BOATBUILD CONSULT

Non-Legal Fine Points of Contract Negotiations and Management – VII

2012-01-09T12:39:00.000-08:00

If your new-build or refit contract doesn’t detail how emergent work and change orders will be handled and priced, the agreement has a hole in it big enough to drive a superyacht through.

Unless a procedure governing pricing and effect on schedule has been established prior to the time a build or refit begins, you are open to being forced to pay for change orders and/or emergent work at a unit rate much higher than in the original contract; and you may be forced to accept unreasonable delays to the scheduled completion/delivery date. The reason is pretty clear. Once a build or refit is underway, the boatyard no longer finds itself subject to the same competitive pressures it felt leading up to the original contract. So what to do?

Understand that nothing you can do assures 100% that there will not be any disagreements concerning price and/or schedule. However, some straightforward precautions can go a long way toward avoiding irresolvable conflict.

The original contract should specify clearly an all-inclusive hourly shop rate that is to be applied to emergent and/or change-order work. The original contract should also lay out clearly a reasonable procedure for calculating any schedule changes that will ensue from such work. And there should also be a detailed procedure for the shipyard to submit, to the buyer, pricing quotes and proposed schedule modifications. Such detail should include spcification of definite time periods to be allowed for submission, review, and approval or rejection.

The original contract should also provide for mediation and, if necessary, arbitration in the event an irreconcilable disagreement arises over emergent or change-order work. I am personally not a big fan of arbitration in respect of the main body of a new-build or major-refit agreement. However, getting a dispute before an arbitrator can generally be accomplished much more quickly than getting a litigated matter before a judge, so there are some very real advantages to arbitration, when it comes to disagreements concerning emergent or change-order work.

To avoid unnecessarily delaying a project, consideration should be given to incorporating further agreement into any arbitration clause pertaining to emergent work or change-orders, that the yard's work on the vessel shall proceed as normal, subject retroactively to any pricing and schedule modification ultimately awarded by agreed upon arbitration. This type of supplemental agreement alone brings significant pressure upon all parties to achieve a negotiated resolution to any disputes involving emergent or change-order work.

Next time, we’ll cover milestones and progress payments.

Non-Legal Fine Points of Contract Negotiations and Management – VI

2011-12-06T13:20:00.000-08:00

So you have the contract well defined. You’ve defined the scope of work. You’ve agreed upon and set the project schedule. You’ve determined and contracted a price for the work, and defined milestones for the project. In other words, you’ve got it all covered, right?

Well, no. Not yet, anyway. If you haven’t dealt contractually with emergent work and change orders, you’ve left a hole in your agreement big enough to drive a superyacht through.

A change order, which is really a modification to an existing contract, becomes necessary when the buyer wants a change to, or deviation from the originally agreed upon scope of work, or to the originally agreed upon specification. Change orders become an issue particularly when you are dealing with a firm fixed price contract, since such contracted pricing only extends to the already agreed upon scope of work and specification.

Emergent work generally crops up during major refits. It is comprised of work that comes to light after the originally contracted work begins, and almost always was not visible or discernible before that originally contracted work began. Emergent work always occasions a change order.

A well-known maxim in the residential and commercial construction sectors is, “Low ball ‘em on the price, then kill ‘em on the change orders.” A similar approach can often be found both in yacht new build and refit. If a buyer/owner is not protected in the initial contract with respect to potential change orders, they can later become a de facto opportunity for the yard to rewrite the original contract. Consequently, among the key questions to settle ahead of time in any contract are:

Under what circumstances must the shipyard accept a buyer’s/owner’s request for a change order, and under what circumstances may the shipyard reject such request for a change order?
How will pricing for a change order be determined?
How will change orders become integrated into the originally agreed upon schedule, and how will they affect any projected or agreed upon in-process milestones or completion date(s)?

Keep in mind that, even if these questions are settled and provided for in the original contract, emergent work and change orders put the buyer/owner at a disadvantage. When the original contract and price are negotiated, the shipyard is generally at a competitive disadvantage. That is, they are (or could be) bidding against another yard or yards. So the pressure is on them to price as leanly as they can, in order to assure that they get the work.

