Most construction contracts for larger yachts include a schedule of “progress” payments that are based on the achievement of designated milestones during the duration of the build.
Unfortunately, the number of milestones used to break up payments on account during a build is almost always too few. And just as often as not, the definitions of the milestones are deficient in detail, and fail to provide an adequate basis on which to provide financial control for the project.
There are several non-exclusive precautions which can be taken to avoid being placed in, or having your client being placed in this unacceptable situation:
1) In every definition of milestone, include an omnibus clause to the effect that, “…every task logically, operationally, or customarily according to commonly accepted industry standards as precedent to the achievement of this milestone is, in fact, completed.”2) Improve on the use of an omnibus clause by actually defining in detail every task or task group that must be completed before the milestone is to be considered achieved.
3) Increase the number of milestones from the usual six or eight to 18 or more milestones, thereby breaking the project duration into segments more amenable to meaningful financial control. Indeed, best practice is to have one milestone for each month of the anticipated project duration.Of course, during the course of any build, circumstances may militate in favor of breaking with, or modifying the project plan and the associated milestone designations. For instance, engines may be late coming in from their manufacturer, or some other item coming up for installation may be delayed. In such cases, the exercise of good judgment and experience by a project manager and/or owner’s rep can avoid seeing the build slow to a crawl, or even grind to a halt.
Next time, we’ll discuss surveys, classification, and industry standards.