Maritime and Seaports Law

SHIP BUILDING CONTRACTS:

Theory and Practice

EGEST BARBULLUSHI
ANTWERPEN, 3 MAY. 2010
 What are shipbuilding contracts?

• Standard contract forms made and agreed by either

shipbuilder’s associations or shipyards and which constitute
a contract of sale between two parties – “Builder” and
“Buyer”.
• Most common standard shipbuilding contracts:
» SAJ form
» BIMCO Newbuildcon
» AWES Form
» NSA form
 Main obligation of the two parties
• The Builder to design, build, launch, equip,
complete, sell and deliver to the Buyer at the
Builder’s shipyard the “Vessel” as described in the
contract and “in accordance with good ship building
practise”

• The Buyer  to purchase the “Vessel”, take

delivery, all in accordance with the terms.
 Major Components of
Commercial Shipbuilding Contracts
Terms and Conditions
 PAYMENT
Payment by installments:

• Completion of milestones
• Security for payments refund guarantee
• Guarantee from Buyer’s parent / third party
• Final installment on delivery
 TITLE
• The title passes to the purchaser as construction
proceeds and the ship is paid for
• Also clauses to pass title of ship equipment
purchased before it has even been incorporated
into the ship
• Practice title transferred before delivery(builder’s
mortgage)
 PLANS AND SPECIFICATIONS

• Shipbuilding contracts specifications and

drawings attached
• A naval architect or marine surveyor should review
the specifications and drawings
• Provision requiring the builder to build the ship “in
accordance with good ship building practise”
 WARRANTIES AND LIMITATION OF
LIABILITY
• Ship builders reluctant to unlimited liability
• Will the builder warrant his design on matters such as
speed, fuel consumption, length, hold capacity, or
tonnage?
• Breach of a warranty entitles the injured party to
damages
• Warranty against faulty workmanship and material for a
specified period of time
 WARRANTIES AND LIMITATION OF
LIABILITY
• Clause excluding liability for any consequential damage
suffered by the purchase such as damages for loss of use of
the vessel.
• Shipbuilders often limit their liability for equipment
manufactured by others.
• Transferability of warranties negotiable
 EXTRAS AND CHANGE ORDERS
• Alterations at the request of the purchaser(delivery
and payment date)
• Term which specifies who is authorized to order
and approve extras
• Practice price of extras and changes to be
determined by arbitration if the parties fail to reach
an agreement
 Termination Buyer’s Default
• Buyer’s default –failure to pay installments
• Builder’s remedy –interest and postponement of
delivery date
• Builder’s right to terminate
• Remedy Period
• Default Notice
• Builder’s right to sell incomplete / completed vessel
• Application of sale proceeds
 Termination Builder’s Default

• Identifies Buyer’s rights of termination in case of

Builder default
• Failure to deliver vessel by drop-dead date, failure
to provide refund guarantees, etc.
• Termination –refund of installments and interest
• Recovery of costs thrown away and losses?
• Completion of vessel elsewhere?
 Insurance and
Indemnity Provisions
• Insurance during construction Institute Builders’
Risk insurance
• Buyer named as co-assured security for Buyer
• Rights of parties damage and total loss
• Mutual indemnity damage to property, personal
injury or loss of life
 DELIVERY
• Contractual delivery date and permissible delays
• Delivery documents
• Class certificates
• Protocol of delivery and acceptance
• Passage of title
 COMPLETION DATES
• Liquidated damages clause  per diem penalty for late
delivery
• Bonus for early delivery
• “Force majeure” clause the circumstances outside
shipyard’s control that will excuse it for failing to meet the
completion date
• Provision allowing for the purchaser to complete the vessel
on another shipyard
 Miscellaneous
• Buyer’s Supplies extent of Builder’s liability
• Copyright / Patent Buyer’s right to use design in
operation of vessel
• Law and jurisdiction
• Assignment of contract
• Confidentiality
• Non-Waiver / Saving Provisions / Amendments
• Exclusion of rights of third parties
• Annexes -Guarantees
THANK YOU