Our marine build and refit sector needs better contracts

Building a bespoke vessel, anywhere, is not a project for the faint hearted.

Over the past 25 plus years I have written and reviewed build and refit contracts; I have acted as a lawyer for boatyards, for owners, for insurers and designers; I have conducted mediations and arbitrations; advised on the aftermath of yard fires, slipway and drydock accidents – and anything in between.  I accept that my view of the vessel build and refit sector comes through the peculiar optics of a maritime lawyer – but this has given me unusual insights into the vessel build sector.

A successful build experience for yard and owner is a great advertisement for the yard in particular – and New Zealand boat building in general.  The New Zealand build and refit sector has moved past its gawky 1990s and early 2000s adolescence and has come of age.  However, with adulthood comes responsibility.  For the industry to flourish in a competitive international environment, the New Zealand industry (in my respectful view) needs to get some of the basics right, consistently.

I have observed that New Zealand has many skilled and talented designers and boatbuilders who are uniquely suited to delivering a great product – but in some cases they let themselves down at three touchpoints with owners, that provide fertile grounds for disputes and a souring of the build experience.

The contract stage

I am regularly surprised at the inadequacy of yard contracts – and not just those from smaller yards!  Some seem to consist of a home-grown template that has not kept pace with modern contracting practice and developments in the industry.

I cannot overstress the importance of a comprehensive, well-thought-through contract that provides a balance between the owner’s and the yard’s rights and obligations.  A properly drafted agreement allows the parties to tease out at the beginning of the contract, key matters such as; regulating the consequences of delay caused by the yard or the owner (reciprocal penalty clauses); How variation orders are managed and their impact on price and delay; Title to the vessel – does it vest in the yard until delivery, or does the owner progressively take title as milestone payments are made?; What about performance bonds and warranties and how these intersect with builder’s risk insurance? These are all matters that should be considered and worked through between owner (or owner’s representative) and the yard.

Thinking about the contracting stage, another area that is often overlooked is the detailed design specification for the vessel.  In many cases, these specifications are in outline form and are appended to the contract – but lack specificity.  Parties to a contract should nail down the specification before the builder starts cutting metal or preparing molds – it will save much heartbreak and cost later.

Further, why is it that the relationship between the designer (including the interior designer), the yard and the owner is so regularly overlooked at the contract stage?  Who contracts the designer?  The yard?  The owner?  Both?

What happens if the vessel fails to meet contractual performance criteria (speed/fuel burn)?  Does the owner look to the builder who may have built the vessel too heavy?  Or the designer who may have missed something on the hull form or propulsion?  Or had the owner not been clear in what he or she wanted in the first place?

These are not just rhetorical questions as I have seen variations of these issues come across my desk over the years.

Build process disagreements

Secondly it is inevitable that somewhere in the build process the owner and the yard will disagree – and you should have in place a robust process to deal with disputes.  Disputes are a normal part of a build experience, however too often have I heard an owner’s frustration with the lack of engagement by the yard in a dispute expressed.

On the other hand, I have seen a yard’s frustration in dealing with unrealistic expectations from an owner.  My advice: Agree at the front end to appoint an independent expert (rather than a lawyer) to come in and give a view on the dispute.  There are normally pragmatic workarounds that can take the heat out of an argument.

Further, I strongly advocate for the appointment of a professional owner’s representative to oversee the contract.  In my experience, these fulfill a very useful ‘middle man’ role between the yard and the owner that often results in disputes being avoided.

Contract management

This is an area which some New Zealand yards really struggle.  Many yards do not have clear systems and processes for managing a build and effective means of providing regular and detailed progress reports to customers.

How are subcontractors and inventories managed?  How are vessel weights calculated?  How exactly is the owner’s money been spent?

It is often difficult for the yard to trigger milestone payments – or for owners to pay on milestone payments if the yard’s systems cannot contemporaneously report on materials and build progress.  If we are to compete in an international market – particularly with the production boat market – New Zealand yards will have to invest in good contract, inventory, and time management systems (or contract someone to do this).

New Zealand has a rich tradition and history as a nation of boatbuilders and our industry has produced some outstanding vessels.  But I am concerned that New Zealand’s boat building reputation has been tarnished by some very public yard failures.  There’s some work to do to change these perceptions.

Anticipating the America’s Cup 36 tournament and peripheral activities, and with the international spotlight on New Zealand, I am confident that if our talented builders can wrap robust contracts and contract management and systems around their builds, New Zealand will be well placed to take advantage of the benefits that will flow from the Cup.

For further information, contact Peter Dawson by email peter@maritimelaw.co.nz, or by phoning +64 27 229 9624.