritime's Fairleads

'Lessons Learned' Strategies & Ideas for the Marine Industry

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.

Contractually, is it a Good Deed or a Misdeed? (Part 2 of 2)

If you haven’t done so, be sure to check out Part 1 of this article.  Here are some more examples and lessons learned in regards to good deeds turning out to be contractual misdeeds:

Shipyard, not Storage Yard

A shipyard had contracted to convert a vessel into a floating restaurant. Upon completion, the vessel would be permanently moored at a pier undergoing modification to receive the new floating restaurant. The vessel conversion was completed prior to the pier being ready to receive the floating restaurant. The shipyard, temporarily having extra dock space available, agreed to keep the vessel at its dock, for a daily fee, while the pier was completed.

Several weeks later, the restaurant vessel capsized at the shipyard’s dock due to the accumulation of water in the bilges. This blocked the shipyard’s dock, impacting other projects, until salvage was completed. The restaurant owner, not being a traditional ship owner, had not understood the need to continuously monitor the bilges. The shipyard considered its only obligation for the daily fee was to provide the dock to temporarily secure the vessel, but not to provide any form of guard service. The fundamental cause of this incident was that the shipyard offered to provide a service (keeping an idle, unmanned vessel at its dock) that it doesn’t normally provide, without defining to the owner the limited scope of services it would provide at that time.

Fixed Schedule, but No Fixed Workscope

A shipyard, constructing a large public vessel, made a commitment to launch the vessel on a specific future date so that highly-placed public officials could be scheduled, far in advance, to participate in the launching, with TV and newspaper reporters present in large numbers. Some time after making that commitment, but still long before launching, the public agency requested numerous changes that had construction schedule impacts, but the launch date was not allowed to be altered.

As the long-planned launching date approached, the vessel was far from ready for exterior hull painting. But in order to keep to the schedule of the public officials, the shipyard could quickly paint only one side of the vessel (so the TV cameras would have a good view). This meant that the vessel had to be drydocked later to complete the hull painting, which drydocking had not been planned as part of the ship construction process. The extra costs were borne by the shipyard. Thus, the shipyard paid for doing the good deed of accepting changes without altering the launching date.

Expanded Skills means Expanded Risks

In the course of planning the replacement of the entire propulsion system in an older ferry, a shipyard retained a specialist subcontractor to perform the required lead-paint abatement in the hull before bringing in the new machinery.

Just as the subcontractor was finishing its several- week assignment, the vessel owners decided that, in addition to the contractually required lead-paint abatement in the machinery spaces, the ferry’s entire deckhouse should also be subjected to a lead-paint abatement. The subcontractor was already committed to another job elsewhere, and could not stay at the shipyard. Other specialist subcontractors were not timely available, either.

The shipyard agreed, under pressure from the vessel owner, to send some of its own personnel for training to manage the abatement of toxic materials, and rented the special equipment, as well. Being the first lead-paint abatement job that the shipyard’s own personnel directed and accomplished, it went far over budget and schedule. Moreover, it required the suspension and delay of much of the work originally planned.

Only after lengthy litigation, did the shipyard get some compensation for that extra effort, but was never compensated for all of its direct litigation costs. Though Fisher Maritime assisted in settling the matter, it would have been beneficial and less costly if the shipyard had contacted Fisher Maritime for advice at the time that such substantial changes to the contract work were requested by the vessel owners.

Contractual Difficulties

Fisher Maritime hopes that your organization does not find itself facing contractual difficulties similar to those described above. We work with organizations to plan and contract for major shipyard projects so that the likelihood of contractual difficulties is minimized.

If you are planning a major project, please contact us to learn of the variety of support services we provide to make your entire contracting process and project management run smoothly. If you find yourself facing contractual difficulties, utilizing our many years of experience in a wide variety of contract-related support services, we can help restore the project to a less-troubled status.

