SHIP CONTRACTS

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The successful tendering shipbuilder will prepare a building specification

for approval by the owner or his representative which will form part of the

contract between the two parties and thus have legal status. This technical

specification will normally include the following information:

Brief description and essential qualities and characteristics of ship.

Principal dimensions.

Deadweight, cargo and tank capacities, etc.

Speed and power requirements.

Stability requirements.

Quality and standard of workmanship.

Survey and certificates.

Accommodation details.

Trial conditions.

Equipment and fittings.

Machinery details, including the electrical installation, will normally be

produced as a separate section of the specification.

Most shipbuilding contracts are based on one of a number of standard

forms of contract which have been established to obtain some uniformity in

the contract relationships between builders and purchasers. Three of the

most common standard forms of contract have been established by:

1. AWES—Association of West European Shipbuilders.

2. MARAD Maritime Administration, USA.

3. SAJ Shipowners Association of Japan.

The AWES standard form of contract includes:

1. Subject of contract (vessel details, etc.).

2. Inspection and approval.

3. Modifications.

4. Trials.

5. Guarantee (speed, capacity, fuel consumption).

6. Delivery of vessel.

7. Price.

8. Property (rights to specification, plans, etc.).

9. Insurance.

10. Defaults by the purchaser.

11. Defaults by the contractor.

12. Guarantee (after delivery).

13. Contract expenses.

14. Patents.

15. Reference to expert and arbitration.

16. Conditions for contract to become effective.

17. Legal domicile (of purchaser).

18. Assignment (transfer of purchaser’s rights to third party).

Irrespective of the source of the owner’s funds for purchasing the ship

payment to the shipbuilder is usually made as progress payments which are

stipulated in the contract under item 7 above. A typical payment schedule

may have been as follows:

10 per cent on signing contract.

10 per cent on arrival of materials on site.

10 per cent on keel laying.

20 per cent on launching.

50 per cent on delivery.

Given modern construction techniques, where the shipbuilder’s cash

flow during the building cycle can be very different from that indicated

above with traditional building methods, the shipbuilder will probably

prefer payments to be tied to different key events. Also of concern to the

shipbuilder employing modern building procedures is item 3 in the standard

form of contract where modifications called for at a late date by the owner

can have a dramatic effect on costs and delivery date given the detail now

introduced at an early stage of the fabrication process.