CONTRACTING FOR A MAJOR REFIT? AVOID GROUNDING ON THE REEF OF UNANTICIPATED COSTS…
You’ve had a pre-job inspection completed, and all items are covered under a firm-fixed-price agreement. So, that means you’re all planned, budgeted, and wrapped up.
Well… not if you haven’t considered emergent work and how it’s going to be handled once the yacht is out on the hard and the work begins.
Emergent work involves critical or even just necessary repairs such as badly corroded piping or electrical connections, tank leaks, or hidden structural issues. But 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 the refit contract doesn’t detail how emergent work and change orders related to it will be handled and priced, that contract has a hole in it big enough to pilot a superyacht through…
Unless a procedure governing the acceptance, pricing, and effect of emergent work on the delivery schedule has been established before the refit starts, you will most likely find yourself paying for change orders at a rate much higher than for the work 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) The 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 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 originally contracted, subject retroactively to any modifications to pricing and/or schedule being ultimately negotiated or, in the absence of agreement, awarded by some form of arbitration proceeding.
For if nothing else, such provisions bring pressure upon the parties to reach agreement on change-order work without causing unnecessary delays. Which is ultimately not in anybody’s best interests, owner or yard. — Phil Friedman
THE PORT ROYAL GROUP
Tel: 954.224.2145 – Email: Phil@portroyalgroup.com
Greater Fort Lauderdale Area, Florida, USA
(Office Hours by Appointment Only)
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