Owner Furnished Equipment

A sample clause:

The Buyer shall, at its own risk, cost and expense, supply and deliver to the shipbuilder all of the items to be furnished by the Buyer as specified in the Specifications (herein called the ‘Buyer’s Supplies’) at a warehouse or other storage of the Shipyard in the proper condition ready for installation in or on the Vessel, in accordance with the time schedule designated by the shipbuilder.

...the Buyer shall furnish the shipbuilder with necessary specifications, plans, drawings, instruction books, manuals, test reports and certificates required by the rules and regulations. The Buyer, if so requested by the shipbuilder, shall, without any charge to the shipbuilder, cause the representatives of the manufacturers of the Buyer’s Supplies to assist the shipbuilder in installation thereof in or on the Vessel and/or to carry out installation thereof by themselves...

...the Buyer’s Supplies shall be subject to the shipbuilder’s reasonable right of rejection, as and if they are found to be unsuitable or in improper condition for installation. However, if so requested by the Buyer, the shipbuilder may repair or adjust the Buyer’s Supplies without prejudice to the shipbuilder’s other rights hereunder and without being responsible for any consequences therefrom. In such case, the Buyer shall reimburse the shipbuilder for all costs and expenses incurred by the shipbuilder in such repair or adjustment and the Delivery Date shall be automatically postponed for a period of time necessary for such repair or replacement unless the shipbuilder’s progress program is delayed for other reasons than that of Buyer’s Supplies.

Should the Buyer fail to deliver any of the Buyer’s Supplies within the time designated by the shipbuilder, the Delivery Date shall be extended for the period of such delay in delivery of the Buyer’s Supplies provided that such delay in delivery shall actually affect the Delivery Date of the Vessel. In such event, the Buyer shall be responsible and pay to the shipbuilder for all losses and damages incurred by the shipbuilder by reason of such delay in delivery of the Buyer’s Supplies and such payment shall be made upon delivery of the Vessel.

If delay in delivery of the Buyer’s Supplies exceeds thirty (30) days, then, the shipbuilder shall be entitled to proceed with construction of the Vessel without installation thereof in or on the Vessel, without prejudice to the shipbuilder’s other rights as herein above provided, and the Buyer shall accept and take delivery of the Vessel as so constructed provided that in all other respects it complies with this Contract and the Specifications.*

The shipbuilder shall be responsible for storing and handling with reasonable care of the Buyer’s Supplies after delivery thereof at the Shipyard, and shall, at its own cost and expense, install them in or on the Vessel, unless otherwise provided herein or agreed by the parties hereto, provided, always, that the shipbuilder shall not be responsible for quality, efficiency and/or performance of any of the Buyer’s Supplies.

Comment:

Assuming that the content, vertical and horizontal integration, and tests and trials details are supplied and clearly understood by shipbuilders, other issues that need to be addressed are those relating to late delivery, defects or shortcomings in the OFE having an impact on the construction schedule and those in respect of intellectual rights or the breach thereof in respect of the OFE. It is the writer's view that the former could be addressed by proper delivery planning, quality control, time and costs adjustment and the latter by due diligence inquiry and appropriate indemnity language.

Also in cross-border shipbuilding projects, parties will need to appreciate tax implications relating to OFE, though most business-friendly countries will grant tax exemption provided relevant import and export procedures are adhered to. A grey area which does not seem to be addressed by such clauses would be a situation where the OFE affects the overall efficiency or performance of the vessel. *How this will work in practice remains an open question,

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