Shipbuilding Law Blog

(A follow-up from Part I and what does it take to negotiate a shipbuilding contract) Introduction The major milestone in a typical shipbuilding process are contract award, design, drawings, detailed engineering, equipment procurement, material requisition, keel laying, fabrication, equipment installation, launching, test, commissioning, delivery and warranty. Key participants during the whole process will include: the seller (shipyard), buyer, classification society, regulatory authorities, consultant engineers, equipment suppliers, subcontractors, shipping agents, banks and insurers. The Shipbuilding Contract Shipbuilding contract governed by English law (and jurisdictions that treat English decisions as authoritative or persuasive) are essential agreement for the construction and sale of a ship by description, (and more specifically a sale of future rather than existing goods) [1] . Primary obligation of Shipbuilders The primary obligation of the shipbuilders or se

This was first developed and utilized by the writer as a structured tool to ensure comprehensive coverage of relevant issues and for guiding shipyard’s purchasing personnel. Besides specialized legal expertise and commercially savvy disposition, best practice will include coordination with relevant purchase, finance and project managers, bankers and shipping agents, forwarders or customs consultants (and of course, not forgetting those hardworking support staff and the tea lady). Preamble Date of Contract Name of Parties Authorized signatories Type of entity - Partnership, Private Company etc Nationality and registered Address Scope of Supply Description and quality of the equipment Quantity of the equipment Tolerance percentage Spare parts and optional items Services to be provided Deliverables, documents, certificates, manuals to be supplied All items that are excluded from the scope of supply Contract Price State the Contract Price State the currency State the it

Penalty or Liquidated Damages? Liquidated damages are the predetermined estimate of loss to one party when the other party has delayed or failed to meet some contractual deadline or achieve certain performance criteria. Its purpose is to provide for adequate compensation to the Buyer while ensuring that the Seller is not unreasonably penalized. In a typical shipbuilding contract, it is common to see liquidated damages clause for delay delivery. This will be computed on a time basis (daily, weekly or monthly) e.g. US$5000 per day of delays or based on a percentage of the contract e.g. 0.2% of the contract price for each day of delay etc. Usually, it will be capped at 10% of the contract price. The parties may agree to a grace period (of between 7 to 21 days) before the liquidated damages become operative. Sample Text: “If the Vessel is not completed and delivered to the Buyer by the Contractual Delivery Date or the Revised Delivery Date then subject to the provisions of su

Marine Equipment Supply An international transaction for supply of marine equipment will involve the underlying contract, contract of carriage, marine insurance, payment mechanism and adherence to relevant export and import requirements. In respect of the contract of carriage, special trade terms will play an integral part. Incoterms : The Incoterms (International Commercial Terms) published by International Chamber of Commerce (ICC) [1] are widely used. However it must be noted that they are voluntary rules and not laws. They will not apply if they are not adopted as part of the contractual shipping terms. As such, if the trade term is to be governed by Incoterms 2000 etc, it must be expressly spelt out. The various terms in abbreviated form are CPR, CIF, CIP, DDP, DDU, DEQ, EXW, FCA, FAS and FOB. The terms most widely used are CIF, FOB or ExWork. The term most favorable to the Seller is that of ex-works, ex-factory or ex-warehouse, where the buyer will have to collect the

For equipments supplied to buyer in shipbuilding project, seller will be required to provide a warranty or guarantee that the equipments installed will be free of defects in design, material and workmanship. The period will normally commence from the date of delivery of the equipment up to a period of between 12 to 18 months, known as the warranty period. Seller will insist that if any defects are discovered during the warranty period, the buyer must serve written notice within the stipulated period. This period must be adhered to strictly. Upon receipt of the notice, the seller will be obliged to repair or replace the faulty items as soon as reasonably possible (unless it is out the scope of the warranty). The will have to to send their repair personnel to the agreed site and bear expenses incurred in respect of transportation, lodging and associated expenses of their repair personnel. In addition, the cost of labor, material and parts required to carry out the repair, will be on th