But once a new build or major refit has begun, it is not generally practical, costwise or otherwise, for the project to be moved to another shipyard. So the competitive incentive is lost for the yard to keep the pricing on change orders as lean as for the original scope of work. As a result, the cost of emergent work and change orders can, at times, mount up sufficiently to rival that of the originally planned cost. The only way to avoid this is to minimize, to as great a degree as possible, emergent work and change orders. And in cases where that is not possible, to have procedures defined in the original contract to govern the pricing and scheduling of such additional work when it arises in the course of a project.

Next post will talk about how to structure safeguards concerning emergent work and change orders.

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

2011-07-28T12:30:00.000-07:00

It may seem to be only a small variance in nomenclature, but the difference between an “estimate” and a “quotation” makes a really big difference contractually. An estimate is just that, a (hopefully educated) guess as to what a particular job will cost. In contrast, a quotation represents an offer to complete a defined scope of work for a firm fixed price. The quotation details not what the job may cost, but what the firm or individual quoting will charge.

In some sectors of commerce, final prices are expected, and in some cases even regulated to be within 10% of any estimate originally provided. But, in yacht and ship building and refit, there isn’t any such requirement, nor is there often a contractual rider that establishes such a limit. Going into a big job on an estimate is a very big risk for a vessel’s owner. Against that, insisting on the quotation of a firm fixed price for a given job most likely results in a higher price for the job than one might have paid, had one opted to accept a looser estimate and/or had chosen to go the route of T&M (time and materials billing).

Occasionally, a contract will be built around a third pricing concept, namely, an estimate with a firm fixed maximum price quoted. This approach is referred to by some as “NTE” (not-to-exceed) pricing. NTE pricing is initially appealing to many. It appears, on cursory consideration, to give the buyer a lower target price, while protecting him/her against the cost of the job reaching beyond a defined ceiling. However, unless the builder or shipyard is contractually incentivized to bring the job in under the NTE number, any not-to-exceed price ceiling will every time become the actual final price, and in reality no different from a firm fixed price quote. The lower “estimated” price will be a snare and a delusion.

When comparing estimates and quotations, it is a mistake to think that a relatively low shop rate will result in a lower bill. It does no good to secure a shop rate per hour than is two thirds of competitive estimates, if the number of hours eventually expended by a particular yard is twice as much as for competing yards. It is also a mistake to focus solely on shop labor rate, to the exclusion of other billable costs and charges. For example, a relatively low ship rate may be accompanied by additional charges for facilities support, dry dock days, consumables, environmental controls, and so on. The bottom line is that it is the bottom line that counts, not how you get there.

Next posting will deal with emergent work and change orders.

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

2011-06-02T07:38:00.000-07:00

There is a lot of talk about project planning and scheduling. Indeed, it seems that just about everyone in the marine industry with a computer talks about Microsoft Project, Gantt charts, critical paths, JIT (just in time) materials acquisition, and a myriad of other concepts and techniques related to project management.

However, when all is said and done, when your MS Project plan is up and running, nothing, absolutely nothing, substitutes for an intimate knowledge of boatbuilding operations and processes, and how they integrate into a logically sequenced whole.

The key elements in developing a project plan/schedule are:

• Identification of tasks
• Estimate of task durations
• Analysis of sequential dependencies among tasks

All of these elements must be accurately developed if the plan in question is to bear any resemblance to the upcoming reality of the work. But even with an accurate plan/schedule constructed and in place, you’re still on the uphill climb. Tracking and keeping a project on schedule hinges almost entirely on another bit of key information — percent complete of any task or group of tasks as at a given date.

The ability to accurately status the work in progress is where most project management falls down. Yet, without this ability, one simply cannot discern projected schedule slippage, developing bottlenecks, necessary workaround plans, or any of the other real-time, real-world necessities of successful project/schedule management.

Such knowledge and ability are only accumulated over several years of hands-on boatbuilding, as well as in boatbuilding operations management. Without such knowledge and ability, the most detailed project plan/schedule, developed with the best purpose-specific computer software, will turn out to be a snare and an utter delusion. And your project will never even come close to completing "on time and on budget."

Next time, we'll take a look at estimates vs. quotes, and fixed-price vs. T&M contracts.

