Fisher Maritime's Fairleads

'Lessons Learned' Strategies & Ideas for the Marine Industry

Sisters, Not Twins – A Source of Specification Errors

A common source of repair specification errors is the mistaken assumption that ships are identical twins. That is rarely correct. Sister ships are just that: sisters, but not identical twins.
When specifications and/or plans for a vessel’s modification are prepared for the owner, they are often based on the configuration of a sister vessel. During contract performance, the shipyard calls to the owner’s attention the fact that the specifications and/or plans do not match the ship, thereby leading to an unexpected extra cost.
In the construction of multiple ships under a single contract, the shipbuilder is obligated to ensure that the major features of the ships are the same. The contractor is given the right to determine all the lesser features as long as they are consistent with the contract documentsDue to production anomalies, design developments, and the passage of time, the secondary features of sister ships are often different from each other, but still consistent with the contract. For example:
  • the placement of auxiliary or minor components may be different
  • the brand name or model of equipment items may vary
  • the location of bulkhead penetrations for piping or cables may be altered
  • the routing of cabling, ducting, and/or piping may have been altered
  • secondary features of alarm, control and monitoring systems may not be consistent.
Consequently, to avoid unexpected extra costs, base your contract specifications only on the ship being modified, not on a sister ship for which such details probably are different.

Definitions vs. Controversy in Ship Repair and Construction – Which Do You Prefer? (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 definitions vs. controversy:

  • Generator Load Test: A specification called for the replacement of a SSDG, with testing after to confirm proper operation and controls. The means and extent of testing were not defined. After installation, the shipyard sought to test the SSDG using ship’s equipment for the electrical load. The vessel’s chief engineer as well as the port engineer would not allow that; they expected that the shipyard would use a test load bank instead. The shipyard pointed out that because the specification did not mention a load bank, the rental of one was not included in the bid. This problem involving both cost and delay would have been avoidable if the means of the test was defined. This was another opportunity for the ship owner to appreciate that the contractor would select a least-cost solution unless the specification clearly required otherwise.
  • What is New? A shipbuilder committed to constructing several new vessels, each of which was to include an item of special equipment. The vessels were produced, including the items of special equipment; but the vessel owner complained that those items were not new. The shipbuilder pointed out that the items were new, as evidenced by the fact that they had never been used, never installed on any other vessel, and had arrived at the shipyard in their original packing crates. The problem, as perceived by the owner, was that they were manufactured over 20 years earlier, but had never been sold by the supplier, only warehoused. To exclude the possibility of such event recurring, an owner can specify that all materials and equipment being usedshall be new and manufactured not more than [number] years prior to installation.”
  • Interpretation of Rules: Some ship owners want to benefit from having their new vessel constructed to the standards of a classification organization, but they do not wish to pay the organization’s fees that are incurred in granting the vessel classification status. In those instances, the construction specification states something like, All workmanship accomplished and all materials and equipment supplied and incorporated into the vessel shall conform to the classification rules of the [name of classification organization].”
    Without the direct involvement of the classification organization, the debate that ensues centers on whose interpretation of those rules will apply: the shipyard or the owner? This form of dispute is completely predictable when an owner attempts to get something for nothing. Even if the owner does not intend to maintain the vessel in class after delivery, there is nothing barring the construction and delivery of it in class, as determined by the classification organization. This assures a certain level of design, workmanship and material selection consistent with classification rules, but requires that the classification organization be duly involved during construction and delivery. Simply, there is no short cut to obtaining the benefits of classification.
  • Ambiguous Specifications (Oxymoron): Grammatically, the phrase “ambiguous specifications” is an oxymoron because the components of the phrase are inconsistent. Something that is specific cannot concurrently be ambiguous. Yet, numerous repair, conversion and construction specifications have been ambiguous, causing disputes, costly ‘fixes’ and substantial delays to completions of the projects. Some ship owner’s representatives express the attitude, “I know what that specification means because I wrote it.” This, of course, does not alter the fact that the specification as written is ambiguous; it simply confirms that it has to be interpreted. The shipyard already knew that and planned to achieve its interpretation of the specification using a least cost solution. The remedy at that point, if essential to the owner, is a costly and perhaps project-delaying change order.
  • Specification Quality Assurance: For major shipbuilding and offshore construction and conversion projects, significant contract price growth can be minimized by subjecting the proposed contract specifications and drawings to an independent quality assurance review process. A thorough review of proposed contract documents should be undertaken to identify ambiguities, incomplete items, and inconsistencies in order to assure a less-troublesome contractual relationship than may otherwise develop.

