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'Lessons Learned' Strategies & Ideas for the Marine Industry

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.

The Flow of Contract Information – Content, Form, & Timing

Many aspects of contracted workscopes for shipyard projects involve the flow of information between the parties, with the information  being as diverse as drawings, engineering calculations, noise measurements, test results, steel-and-air temperatures, megger readings, classification comments on drawings, and many others. These requirements are presented in the project’s specifications. In general, the flow of information requires a mutual understanding of the content, form and timing of the conveyance of the information, and sometimes the medium by which it is conveyed.

Specification writers often assume that the shipyard will understand why the owner’s staff needs the information required by some of the specification items. Implicit in that assumption is the premise that the shipyard will provide the correct information in a form that is useful to the owner and, moreover, will provide it on a timely basis. However, while the shipyard anticipates expending the fewest possible resources on the development and communication of that information, the owner anticipates something else.

Often the differences between the shipyard’s plan of action and the owner’s expectations for such communications become apparent in form and timing, as well as sometimes in content. When such misunderstandings arise, they are usually the responsibility of the specification writers’ implicit assumptions, rather than explicit requirements for the information. Avoidance of a misinterpretation, omission or delay in the  flow of the information arising from a specification item often is essential, if not critical to the project. Because of differing perspectives between owner and shipyard as to the resources needed to address information flow, a specification should separately address the content, form and timing of the requisite information to ensure that the owner’s needs for that item are fully and clearly communicated in the specifications.


While technical content of information is typically well defined, most persons in the industry can cite  examples where insufficient definition of the information’s content has been the basis of disputes, large and small.

For example, when a large change order during ship repair would impact vessel re-delivery date, the parties agreed that the extent of the contract extension was “to be determined,” with no further description given. Later, in arbitration over that issue, the owner said a pre-completion formal schedule impact analysis was expected; while the shipyard said the extension was to be determined by the sequence of actual completion events, however it turned out. This is but one example of the necessity of defining the content of information that is to be communicated at some later time.


Once the content of a given specification item has been nailed down, the next point to consider is that of form. Especially since the advent of computers and related technologies this point has become increasingly more important – and complicated. Paper or electronic? Merely using “electronic” may result in a non-searchable ‘pdf’ file. Instead, identify the application and the version of it by which the information can be effectively used.

Example: As-fitted drawings were to be provided in both printed and “electronic form.” When the owner received the drawings as a ‘pdf’ file, the owner’s unhappy response was initially directed toward the contractor, but later toward his own specification writers. (The shipyard had asked for an additional fee to provide them in a more useable electronic format.)


When is the most appropriate time for the owner to receive the information? An example of that question not being explicitly answered in the specifications involved the conversion of a RO/RO to a training ship, requiring much more accommodation space. All design engineering was provided by the owner except that the shipyard was to accomplish the HVAC engineering and design. The contract did not require that the HVAC engineering be done before assembly of the new accommodation structure. So after the structure was  mostly fabricated (to accelerate cash flow), the shipyard performed the engineering, only to learn that the HVAC distribution system would not fit. This led to the necessity of an extensive alteration in the configuration of the already fabricated deckhouse. If the engineering had been required to be accomplished pre-fabrication, a much less costly ‘fix’ could have been arranged.

Lesson learned: get the engineering done before the construction begins. This is an example of why the flow of information (HVAC engineering) should include the timing of when it is to be accomplished (before fabrication of the deckhouse).

Regarding the medium for the transmission of information, Fisher Maritime’s recent review of a proposed ship construction specification noted that it required that a certain dynamic test result be ‘tape recorded.’ At a number of other places it specified that data be stored on ‘magnetic media.’ With the appreciation that the owner did not want to receive these documents on an outdated floppy disc or magnetic tape, it was recommended that these specifications be updated to identify a more modern means of data storage. This illustrates why the medium by which information will be conveyed sometimes needs to be defined, as well.

There are numerous opportunities for inconsistencies and incompleteness in specifications for shipyard projects. Often they may be largely avoided by having persons other than the specification writer independently reviewing the specifications. Fisher Maritime routinely provides specification quality assurance services, ensuring uniformity throughout the specifications. To assist owner’s during the contract development and execution processes, Fisher Maritime also has a number of other resources available including training programs and publications.

Color Coded Features – The Vanishing Information

During the conversion of a vessel, a shipyard installed incorrect fire-rated bulkheads in several of the vessel’s spaces, delaying the issuance of the flag-state Certificate of Inspection, as well as being costly to both parties. Fisher Maritime’s analysis of the underlying facts revealed that the cause of the error was found to be vanishing information.

It was learned that the fire boundary plans supplied to the shipyard by the owner utilized different colors to delineate the different fire ratings required in several locations. The shipyard’s project management office had photocopied the drawings in black-and-white, sending those copies to the purchasing and production departments. With all the fire boundaries now appearing as the same gray, the shipyard’s subsequent use of these black-and-white reproductions resulted in a single (lower) fire-rating of bulkheads being installed throughout.  This confusion in fire ratings was not discovered until well after the bulkheads and other outfitting had been installed, leading to extra costs and delays to effect a correction.