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

2011-05-08T15:19:00.000-07:00

The “scope of work” defines what work and materials are, and what work and materials are not included for the agreed price. The “SOW” is the foundation upon which all other aspects of a new build or refit contract are built. “Duh, sounds pretty simple to me,” you may think. However, it is more complex than it might appear at first glance. For example, the SOW listed in a refit contract might explicitly include engine replacement, but overlook tasks related to engine beds, mounts, shafting, and couplings.

Rarely, if ever does a new build or major refit contract spell out every detail of the included work. That is because to do so would require weeks, if not months of costly effort, just to get to a contract. So many yards and yacht vessel owners rely on the concept of “customary industry practice.” Unfortunately, in many cases, that is little more than an invitation to eventual arbitration or litigation.

From the yard’s perspective, it is significantly better to include an omnibus exclusionary clause that says, “Whatever is nor specifically included, is excluded.” In other words, if it’s not on the list, it’s not included in the SOW.

From an owner’s perspective, the right move is to include an omnibus inclusionary clause that says, “Whatever is customarily prerequisite to accomplishing the listed work, and not specifically excluded, is included.” Which means, for example, if the engine replacement requires modification to the engine mounts and/or bearers, and these tasks are not specifically excluded in the SOW, they are included for the agreed price.

Naturally, yard and vessel owner may disagree about which form of omnibus clause is to be made part of the contract. But attention to this issue forces all involved to think carefully about the SOW before the deal is finalized, and thereby tends to avoid disputes later over charges that accrue to tasks not specifically listed in the contract.

Next time, we'll look at setting project schedules.

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

2011-03-22T17:31:00.000-07:00

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).

The Non-Legal Fine Points of Contract Negotiations and Management

2010-08-06T11:57:00.000-07:00

INTRODUCTION

New-build and major refit contracts can be bulletproof from a legal standpoint, yet still fail to result in successful project completion.

There are a number of critical non-legal issues which need to be handled correctly, if a project is to be brought to a conclusion that is ultimately satisfactory to both the boatyard and the vessel's owner. These include:

- Defining the Scope of Work

- Setting project schedules

- Estimates vs. quotes

- Time & Materials vs. fixed-price

- Comparing quoted pricing

- Emergent work and change orders

- Milestones and progress payments

- Surveys, classification, and industry standards

- Engineering and specifications

- Inspections and final acceptance

In this course of this post and several to come, I'm going to talk about these issues from both the standpoint of a yard owner/manager, and that of a yacht owner/captain. And I'll introduce you to some real-world examples that illustrate critical do’s and don’ts in these areas.

Along the way, if you have particular questions you'd like to raise and discuss, just drop me a line.

ONE DRIVER AT A TIME

2010-01-26T18:31:00.000-08:00

The other day I was talking to a friend who is a marine industry PE. Not surprisingly, he took me to task about my last blog post, “Who Should Be the Designated Driver?” He pointed out that it is all well and good to say that, in a perfect world, a project schedule should drive engineering, and not the other way around. But, he went on, there are situations in which in-house engineering deliverables are delayed by factors beyond the control of in-house engineering.

For example, situations in which critical information and drawings from an outside vendor are delayed or simply non-existent. If the build-client has hired the outside vendor, that vendor is neither under the control of, nor necessarily responsive to pressure from the yard’s in-house engineering. In such cases, my friend points out, in-house engineering is forced to work through the build-client or the client’s representative with, as often as not, little positive effect. The result is that the project manager gets his shorts in an uproar, yard execs with bottom line responsibilities get cranky, and the build-client becomes increasingly unhappy with progress -- while all parties misdirect their displeasure at in-house engineering.

My friend is right. It ain’t always under his control. And simply throwing in-house engineering under the bus may shift the focus of displeasure temporarily, but it will not do anything to correct schedule slippage and associated problems. Unless such situations are corrected timely or, better yet, avoided at the very inception of a project, the results are likely to be not only production delays, but as well late project completion, monetary losses for both build-client and shipyard and, perhaps most unfortunate, hard feelings all around. So, what to do?

First, avoid project structures which have multiple and parallel lines of responsibility and control. If production depends day-to-day on in-house engineering, and if some or all of in-house engineering’s work depends on timely action and responses from outside vendors, than make sure that outside vendors are contracted by the yard, with direct responsibility to the yard, and not contracted directly by the build-client. When an outside vendor is contracted by the yard, that vendor is much more likely to be responsive to the needs of the yard’s in-house engineering department. The watchword here is no responsibility without authority.