Definitions vs. Controversy in Ship Repair and Construction – Which Do You Prefer? (Part 1 of 2)

The question in the title of this article is, of course, almost nonsensical. Given an opportunity to choose between definitions or controversy, professionals in the marine industry would chose definitions over controversy. Examination of many ship repair, conversion and construction specifications leads to the observation that, perhaps inadvertently, controversy has been selected instead. Here are some examples and lessons learned.
  • Electronically Transmitted Drawings: A shipyard commenced construction of large vessel. It also arranged with the vessel purchaser’s staff to receive electronically the entire set of contract drawings. From these drawings, the shipyard would proceed to develop the design details as needed for construction. The drawings were received electronically, but not as a CAD files, which could be utilized by the shipyard. The drawings were PDF files, which are essentially just ‘pictures’, not files that can be altered. Those ‘electronic’ files were no more useful than if the shipyard had received paper printed drawings. Lesson learned: Define ‘electronic’ with greater precision so there is no misunderstanding about the form that the information will be transmitted and received.
  • Renew: Due to grounding in a channel, the rudder of a ship was damaged. The repair specification called for the shipyard to “renew” the rudder. What is meant by “renew”? The ship owner’s representative rejected the shipyard’s repair of the rudder, stating that “renew” meant to build a new one. In contrast, the shipyard said renew meant to make the old one like new by repairing it, making new only the damaged portions. Perhaps the ship owner’s idea would have been better expressed by stating that the shipyard was to “replace the rudder with one of all new materials.”
  • Pressure Test of Hydraulic Piping: The specifications called for a pressure test to confirm the integrity of joints in a hydraulic piping system. However, that specification did not define the nature and type of test. A dispute arose about what medium to use to create the pressure: air, water or hydraulic oil. A naïve owner’s representative argued that hydraulic oil should have been used. The shipyard pointed out that if there was any leak, it would be detected by seeing oil spray onto nearby fittings and equipment (hopefully without a resultant fire). If water was used for pressure tests, contamination of the subsequently-used hydraulic oil may result. Perhaps a combination of air test (with soap solution on the exterior of joints) followed by an oil pressure test may be the preferred solution. Other possibilities exist, too. More to the point, a specification requiring tests should state the testing mechanism. Otherwise it can be expected that a contractor will select the least-cost solution for the test.
  • Generator Load Test: A specification called for the replacement of a ships service diesel generator, with subsequent testing to confirm proper operation and controls. The means and extent of testing were not defined. After installation, the shipyard sought to test the SSDG using ship’s equipment for the electrical load. The vessel’s chief engineer as well as the port engineer would not allow that; they expected that the shipyard would use a test load bank instead. The shipyard pointed out that because the specification did not mention a load bank, the rental of one was not included in the bid. This problem involving both cost and delay would have been avoidable if the means of the test was defined. Again, this was an opportunity for the ship owner to appreciate that the contractor would select a least-cost solution unless the specification clearly required otherwise.

To read more, see Part 2 of this article.

Amateur Contracts a Cause of Disaster

Ship construction, conversion and repair contracts developed by persons who lack experience with the marine industry are the ones most likely to result in contractual disasters. These typically result in the owner and shipyard clashing over responsibilities, costs, schedule and vessel performance.
The shipbuilding industry has encountered such contracts on a much-more frequent basis than might be imagined. These situations need the help of “disaster relief” professionals experienced in “stabilizing” the parties’ contractual performance to avoid litigation.
If contractual relations have deteriorated too severely, these amateur contracts may become the focus of litigation. These situations need both the specialized consultants as well as attorneys.
It would have been far more cost-effective to use professionals skilled in shipbuilding contracts to develop the contract, rather than saving some costs at the commencement of the project and paying many times over for that mistake later.