There is a lesson to be learned from this experience. With the availability of low-cost color printers, and the ease of using different colors in drawings, charts and tables, the use of color-coded information appears to be a means of emphasizing the needed differentiations. But this is appropriate only when viewing the originals of those drawings, charts and tables. As soon as black-and-white copies are made, that differentiating information vanishes. Accordingly, when color-coded information is presented, consider sending it back to its authors and asking for revisions to incorporate a differentiation of features that will survive black-and- white copying. This might mean using different forms of lines, gradients, fill patterns, or more extensive word-labeling. For those cases where certain constraints limit the application of these suggestions, it may be appropriate to include a highly visible notation stating that the document must be reproduced in color to ensure clarity.

Equipment Integration and Interfaces

Contract Mismanagement by Assumptions

A multi-million dollar ship conversion project had gone considerably over budget and over schedule, with the shipyard and ship owner each alleging the other to be responsible. The project involved significant participation by several specialized subcontractors, who also provided key elements of new equipment, all working under the direction of a small contracting shipyard whose general manager was also the project manager.

The work that primarily caused cost and schedule overruns was the integration of the subcontractor-supplied equipment, as well as the last-minute development of electrical, electronic, and mechanical interfaces between the new items of equipment. The existence of the problem was realized late in the project when the subcontractors complained that they were being asked to perform greater workscopes than what was included in their bid proposals.

The shipyard originally issued purchase orders in response to the subcontractors’ bid proposals, which in turn were based on the prime contract specifications. The subcontractors’ bid proposals, adopted verbatim by purchase orders, did not adequately address the equipment integration process, including the supply of interfaces with other equipment. In other words, the sum of the parts (from the subcontractors) did not equal the whole requirement of the prime contract — but the shipyard did not otherwise plan for that shortfall.

Upon analysis it was observed that the fundamental cause of the problem was that, during the bidding stage, the shipyard assumed that the subcontractors were bidding on the entirety of the workscope related to the equipment they were to supply. Instead, the subcontractors’ bid proposals addressed only those elements that were independent of the work of other subcontractors.

Component and system integration, installation and testing are often found to be areas that have been partially overlooked or incompletely addressed, especially when subcontractors and vendors are involved. To avoid such problems, Fisher Maritime’s pre-contract reviews on behalf of shipyards ensures that the entirety of the prime contract’s workscope is addressed and bid by the shipyard itself or its subcontractors. If your organization is bidding on a complex contract requiring multiple subcontracts, a pre-bid review by Fisher Maritime can minimize the likelihood of errors in the bid due to such oversights.

Owner Furnished Equipment — Opportunities for Contract Risks

The provision of equipment by vessel owners for incorporation into ship construction or conversion projects creates multiple opportunities for contractual difficulties. The avoidance or those difficulties requires that each of the potential forms of those risks be adequately addressed in the contract package. The risks of owner-furnished equipment (OFE) arise in association with each of these topics:

  • time of OFE delivery
  • place of OFE delivery
  • exact content of the OFE
  • form of OFE at time of delivery
  • responsibility for vertical integration of OFE
  • responsibility for horizontal integration of OFE
  • requirements for testing, commissioning and grooming of OFE
  • warranty claims and warranty administration.

Integration addresses fit of the OFE in terms of the physical layout, structural adequacy, electrical service, mechanical connections, fluid services, electronic controls, monitoring, alarm systems and testing. Vertical integration specifically refers to ensuring the fit of the OFE into the existing ship or into the portions of the ship being provided by the shipbuilder. Horizontal integration specifically refers to ensuring the compatibility of multiple OFE components with one another. Because the contractor or shipyard is not automatically vested with integration responsibilities, the contracting party that has such integration responsibilities has to be clearly identified in the contract documents, and has to be given authority to seek necessary alterations if there is not a good fit in all those areas.

Fisher Maritime has often been called upon to assist in troubled contractual relationships when, the owner alleges, the shipyard is creating difficulties over the OFE. Sometimes our analyses result in the appreciation that the ship owner did not clearly nominate the shipyard to be the OFE integrator, thus causing the integration process to have been overlooked. Fisher Maritime then has developed recovery plans to minimize the impacts of the late-assignment of integrator responsibilities.
In one matter, the owner provided a complete propulsion system (diesel generators, motors, thrusters, power management system, etc.) for a dynamically-positioned vessel conversion project. The OFE vendor’s testing and commissioning requirements had not been communicated to the shipyard. Major schedule problems developed at the end of the conversion project when the owner’s vendor required far more time for testing and certification (several weeks) than the shipyard had been told to allow (several days).
Fisher Maritime was called in by the shipyard to help develop a revised schedule that minimized the total delay. Fisher Maritime then developed an assessment of the impacts on both cost and schedule that resulted from having overlooked the commissioning requirements for the OFE. That analysis was used to negotiate a resolution of the responsibilities for those costs and delays.
Organizations planning to incorporate major OFE items into a vessel construction or conversion project should consider having Fisher Maritime review the planned acquisitions and deliveries to ensure minimization of the risks associated with OFE, and to make certain that they are wholly compatible with the shipyard’s contractually-defined responsibilities.