Ocean | Revised Standard Shipbuilding Contract Launched – new code name SHIP25

Same structure, additional content

SHIP25 is based on structure of SHIP2000, but the content has been updated to reflect contract practice and to address a more complex and stricter international environment. The latter explains why new provisions have been added concerning sanctions and export control, cyber and IT security, and anti-corruption and bribery. However, somewhat surprisingly, two of NEWBUILDCON’s modern inventions – the IMO Hazardous Materials Inventory Clause and a requirement for standard takeout guarantees – have not been included. Apart from the new provisions, comments to and precedents from SHIP2000 will still be useful to the users of SHIP25.

Refined definitions with substantive effects

SHIP25 includes a number of new and refined definitions whose effects must be carefully prior to entering negotiations for a contract based on SHIP25. Pricing mechanism and design responsibility are now more open for adjustments with alternative solutions for shifting responsibility and adjusting prices using budget prices and escalation clauses. To better suit requirements from particularly public customers, ‘ABC laws’ has been defined as well as ‘Human Rights’, ‘Decent Working Conditions’ and ‘Transparency Act’. It remains to be seen to what extent such requirements will be well received by yards in countries where focus on such matters is not that highly prioritized.

‘Buyer’s Elected Supplies’ is a new defined term shifting the risk for delay to the Buyer for supplies specifically determined by the Buyer where the Builder has no or little possibility to use alternative suppliers. The latter, combined with more flexibility to reduce the builder’s design risks for the vessel compared to the default solution in SHIP2000, has been requested for many years; typically, where the design is provided by a naval architect engaged by the Buyer prior to selection of the yard; the ‘Designer’. The solution now chosen has been to introduce an option for the parties to regulate design issues in Appendix I to SHIP25. By using Appendix I, the Builder’s responsibility is limited to conducting professional assessment of the Design Documents provided by the Designer, and sending these to the Class and informing the Buyer of any risks the Builder becomes aware of. The Builder’s liability is here limited to the liability of the Designer under the Design Agreement. It should be noted that this solution must be made as an opt-out in the standard default wording in Clause 2.1.3.

Provisions relating to change orders, which are normally paid at delivery of the vessel, have been amended to better allow the Builder to claim advance payment when the change order is agreed. The term ‘Budget Prices’ is included to address what the builders have often referred to as ‘basis prices’. It should also be noted that a set mark-up for the Builder should be agreed and inserted.

Project Management etc.

New provisions have been included In to enhance project management by ensuring more information regarding the construction process, inter alia by including monthly reports which may include photographs showing the progress as well as an updated list of agreed modifications or changes. The approval process for drawings is now assumed to be by way of electronic communication (project room or otherwise) which has a bearing on the new provision for Cyber Security, the latter basically to ensure that the IMO Guidelines on Maritime Cyber Risk Management and the EU Directive 2022/2555 on cybersecurity are met.

Increased grace period

Rather surprisingly, the grace period in case of delay has been increased from 30 to 60 days, thereby reducing the number of days for which the Builder shall pay liquidated damages from 150 to 120 days.

Ownership and transfer of title

In most shipbuilding projects the Builder has ownership of and title to the vessel during construction. Transfer of ownership is in most legal systems governed by mandatory law; in particular, with respect to its effects towards third parties (creditors, bankruptcy estates etc.). Nevertheless, shipbuilding contracts typically provides that ownership and title passes to the Buyer at Delivery and Acceptance. In SHIP25 an Appendix II includes an option for the parties to provide a more flexible solution relating to financing of the newbuilding by way of granting the Buyer Progressive Title to the vessel during construction. Provided that this option can be upheld towards third parties, which is not straight-forward, it may be useful where the Builder is not willing or able to finance the construction and provide the Buyer with Refund Guarantees as security for the pre-delivery instalments. Instead, the Buyer will have ownership to and title in the Vessel as security. As indicated, it should be noted that it is not straight forward to agree on when the ownership passes, in particular towards third parties, and the applicable law may vary significantly in different jurisdictions.

Still no recommended guarantee forms

It is surprising that the parties did not agree to include forms of recommended guarantees, neither for refund guarantees nor for takeout or dispute guarantee, unlike what can be seen as part of e.g. NEWBUILDCON. In our view this would be more helpful than including a full provision about the content and form.

NOMA Arbitration as the default mechanism for dispute resolution

Nordic Offshore and Maritime Arbitration (NOMA) has now been introduced as the default dispute resolution mechanism, with Bergen as default place of the arbitration and Norwegian as language unless one of the parties is domiciled outside Norway, in which case the language of the arbitration shall be English. The NOMA clause brings SHIP25 in alignment with the default mechanism in the Nordic Plan for Marine Insurance.

Future updates

BAHR has a market-leading group on shipbuilding contracts, both in terms of commercial and contentious work. We will in upcoming newsletters look deeper into the revised and new provisions in SHIP25.