Design Completion Responsibility – Whose Naval Architect?

Naval architects and marine engineers sometimes develop contract plans and specifications for vessel owners. Typically, the shipyard then completes the design process to a point adequate for regulatory approvals and vessel construction using its own design staff once the agreement is signed. The owner’s naval architect continues to advise the owner and even review the contractor’s detail plans on behalf of the owner.
Sometimes, the yard wants to use the owner’s naval architect to finish the design in an attempt to achieve a more efficient design completion process . The yard promises the owner that it will work out smoothly. The owner’s naval architect, wanting to see the project develop as envisioned, agrees to also work for the yard.
Our advice: Don’t let the owner’s naval architect also work for the yard unless you are anxious to see litigation develop involving the owner, the yard and the naval architect.
When a naval architect tries to serve two masters on the same project – the owner and the yard – a contractual disaster awaits all the parties. The yard will say that extra work developed because the naval architect was assisting the owner. The owner will say that it wasn’t extra work, but was always required by the basic contract workscope. The naval architect won’t get a chance to say anything, because he doesn’t know which master to serve at that time. So the parties call in their attorneys. The smarter or quicker-acting party will also call in third-party expert consultants.
From the yard’s point of view, the savings gained by using the same naval architect for the detail design that prepared the contract design may be attractive. There are significant risks of extra costs creeping into the project because the naval architect – who is now supposedly working for the yard – inadvertently may be trying to perfect the project, not appreciating which party is supposed to pay the cost of achieving perfection. The inevitable confusion and the extra outlays by the yard could be avoided if the yard stuck with its plan of action to hire its own naval architects, not the owner’s.
The lesson learned is this: Avoid creating a basis for litigation. Owners and their naval architects should stick with their plan of action, that is, work together as a team until the project is completed. The idea of the naval architect also working for the yard may be couched in technical terminology and promises of design efficiency. But in reality, the naval architect is changing allegiances in the middle of what may be a skirmish. This is provocative action that both the yard and the owner may exploit if there is any hint of a dispute between them once the contract work is underway.

Remaining Responsible – General Disclaimers Don’t Work

A 2007 US District Court decision reminds contracting parties to keep focused on their responsibilities.  For many participants in the marine industry, it can be a firm reminder that broad disclaimers cannot be used to transfer responsibility. Ship owners and their design consultancies often attempt to have the shipyard be responsible for many aspects of the the ship’s design. This is despite the fact that the owner’s team has put together a lot of design information pre‐contract.

A US ship repairer took on a conversion contract for a vessel owned and operated by a federal agency.  The shipyard filed suit against the agency after completion alleging that extra costs were incurred because the government‐provided drawings were inaccurate and not coordinated with one another.  Regarding these drawing issues, the court focused on part of the contract.

The court’s decision first cited this wording from part of the ship conversion contract:

The Government does not guarantee the correctness of the dimensions, sizes, and shapes given in any sketches, drawings, plans or specifications prepared or furnished by the Government. The Contractor shall be responsible for the correctness of the shapes, sizes and dimensions of the parts to be furnished hereunder, other than those furnished by the Government.

The court then stated:

The Court finds that this provision does not affect the disposition of the case because it is a general disclaimer and does not relieve the Government of its obligation to provide adequate drawings and specifications.

This is not a new interpretation by the Court; it is a reminder of a well‐established principle. Simply stated, when an owner puts into writing information that will be used by shipyards for bidding purposes, that information has to be consistent will all other contract requirements. The correctness and reliability of that information cannot be disavowed by a broadly‐worded disclaimer.

