HOW TO AVOID THE SHOALS OF UNANTICIPATED COSTS WHEN NAVIGATING A MAJOR REFIT…
[Originally published on beBee.com, Aug 2018]
Avert grounding on the reef of emergent work …
Okay, you’ve had a pre-inspection completed and all identified work items covered under a firm-fixed-price work order. And that means you’re all planned, budgeted, and wrapped up.
Well… maybe not. At least, not if you haven’t considered emergent work and how it’s going to be handled once the refit begins.
Emergent tasks can involve critical or even just necessary repairs such as badly corroded piping or electrical connections, tank leaks, or hidden structural issues.
Emergent work is, by definition, not apparent to visual inspection until, for example, certain interior joinery panels or other vessel parts are removed in the course of performing the originally contracted refit work. Unfortunately, once a refit is underway, the shipyard no longer finds itself subject to the same competitive pressures it felt when it was bidding on the original contract.
If your refit agreement doesn’t detail how emergent work and change orders related to it will be handled and priced, that agreement has a hole in it big enough through which to pilot a superyacht…
Unless a procedure governing the acceptance, pricing, and effect of emergent work on the delivery schedule has been established before your refit starts, you may find yourself paying for change orders at a rate much higher than originally quoted or negotiated.
Moreover, you may be forced to accept unreasonable delays to the scheduled completion/delivery date. And if that scheduled completion/delivery date is linked to plans for a date-sensitive cruise or charter, the true cost of your refit may end up to be even more expensive than you anticipated in your most pessimistic hours.
So what to do?
1) Your original refit agreement should specify clearly an all-inclusive hourly shop rate that will be applied to emergent work and related change orders.
2) The original contract should also lay out clearly a reasonable and mutually acceptable procedure for calculating any schedule changes that will ensue as the result of the yard’s accepting and performing emergent work.
3) There should also be in the agreement a detailed procedure for the yard to pre-submit to the yacht’s owner cost quotes and any proposed schedule modifications.
4) And such detail should include the specification of definite time periods to be allowed for submission, review, and approval or rejection of change orders related to emergent work.
Dealing effectively with emergent work requires both the shipyard and the yacht’s owner to be reasonable and to act in good faith …
Granted, shipyard operators and yacht owners don’t always agree on how to handle (or price) emergent work. But a good way to avoid delaying a project mid-stream is to build provisions into the refit agreement that, in the event of a disagreement, call for the shipyard’s work on the yacht to proceed as normal, subject retroactively to any pricing and schedule modifications ultimately negotiated or, in the absence of agreement, awarded by an arbitration proceeding. For if nothing else, such provisions bring pressure upon all parties to reach agreement on change-order work without causing unnecessary delays — which ultimately are not in anybody’s best interests. — Phil Friedman
About me, Phil Friedman: During some 30 years in the marine industry, Phil’s worn many different hats — as a yacht designer, boat builder, marine operations and business manager, marine industry consultant, marine marketing and ghoatwriter, yachting magazine writer and editor, yacht surveyor, and marine industry educator. I’m also trained and experienced in interest-based negotiation and mediation. In a previous life, I taught logic and philosophy at university.
#yachtbuilding #yachtrefit #shipyardcontracts #shipyardwork