Second, if a build-client, for whatever reason, insists on directly contracting with outside vendors, then the yard needs to insist on the build-client having its own project manager, who is charged with full responsibility for maintaining a timely flow of deliverables from outside vendors. This arrangement has to be bolstered by penalties to the build-client (now, that’s a novel idea) for production delays and cost overruns due to tardy deliverables from outside vendors contracted directly by the build-client. And this all needs to be spelled out and quantified in contractual form at the start of a project.

Third, if a project already started does not conform to one or the other of the above scenarios, and is running into schedule problems due to late deliverables from outside vendors, yard management has to bite the customer-relations bullet (some will no doubt argue that it is more like a customer-relations cyanide capsule) and renegotiate the contractual situation to bring it into conformity with one or the other of the above two scenarios.

Mulltiple, separate, and parallel lines of responsibility and communication do not, as some might believe, facilitate project success. They work against it. So define your project management structure very carefully.

Because experience always matters...

WHO SHOULD BE THE DESIGNATED DRIVER?

2009-12-10T18:08:00.000-08:00

Just about every boatyard uses the expression, “On time and on budget.” But in reality, how many major build or refit projects meet those criteria? Very, very few, if any.

There is a plethora of factors working to prevent a project from coming in on time and on budget. But in my experience, it is the inter-relation between three specific and key components of a major project that make or break it: 1) design/engineering, 2) materials/labor logistics, and 3) project planning and management.

A truly miniscule number of projects are held from starting until all relevant design and engineering have been completed. Instead pressures, primarily from buyers/owners, but occasionally from yard cash-flow needs, almost always result in major projects being started while design and/or engineering are still underway. And even if preliminary design and engineering for a project have been completed by the time the project gets underway, detailed systems engineering, completion of specifications, and production of shop drawings invariably continue to be done “on the fly” well after the project has begun.

Once engineering and related specifications have been finalized, there still remains the task of materials acquisition. Unfortunately, materials procurement involves an inherent time lag due to the need to locate, bid out, and finally purchase for a major project what is often a list of hundreds, if not thousands of items. Some of these may be available off the shelf, but just as many, if not more, have first to be assembled and/or manufactured to order before being shipped. This results in substantial, sometimes unanticipated lead times from order to delivery. And this does not yet take into account the fact that some specified items will often be found to be out of production and unavailable, or carrying too high a price tag, or involving too long a lead time for production to stay on schedule. In such cases, re-entry into the project’s design/engineering spiral is necessary, with all of its attendant additional delays.

The reality in a great number of major build and refit projects is that you have the tail wagging the dog. Too many major projects end up being driven (controlled) by “engineering” and/or the “BOM” (bill of materials). That situation is, I have to tell you, very far from being a happy one. Allowing engineering (i.e., when specifications and/or drawings happen to be available), or the BOM (i.e., which and when materials happen to be available) to control production inevitably leads to a project duration well beyond any initially envisioned. That often leads in turn, at best, to bad feelings and, at worst, to claims for liquidated damages due to late completion.

My experience is that the only acceptable driver for a properly planned and managed project is the production schedule. The production schedule should be dictating when engineering and attendant specifications and drawings are finalized, not the other way around. Similarly, the production schedule should be dictating materials target order and delivery dates, not the other way around.

Of course, achieving the ideal situation, in which the production plan/schedule drives engineering, materials acquisition, and production, requires having not only a highly detailed project plan in the first place, but also one which is grounded in reality. Further, it requires a plan that is practical in the circumstances as to allocation of labor and other resources, and as to the projected durations of component operations. The creation and implementation of such a project plan requires significant hands-on, industry-specific build and refit management experience. There is no way around it. In this, as in most things relating to boat building and refit… experience always matters.

PROJECT MANAGEMENT REVISITED

2009-11-21T19:27:00.000-08:00

The size and complexity of luxury pleasure craft have grown over the last two decades to the point where we’re no longer building “yachts,” but more accurately small ships. Contemporary megayachts are relatively so complex that no set of specifications or plans, no pre-contract discussions and agreements, no set of known yard standards are likely to be complete enough to pre-settle every question or issue that may arise during a new-build or major refit project. This is doubly true in the case of refits, which inevitably require dealing on the fly with “emergent” work, work the necessity of which only becomes apparent after the dismantling phase of the refit has begun.