Identifying All the Contract Deliverables

In ship conversion and construction contracts, the owner expects the shipyard/contractor to provide numerous “deliverables” in addition to the ship itself. Experience with “difficult” ship construction and conversion contracts has revealed that ship owners often do not adequately address all the expected deliverables, leading to conflicts or disputes with the shipyards/contractors.
Examples of such deliverables may include:
  • detail or working drawings
  • engineering analyses/reports
  • test agendas and reports
  • megger readings
  • condition-found reports
  • updated schedules
  • equipment selection reports
  • regulatory approvals
  • classification approvals
  • tonnage certificates
  • regulatory certifications
  • tank tables
  • trim and stability reports
  • equipment and/or system manuals
  • placards
  • as-built drawings
Owners have to appreciate that a shipyard incurs considerable costs to achieve the production of all those non-hardware deliverables. To avoid disputes, the necessity of the shipyard’s development of those deliverables has to be clearly addressed in the bid package. Absent clear requirements for those deliverables in the bid package, bidding shipyards may not create adequate budgetary allowance for their development. The owner then risks getting an incomplete or insufficient deliverable, or none at all in particular categories.
Both ship owners and shipyards should consider reviews of draft contracts (agreements, specifications, plans) by third parties for completeness and consistency as well as to cut ambiguities. One of the items that should be focused upon is the identification of all the deliverables.

Unusual Contracting Brings Risks to Owners and Builders

The most costly lessons learned by both ship owners and shipyards occur when they venture into territory that is new to them or when they try to accelerate traditional activities Significant cost and schedule overruns are the predictable result of contracting decisions based on hopeful outcomes instead of basing them on careful analysis of capabilities, experience and risks. Examples of high-risk situations include:
  • Owners purchasing their first large vessel after owning smaller vessels of the same type.
  • Organizations undertaking major conversions, such as a VLCC to an FPSO.
  • Shipyards accepting fast-track construction or conversion projects predicated on significant owner-provided engineering.  They often find that the owner’s delayed engineering output impacts the shipyard’s engineering and production schedules.
  • Subcontractors taking on assignments larger than prior jobs also face considerable risk of overruns.
  • Design firms accepting assignments from a new category of client incur risks of misunderstandings, under-budgeting and time extensions.
  • Shipyards subcontracting engineering to design consultancies must be sure those designers have the shipyard interests in mind (least cost solutions consistent with all contract requirements). Shipyards must also ensure that the designers do not inadvertently improve the vessel’s design details at the shipyard’s expense.
The two highest risk project types are 1) major conversions and 2) projects relying on a lot of owner-furnished equipment (“OFE”). These risks exist in conversions because the starting point for conversions is often ill-defined, although the end-point of the conversion is well-defined. The highest risks that arise in conjunction with OFE are those of system integration involving products from many vendors.
To minimize project and contract risks, organizations should invest in industry-specific contract management (“CM”) training for all their involved personnel, not just the front-line staff that interacts with the other parties. Shipyard estimators and purchasers benefit just as much from the CM training as do the project managers. The ship owner’s technical staff need to understand the impacts of their role in on-going projects just as much as the owner’s representative. No profession in the marine industry is exempt from the need for continuing industry-specific project and contract management training.

The Second Translation of Technical Requirements

Technical specifications are an everyday fact of life in the repair, conversion and construction of ships and offshore equipment. The ultimate purpose of specifications is to describe what the customer wants the contractor to accomplish.  In vessel repair, unless there is a specification, the contractor cannot know what the customer really wants, aside from the generic vessel repair specification, “Its broke. Fix it.” For new vessels, the generic specification is equally vague: “Build it to last forever and easy to operate.” While these generic specifications may sound extreme, they present to a potential contractor the same problem that many other, more detailed specifications inadvertently create as well.

The contractor is expected to “translate” specifications and drawings into three dimensional, tangible hardware. After all, that is what is ultimately needed – a repaired or converted or new vessel that is tangible hardware. But what is often overlooked is that customers also want from the contractor another form of translation of the specifications. Namely, the customer wants a fixed price for the described work in advance. This means that the contractor has to accomplish this other form of translation before commencing the tangible work. This is the quantitative translation.

