Shipbuilding Contract: Buyer and/or Nominee

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Letter of Intent

Updated 12 April 2022 A letter of intent (LOI), also called term sheet, expression or indication of interest in the commercial sectors is an informal offer or recap of the parties’ position on how they would proceed on a business proposal or venture. In the shipbuilding and offshore industry, where discussions on technical, commercial and legal matters leading up to a formal contract are complex and lengthy, letters of intent (LOIs) will often be used as prelude to the formation of a formal contract. Thus, LOIs will be used:   ·        Where the scope of work has been identified, but there are still outstanding items like selection of main engine suppliers, financing, guarantees, and board approvals that need to be finalised.   ·        At other times, LOI may be signed on condition that the parties will enter into a shipbuilding contract after the buyer’s bid for a shipbuilding project is successful, or where...
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Structuring Shipbuilding Contract [Part 2]

(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...
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Liquidated Damages in Shipbuilding Contract

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...
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