Add to this the now almost ubiquitous situation in which an entire team is required for a build or major refit, from naval architects to marine engineers, stylists and interior designers, sound and vibration attenuation specialists, and a myriad of other outside experts, all with their own egos and personal agendas. The upshot is that today, experienced, skilled project management can be of critical benefit both to boatyard and yacht owner.

Deft project management: 1) facilitates timely communications and decision making during a build or refit, 2) assures that an overall vision of the project is maintained which coincides with that of the yacht’s owner or buyer, 3) significantly aids in avoiding misunderstandings during a refit or build, 4) works to avoid delays and to keep the project on schedule, and 5) increases the probability that the project will complete successfully and to the owner’s or buyer’s satisfaction. All of which ultimately have to be the rational objectives of every major yacht yard in the world, as well as every owner, buyer, and captain.

There are, however, two distinct types of marine project management: in-house and owner’s representation. The in-house project manager works for the yard and his or her first priority is, obviously, to protect the yard’s interests. For that reason, it behooves every yacht owner or buyer involved in a major build or refit purchase to have, as well, his or her own project manager, whose primary responsibility is to protect the owner or buyer’s interests.

Besides having an almost encyclopedic knowledge of the technical aspects of yacht construction, a first-rate owner’s rep needs to be able to: assess job progress and evaluate the adequacy of the yard’s allocation of necessary resources, frequently by means of “shadowing” the yard’s project planning and management; accurately quantify, on an ongoing basis, “earned value,” i.e. percent of job complete versus percentage of budget or contract price expended (especially important when progress payments are involved); interface with the yard’s accounting department to achieve accurate cost control, tracking, and reporting (critical in T&M situations).

To sum up, the qualifications which are essential for an owner’s rep or project manager to have are:

• a firm grasp of the fundamentals of design and engineering;

• a broad-based technical knowledge of ship’s systems, fittings, and equipment;

• the ability to accurately and objectively interpret the owner’s preferences, needs, and requirements;

• a high degree of people skills and an understanding of interest-based negotiating;

• the willingness to place the successful completion of the project ahead of personal ego; and last but not least

• familiarity with, and the ability to implement critical path analysis and management, as well as other key project management techniques.

Some of these skills and qualifications can be attained through study; but the successful deployment of these skills, for the most part, requires a solid previous hands-on foundation in yacht building and refit. As in most things marine, when it comes to project management... experience always matters.

FLIBS AND FLAB

2009-11-02T10:39:00.000-08:00

Traffic seemed significantly down at the Fort Lauderdale International Boat Show. But there were some encouraging signs. One of these is that the industry as a whole appears to be “retooling,” with firms revamping their business models to cope better in leaner times. They are looking closely at issues like long-term marketing strategy, development and maintenance of customer loyalty, and refinement of product offerings to match the likely continuing constriction of the market. All in all, I perceived a renewal of commitment by many industry people to “see it through.” This bodes well for consumers going forward, which, in turn, bodes well for an eventual industry recovery.

My guess, however, is that recovery will come only if the industry continues to respond to changes in the market with new, different, and exciting product. Even when the general economy turns around, only new and exciting product will coax boating and yachting consumers into buying. The same old, same old, will not. I believe strongly that we’re going to see serious demand for boats and yachts with much higher power- and fuel-efficiency, as well as lower contributions to global pollution. Whether that is in the form of fossil fuel emissions during operation or during the manufacturing process. And I'm firmly convinced the market will be looking for products with much higher value-to-cost ratios.

The problem, or perhaps the opportunity, is that many, if not most of the recreational marine industry behemoths have too much invested in outdated tooling and in the current development of “new” product whose time has already passed. Not to mention they are carrying way too much debt. Consequently, we can expect the next few years to be an era of entry into the industry by lean, mean start-ups with new and innovative product. Given that real estate values and costs are down in a major way, that there is a large labor pool currently available, that equipment and machinery are being offered at bargain basement prices, and that there is a horde of talented, but effectively idle designers, naval architects, engineers, and product development people just waiting to be unleashed, I predict we’re going to see a deep turnover in the industry over the next couple of years.

