Tuesday, March 22, 2011

Non-Legal Fine Points of Contract Negotiations and Management - II

Contracts for new yacht construction and major refit projects can be legally bullet-proof, yet still fail to produce a satisfactory result.

Several critical, non-legal issues should be considered with an eye to improving such contracts and better protecting the interests of the buyer or owner.

Of course, what follows is not in any way to be construed as legal advice. I do not pretend to be a lawyer, only someone who has spent significant time on both sides of the boatyard desk. Keep in mind that i highly recommend seeking the counsel of experienced legal specialists before signing any new build or major refit contract.

Virtually every contract for new build and major refit relies on non-legal terms that are usually assumed to be well defined. Unfortunately, often these terms are not, in fact, clear. For example, a contract might call for a progress or “milestone” payment when the main propulsion engines are “set.” But what does the term “set” mean? Does it mean simply set down on the engine beds? Or does it mean permanently and properly affixed to the vessel, as per design, and only after all work customarily prerequisite to such installation has also been completed?

In how many cases has a shipyard, pressed for cash flow, “set” the main propulsion engines in order to earn a milestone payment, only to pull the engines back out so that tankage piping and other bilge area work could be completed before permanently reinstalling the engines? More than you might think…or want to admit, if you happen to be a boatyard operator.

I think you get the point, namely, that key terms need to be defined clearly. In the above example, the milestone definition should include, “…and completion of all work customarily and reasonably deemed prerequisite to permanently installing the engines.”

Next time, we’ll talk about defining Scope of Work (SOW).

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