Heading to the Shipyard for a Refit….Avoid Grounding on the Reef of Emergent Work

So, your yacht is headed to the shipyard for a major refit. And you’ve had a pre-job inspection completed and all items covered under a firm fixed-price agreement. Planned, budgeted, and all wrapped up. Well…maybe not, if you haven’t considered emergent work and how it is to be handled once the refit begins.

“Emergent work” is critical work that needs to performed, but the need for which is discovered only after a refit has started. It can involve anything from corroded piping or electrical connections to tank leaks or even structural issues that were not visible until, for example, certain interior joinery panels were removed as part of the refit underway. The important point to understand is that, as any candid shipyard manager will tell you, emergent work is the icing on the refit yard’s cake, when it comes to profit.

The reason is pretty clear. Once a build or refit is underway, the shipyard no longer finds itself subject to the same competitive pressures it felt leading up to the original contract. And if your refit agreement doesn’t detail how emergent work and change orders related to it will be handled and priced, your agreement has a hole in it big enough through which to pilot a superyacht.

Unless a procedure governing acceptance, pricing, and effect on schedule has been established initially as part of your refit agreement, you are open to finding yourself paying for change orders related to emergent work at a unit rate much higher than in your original contract. Moreover, you may be forced to accept unreasonable delays to the scheduled completion/delivery date. And if that scheduled completion/delivery date is linked to plans for a date-sensitive cruise or charter, the true cost of your refit may end up to be much more expensive than you anticipate. So what to do?

The original refit contract should specify clearly an all-inclusive hourly shop rate that is to be applied to emergent work and related change orders. The original contract should also lay out clearly a reasonable and mutually acceptable procedure for calculating any schedule changes that are to ensue as the result of the yard’s accepting the emergent work. And there should also be a detailed procedure for pre-submission of pricing quotes and proposed schedule modifications to the vessel’s owner or his/her representative. Such detail should include specification of definite time periods to be allowed for submission, review, and approval or rejection of change orders related to emergent work.

Dealing effectively with emergent work requires reasonableness on the part both of the shipyard and the yacht’s owner. To avoid unnecessarily delaying a project in mid-stream, consideration should be given to incorporating provisions in the refit agreement to the effect that the shipyard’s work on the yacht shall proceed as normal, subject retroactively to any pricing and schedule modifications ultimately awarded by an agreed upon arbitration procedure. If nothing else, this sort of provision brings significant pressure upon all parties to achieve a negotiated resolution to any disputes involving emergent or change-order work, and avoids unnecessarily delaying the progress of a refit due to a disagreement about the pricing and timing of emergent work.

NOTE: This post is adapted from Phil Friedman’s recently published eBook, Ten Golden Rules for Successful New Build Projects. Comments on the eBook by noted industry professionals have included:

From Stephen Moon (Board Certified Admiralty and Maritime Law Specialist, Stephen M. Moon, P.A., Cocoa, FL, USA): “Your e-book is excellent. I should have been doing a lot of other things this morning but I could not resist reading the e-book as soon as I had a break… Your remarks are very insightful and will be appreciated by many. I have a much better understanding of the events leading up to the actual build process and the  important issues to consider before construction now. Your e-book is a quick, must read for anyone involved in a new build project or major refit.”