Contractually, is it a Good Deed or a Misdeed? (Part 1 of 2)

“No Good Deed Goes Unpunished”

Fisher Maritime has helped scores of clients deal with difficult contractual situations associated with shipyard projects. Our clients have included

  • ship owners
  • shipyards
  • major subcontractors
  • consultancies
  • government agencies
  • navies

We have often observed that, during contract performance, some of the problems that arose  were triggered by one of the parties doing a good deed for the other party. Unfortunately, we have observed, good intentions sometimes backfire. This doesn’t mean that good deeds should be avoided, only that the risks of them becoming misdeeds instead of good deeds should be assessed before embarking on them. In the spirit of helping others learn from the unfortunate outcomes of attempted good deeds, we offer the following vignettes. The consistent theme that becomes obvious is this: Do not relieve the other contracting party of any of its contractual obligations without first assessing all the risks and consequences that may arise.

Use of Shipboard Equipment

A government agency’s vessel was undergoing repairs, including hot work in the machinery space. The agency’s representative complained to the shipyard that the space was not being adequately ventilated, allowing too much smoke and fumes to impair work and inspections. The shipyard agreed to increase the ventilation as required by the contract, but lacking sufficient equipment, sought to borrow the blowers from the vessel’s bosun’s locker. The agency allowed the blowers to be used, including the long spiral-wound hoses attached to them.

On the second day of use of the blowers, the sparks from hot work ignited one of those hoses, and the fire spread. The damage to the vessel and project delays were significant. The agency tried to hold the shipyard responsible, since the fire was started by the contractor’s hot work. But the shipyard considered the agency responsible, for not having alerted the shipyard to the fact that the hose was flammable, even though the agency knew the hose was going to be used in the presence of hot work. The agency replied by pointing out that the shipyard’s fire watch personnel were ill-equipped to snuff out the incipient fire, allowing it to spread. The outcome was the shipyard’s (and its insurer’s) accepting the cost of repairing the damage, and the owner accepting the loss of the blower and the delay as force majeure.

Next time the agency should simply insist that the shipyard comply with its contractual obligation to supply all the equipment needed for proper accomplishment of the work.

Advance Material Purchases

As part of a 12-week vessel modification project, a shipyard was obligated to obtain special materials for integration into a shipboard cargo-handling system.  Although the contract was executed about six weeks before the refit period was to commence, the contractor had not placed an order for the materials by the time the vessel arrived. The contractor reported to the vessel owner that it was having trouble securing the materials, and requested the owner to obtain them on the basis that the owner’s staff was more familiar with the equipment. The owner’s staff then ordered the materials, but the lengthy lead time for their arrival delayed completion of the refit.

The delay would have been avoided if materials had been ordered shortly after contract execution. But in agreeing to relieve the contractor of the obligation to obtain the materials, the owner’s staff neglected to address the schedule impacts, resulting in the owner being responsible for the delay. Adding insult to injury, the shipyard sought additional fees for maintaining the vessel at the shipyard extra weeks while awaiting the owner-purchased materials. Next time the owner should monitor the shipyards’ pre-arrival purchasing efforts whenever long-lead time materials are an essential part of the contract workscope.

Place of Delivery

A vessel owner was obligated to deliver to the shipyard’s warehouse an overhauled replacement for a dredge’s combination pump/motor. The 18-ton replacement unit was located at the owner’s warehouse, on the other side of the river from the shipyard.

Shortly before the replacement unit was needed by the shipyard, the owner’s staff requested the shipyard to send a truck across the river to the owner’s warehouse to pick-up the unit. The shipyard complied. But during transit from the owner’s warehouse to the shipyard, a roadway accident caused the truck to roll into a ditch, resulting in damage to the replacement unit. Project completion was delayed more than a week while repairs were made to the unit that had been on that truck.

The owner alleged the shipyard was responsible for not providing appropriate transportation. The shipyard responded that the owner was responsible for the delay since the pump/motor was late in being delivered to the shipyard’s warehouse as required by the contract, which had not been amended when the shipyard agreed to send a truck. Next time, the shipyard should politely insist that it looks forward to receiving the owner’s equipment at the warehouse, per the contract.

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.