In order to be meaningful, a fixed price for the contract work, agreed upon in advance, has to include all the anticipated work. The contractor has to be able to reliably translate the specifications into estimated quantities of man-hours, material costs, subcontractor costs and schedule days.  Thus there is burden on the writers of specifications to provide to contractors sufficient information to enable a quantitative translation, so a firm, fixed price can be negotiated and relied upon.

Examples of specifications that cannot be reasonably translated into quantities include these. None of these examples are fictitious, but we’ll keep the identities confidential to prevent embarrassment.

  • Vee and weld eroded bottom plate welds as considered necessary” [tug boat].
  • “Repair or replace seals and bolts as needed” [work boat].
  • “Furnish and install suitable lighting in all passenger-occupied spaces” [crew boat].
  • “All work necessary to accomplish the specified work shall be deemed specified whether specified or not” [fisheries vessel].

How many man-hours and how much material costs should the contractor have included in its budget for each of those items? Obviously, a contractor cannot know whether it is 10, 100 or 1000 man-hours or any other approximate number.

The specification writer has to keep in mind that when asking for a fixed price bid, the contractor has to first translate the specifications into reasonably close quantitative estimates of man-hours, material costs, subcontractor costs and schedule days.   Often, specification writers are too familiar with their own specifications to see that they cannot be reasonably translated into those forms of quantities.   Another major form of ambiguity that is often overlooked by persons drafting specifications is the identification of the standards by which the workmanship and/or materials will be judged acceptable.

Accordingly, specification writers should reexamine their writings, before sending them out in a bid package, to ensure that the specs can be quantitatively translated.  Third-party quality assurance and risk-minimization reviews of major specifications are also merited for conversions and newbuildings to ensure that all the ambiguities and vagueness are identified and corrected before the bid package is released to potential contractors.

Contracting Strategies Central to Success of Project

Well-designed ships often become poorly executed shipbuilding projects due to lack of a comprehensive contracting strategy. The contracting strategy should take into account the resource limitations of potential shipbuilders and a realistic view of the on-going capabilities of the ship owner. Some exemplar considerations when forming your own strategy include the following:

  • The reality of many recent shipbuilding and ship conversion projects is that the shipbuilders do not have substantial in-house engineering and design capabilities. When faced with such obligations, they subcontract them out as best they can manage. This means that there are multiple layers of contract between the ship owner’s staff and the team that is translating the owner’s design concepts. Thus, whenever trade-offs occur during design development, whether large or small, they are made out of sight of the owner.
  • Ship owners may often promise to provide detailed information pertaining to owner-provided equipment, but fail to do so on a timely basis. This may lead to project delays and extra costs.
  • Contractual overruns of both schedule and costs have been seen to occur when shipyards want the structural design completed rapidly to enable physical work to commence (and thus cash flow) while the design team has not yet finished the remainder of the design. This leads to unnecessary design compromises later when it is realized (for example) that the structural layout and design should have taken into account the distributive systems. An example of this led to a very costly change to increase deck heights in a deckhouse after physical construction had already begun — all because the structural design was completed before the distributive systems were considered. By the time the problem was identified, it was too late to redesign the structure to take those systems into account. Another example involved reconfiguring a deck and relocating a davit when it was realized that the rescue boat could not be launched from the intended location. This occurred because the structural design was finalized before equipment selection.
  • In many newbuilding or conversion projects, commercial shipbuilding contracts can no longer simply give the shipyard the responsibility to complete the design from the contract plans and specifications. The risks of unwarranted design compromises, construction delays and extra costs cannot be tolerated by either the owner or the shipyard. Thus, a comprehensive contracting strategy needs to be developed for both the design and construction, especially for relatively-unique vessel designs and for nearly all conversion projects.

The key observation is this: the success of a project is just as dependent on good contracting strategy as it is on good ship design. One without the other inevitably leads to a compromised outcome.