Saturday, September 28, 2013

Major Refits: Dealing with Emergent Work

Your yacht is headed to the shipyard for a major refit. You’ve had a pre-job inspection completed, and all items identified for repair or replacement are covered under a firm fixed-price agreement. The project is planned, budgeted, and all wrapped up. Well…maybe not. 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 planned refit. The important point to understand is that, as any candid shipyard manager will tell you, emergent work is often 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. Consequently, 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 to pilot a superyacht through.

Unless a procedure governing the acceptance, pricing, and effect on schedule of emergent work is incorporated into your refit agreement, you are open to finding yourself paying for 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 the 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/rejection of change orders related to such emergent work.

Dealing effectively with emergent work requires that both the shipyard and the yacht’s owner act reasonably and in good faith. To avoid unnecessarily delaying a project in mid-stream, consideration should be given to incorporating provisions in the refit agreement to the effect that, in the event of a disagreement over emergent work, the shipyard's work on the yacht will proceed as originally schedule, 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. It also avoids unnecessarily delaying the progress of a refit due to a disagreement about the pricing and timing of emergent work.


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