New-build and Refit Project Management

2009-10-26T21:09:00.000-07:00

When it comes to yacht construction and refit, as I’m sure you know from experience, there is no shortage of self-styled experts. Individuals without a clue about the difference between the catalyzed polymerization of polyester resin and the co-reacted polymerization of epoxy-based systems, are more than willing to advise you on the best way to build a fiberglass yacht. Persons who lack even an inkling of understanding concerning the principles of developed and absorbed horsepower, stand ready to tell you in absolute, uncompromising terms what engines and propellers you need. And just about everybody who has walked a dock (marine tradesman, diver, deck hand, broker, or what have you), believes he or she can readily and easily manage your new-build or major refit project. Don’t believe it, not even for an instant.

          Being able to manage a yacht new-build or major refit involves significantly more than simply being conversant with a particular piece of canned project management software, such as MS Project. Project management software is a tool, just as CAD software is. CAD software cannot, in and by itself, design or engineer a yacht; and project management software cannot manage a boatbuilding project.

          You can spew out as many Gantt charts and Critical Path analyses as you want. However, without a solid understanding of the sequential dependencies and independencies of various boat building/refit operations, and without the ability to assign reasonably accurate durations to a project’s component operations, you are deluding yourself and, perhaps worse, others. In order to manage a yacht build or refit project, you have to be able to:

1) Identify which component operations are related in unbreakable sequential dependencies (the Critical Path).

2) Identify which component operations can be broken off the Critical Path and run parallel to it (Fast Tracking).

3) Understand how to shorten the duration of component operations that lie on the Critical Path (Crashing the Critical Path).

4) Understand how, and to what extent additional resources can be applied to shorten the duration of critical operations that are either on or off the Critical Path, but which do not initially have any “float” attached to them.

5) Identify potential upcoming bottlenecks, and be able to develop “workaround” plans to keep the schedule from slipping.

Such prerequisite ability and knowledge are accumulated only over many years of hands-on boat building and refit, and in boatbuilding operations management.

          As I see it, the primary functions of an owner’s rep or project manager is to: 1) assure that the yacht owner or buyer understands and gets what he has contracted for, 2) that the build or refit proceeds smoothly, on schedule and on budget, and 3) that everyone — owner and yard — finish up the project as “friends.” The key skill in project management is knowledgeable facilitation.

[More thoughts on project management after the Fort Lauderdale International Boat Show. Let’s hope FLIBS turns out to be a stepping stone on the way to industry recovery, as some are touting it to be.  — PLF]

OF IBEX, CABBAGES, AND KINGS

2009-10-14T06:36:00.000-07:00

The symptoms of the current recession in the recreational marine industry are evident at IBEX. Traffic is clearly down, although the promoters may deny it. Few people, except perhaps your best and longest standing friends, venture to ask how things are going, clearly for fear they will receive a truthful rather than a polite answer.

True, some present are voicing optimism about a turnaround coming soon. But for the most part, these are people at, what I would call, the secondary and tertiary levels of the industry, the marketers, the organizational promoters, the consultants, and the marine media people (the last of whom have finally come to realize that their fascination with running an endless string of stories about business failures and bankruptcies is nailing shut their own career coffins).

However, what’s evident to anyone who takes the time to look around, is that budgets have been cut to the bone; and a paltry number of companies spent any money to send their usual delegations of engineers, production managers, purchasing agents, and assorted tech geeks to walk the show and look for new and exciting materials, processes, or tools. Mostly, the intercourse is between exhibitors. Indeed, one friend of mine said that he was yet to talk to anyone who was not wearing an exhibitor’s badge. Somewhat of an overstatement, but it makes the point.

Hopefully, the current dip, more like a crater, will move a significant segment of the industry to re-evaluate the direction taken over the past 10 or so years. Missteps like adopting the automotive model (now itself a proven model of failure) of producing a huge multiplicity of models and making annual model changes. And missteps like taking more and more recreational marine companies public.

Production boatbuilding never has, and never will achieve the sought after economies of mass production. Building boats on a multi-station line is not mass production. Instead, what we’ve seen is a geometric growth in engineering and development overhead, not to mention marketing and sales costs, to the point where small to medium size production boats are no longer readily affordable. So when economic times in general get tough, the market evaporates.

