Shipyard contracts: concessions vs. waivers

To ensure an owner’s interests are protected during a new build or refit, it is imperative that the owner’s representative understands these contractual nuances. Kevin Laverty, Director of Projects at Hill Robinson, explains.

Most superyacht new build or refit contracts place a range of responsibilities on the owner or buyer, such as approving technical drawings, making stage payments, and attending inspections and sea trials. Failure to carry out any of these responsibilities in a timely manner and in accordance with the process set out in the contract may give rise to a claim for delay by the shipyard, or act as a waiver of the owner or buyer’s rights.

Given that most owners or buyers have busy lives, it is normal practice to appoint a project manager or owner’s representative with power of attorney to oversee these contractual obligations. And it is imperative that this individual understands the nuances related to not adhering to them. “Many project managers don’t know the difference between a ‘waiver’ and a ‘concession’, but it’s important that they know the distinction,” advises Kevin Laverty, Director of Projects at Hill Robinson.

According to Kevin, there are two types of waiver. The first is the conscious waiver, whereby the owner or owner’s representative intentionally gives up some right prescribed under the contract for no gain. The second is the unconscious surrendering of the owner or buyer’s rights simply by forgetting or failing to do something as per the contract.

“Many project managers don’t know the difference between a ‘waiver’ and a ‘concession’, but it’s important that they know the distinction.”

Typical examples of how this can happen include not conducting a drawing review within the stipulated timeframe, or not attending an inspection, test, or even sea trial. “The shipyard should notify the owner’s representative in advance of any inspection, test, or sea trial,” explains Kevin. “If the owner’s representative fails to attend, the owner will be bound by the results and waive their right to reject them.”

A concession, on the other hand, can take place when the owner or buyer voluntarily yields on a certain aspect of the contract, which could then be used to negotiate some form of compensation. “A typical example might be that the aesthetic quality of the painting in the engine room is below expected standard and the lacquering in the owner’s suite is not up to standard, so the shipyard might offer to rework the owner’s suite if the owner yields on rework of the engine room,” says Kevin. “Depending on the owner’s expectations, it must be evaluated whether that would be a worthy concession, giving due consideration to the overarching objectives of cost, time, quality, and risk.”

“The shipyard should notify the owner’s representative in advance of any inspection, test, or sea trial. If the owner’s representative fails to attend, the owner will be bound by the results and waive their right to reject them.”

A professional project manager will have the legal and commercial knowledge to understand the nuances of the contract to ensure that the owner or buyer’s best interests are protected, thereby achieving the best outcome for their project. Preventing subconscious waivers and negotiating on concessions are a key part of this.

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