Shipbuilding delays (Shipyard’s Perspective)


Prelude – Jubilation at the yard following the signing of Shipbuilding Contracts for a series of identical proto-type offshore supply vessels was short-lived. A fast track; 18 months multi-million dollars fixed lump sum shipbuilding project soon degenerated into perennial delays. The aftermath: delays of more than 2 years, multi million dollars loss and goodwill dented. The causes were multifold; the results predictable and avoidable.

Even though the personnel involved in the contract negotiation were highly experienced in technical and commercial matters, there was no evidence to suggest that they had the required expertise to fully comprehend legal complexity of shipbuilding contract.  Thus adequate contract risk management was overlooked.  Consequently, shipyard accepted a stringent loop-sided "adhesion" contract.

Basic design was developed by Designers originally employed by the Owner. However shipyard agreed to and thus assumed full responsibility and all risks associated with the design. Having inherited a partially developed design, shipyard could either assume design risk after it had satisfied itself of the technical feasibility or allocate responsibility for design errors from a defined design freeze period. Shipyard chose the former and paid a very high price subsequently. Lack of timely/accurate information and approval (from Owner or Designer or Classification) resulted in delays and significant rework to correct errors. As there was no contractual provision for cost and time adjustment, such delays were for shipyard’s account

Project budget was ineffectively managed resulting in unrealistic costing and under-pricing. Despite having insufficient details to plan its schedule shipyard created an illusion of on-time delivery by developing a schedule with the completion date as reference point and working backwards. The subsequent rush to accelerate the project resulted in construction shortcomings with further delays.

Essential terms in equipment suppliers’ contract were not adequately negotiated to address or allocate risk fairly and appropriately. The end result is three-fold losses comprising of additional overheads, liquidated damages under the main contract and extra expenses for vendors services (inclusive commissioning and start-up) and replacement or correction of defective equipment/parts.

Apathy best describe the efforts of the quality control in place. Sloppy works were offered to the Classification Society and Owners representative for inspection. This resulted in unnecessary rectification, substantial costs and time impact. As the vessel design and scope (specifications, or performance or deliverables) were novel to the yard’s project team, interpretation of quality, acceptance or rejection of work were left entirely to the Owner representatives' discretion. Owner’s representative had a field day with extras and rework. Weakness in this area was never adequately addressed due to unexplained constraint thus rendering any swift turnaround impossible to achieve.

End-Note: “We can choose to learn from our own mistakes or those made by others”
David Seah © All Rights Reserved

Comments

plumbing said…
Well, delays are just inevitable.
Sometimes it can really happen without knowing it. So make the arrangements fixed.
October 18, 2011 at 3:06 PM
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