Beyond that, public companies are generally driven by stock share price and the focus on continually seeking new capital influx, often creating massive debt. The decision makers in publicly owned companies have little or no emotional ties to the company or its employees or vendors or the industry itself. So the result is that when economic times in general get tough, they start cutting at the drop of a hat, which actions frequently produce self-fulfilling prophecies of failure.

The recreational marine sector should not style itself as a junior version of the automotive industry. Boatbuilding should remain a privately owned endeavor, in which company principals have a grounding in and commitment to, what 20 or 30 years ago I would have termed, a subculture. Only then will the industry retain the underpinnings necessary to weather the kind of economic downturn we’re now experiencing.

SEAWATER BLOGGING

2009-10-09T14:26:00.000-07:00

For quite a while, I took blogs with more than a pinch of sea salt. Having some personal professional background in the boating-related print media, blogs initially appeared to me to be forums for the distribution of the random mental meanderings of the self-involved and self-impressed – many of whom seemed to me to be people I would cross the street to avoid.

Over time, however, I began to notice that some bloggers really had things of value to say. Especially in the marine industry, an area with which I’ve had more than a passing acquaintance. Evidence Cam Collins’ blog at http://www.marinemanagementtoday.com/. Cam is the President and CEO of Exuma Technologies, parent company of DockMaster Software Systems. He not only has interesting things to say about the marine industry, but about marketing in the new age of electronic media as well; and I found myself checking back frequently to see what he was saying. Cam is a strong proponent of the use of blogging and other related technologies for marketing and business networking, particularly when it comes to the boating and marine business sectors. Eventually, I decided that Cam and several million others couldn’t be that wrong, and that blogging is probably here to stay.

The result of that astute example of deductive reasoning is what you now see before you. And let me tell you, it’s absolutely great! Instant release. Instant publishing. Instant gratification. No editors to convince. No publishers to woo. No advertisers with whom to curry favor. Just the opportunity to say exactly what you think – and hope that someone takes the time to read it, and finds it useful.

So, if you’re reading this, welcome to Boatbuild Consult. This blog will talk about boatbuilding, marine project planning and management, boatyard operations, and anything else related to the marine industry that comes to mind as being of value for discussion and communication. Your suggestions and comments are invited and welcomed.

Next week, I’m headed down to IBEX. I’ll keep you posted.

NEW AGE OF CAPITALIZATION BY CUSTOMER DEPOSIT AND VENDOR CREDIT

2009-10-08T19:52:00.000-07:00

Recently, there have been reports of several bankruptcies in the marine industry, in which the company's principals have successfully repurchased company assets at liquidation, then gone back into business the next day. Debt free, at the expense of prior vendors and customers. When it happens once, you can write it off to economic circumstance, or to bad management, or maybe just to bad luck. But when it happens multiple times, you have to conclude that it is the outgrowth of a less-than-forthright approach to business.

Here's the deal. Suppose I don't properly capitalize (or re-capitalize) my company, but instead take customer deposits out ahead of delivering product, while I use vendor-extended credit to purchase materials and sub-contracted services. Suppose also that I use most, or a significant percentage of the cash generated by sales (mostly advance deposits and unearned progress payments) to pay myself and other company executives and principals serious salaries, bonuses, and dividends. Eventually, when I don't or can't deliver product to my customer(s), or when my creditors finally begin to beat down the door, I go bankrupt. Then I use the cash I've accumulated through pay-outs to myself and other company principals to purchase at auction the company assets at a fraction of their worth, and now free of the debt which previously encumbered them. And whammo, I'm back in business.

Frankly, nothing happening in the marine industry these days even approaches the massive boondoggles foisted upon us all by the denizens of the financial investment sector. Moreover, it surely is the case that the majority of business failures in the marine industry are the result of problems in the banking sector (resulting in lack of credit and lending), as well as a general malaise in the economy as a whole. But just as frankly, some of the marine business bankruptcies we're seeing just don't smell right. And it is beyond me why customers and vendors go back to dealing with the same guys over and over again, after being burned. Maybe because being around boats and yachts tends to suck the blood from of our brains.