Non-Legal Fine Points of Yacht New-Build and Refit Contracts - III
NEW-BUILD AND MAJOR REFIT CONTRACTS CAN BE LEGALLY BULLET-PROOF, YET STILL FAIL TO RESULT IN SUCCESSFUL PROJECT COMPLETION…
The “scope of work” defines what work and materials are, and what work and materials are not included for the agreed contract price.
The “SOW” is the foundation upon which all other aspects of a new build or refit contract are built...
“Duh, sounds pretty simple to me,” you may say. However, it is significantly more complex than might appear at first glance. For example, the SOW referenced in a refit contract might explicitly include engine replacement, but overlook tasks related to engine beds, mounts, shafting, and couplings.
Rarely, if ever does a new build or major refit contract spell out every detail of the included work. That is because to do so would require weeks, if not months of costly effort, just to get to a contract. Consequently, many yards and yacht owners rely on the concept of “customary industry practice.”
Unfortunately, in many cases, relying on "customary practice" is little more than an invitation to eventual arbitration or litigation...
From a shipyard’s perspective, it is significantly better to include an omnibus exclusionary clause that says, “Whatever is not specifically included, is excluded.” In other words, if it’s not on the list, it’s not included in the SOW. And if a customer later wants it done, the customer needs to pay extra for it.
However, from an owner’s perspective, the preferred move is to include an omnibus inclusionary clause that says, “Whatever is customarily prerequisite to accomplishing the listed work, and not specifically excluded, is included.” Which means, for example, if the engine replacement requires modification to the engine mounts and/or bearers, and these tasks are not specifically excluded in the SOW, they are included for the agreed price.
Attention to the issue of an omnibus clause forces all involved to think carefully about the SOW...
Naturally, yard and vessel owner may disagree about what form of omnibus clause is to be made part of the contract. But attention to this issue forces all involved to think carefully about the SOW before the deal is finalized, and thereby works to avoid later disputes over charges that accrue to tasks not specifically listed in the contract.
Next installment of this series will deal with setting projectschedules. — Phil Friedman
Author's Notes: The information, opinions, tips and comments here are based on my 30 some years in the yachting industry, including my several year stint as president and CEO of a major, world-class megayacht builder.
If you find yachts and yacht building of interest, you may want to read some of my other marine industry related articles:
"Sizing Generators to Run Greener and Cleaner"
"App or Not, Garbage In Means Garbage Out"
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About me, Phil Friedman: With 30 some years background in the marine industry, I've worn numerous hats — as a yacht designer, boat builder, marine operations and business manager, marine industry consultant, marine marketing and communications specialist, yachting magazine writer and editor, yacht surveyor, and marine industry educator. I am also trained and experienced in interest-based negotiation and mediation. I am currently supervising, as owner's representative, a new yacht build in Taiwan. In a previous life, I taught logic and philosophy at university.
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