It is becoming increasingly common for a buyer to engage a third party service provider to supervise the construction of a new vessel on its behalf. However to date there has been no standard form contract upon which the buyer and supervisor could base their agreement.
It is therefore very much a case of “SUPERMAN to the rescue” as BIMCO’s latest addition to its stable of standard form contracts plugs that particular gap. In the words of Captain Ajay Hazari of Anglo-Eastern Ship management, who headed the SUPERMAN drafting team, the contract satisfies “the demand for a balanced, industry recognised, standard contract form for newbuilding supervision services”.
As is the norm with a BIMCO standard form contract, SHIPMAN is accompanied by a helpful set of explanatory notes which set out some of the reasoning behind the provisions of the contract. It is not the intention of this article to merely repeat those notes, but rather to highlight items within the contract that buyers and supervisors might wish to give further thought to when contracting on the SUPERMAN form.
Scope of Services (Clauses 4 – 7)
To provide the parties with flexibility, a list of supervision services has been included within SUPERMAN from which the parties can choose. These services include specification review (box 10 and clause 4), makers list review (box 10 and clause 5), plan approval (box 10 and clause 6) and site supervision (box 10 and clause 7).
Additional services can be added to SUPERMAN, however, where the services added are to be performed by the supervisor post-delivery of the vessel – for example, assisting with post-delivery warranty claims – the termination provisions of SUPERMAN will require amendment on the basis that the default position under clause 17(a) of SUPERMAN is for termination of the contract to occur upon delivery of the vessel from the shipyard.
Supervisor’s Obligations (Clause 8)
The final paragraph of clause 8 of SUPERMAN has been taken directly from SHIPMAN 2009 (see clause 8(a) of SHIPMAN 2009) and allows the supervisor to have regard to their overall responsibility in relation to all vessels that are entrusted to their supervision. In particular, the supervisor is entitled to allocate supplies, manpower and services in such a manner as the supervisor considers to be “fair and reasonable”.
Whilst this qualification is standard in the context of ship management services, it will be interesting to see if it is acceptable to buyers in the context of a newbuild project. Whilst a buyer will not expect to be a supervisor’s only client, given the nature of newbuilding supervision a buyer may insist on a dedicated team or guaranteed supplies for the duration of the build regardless of the supervisor’s other commitments.
A middle-ground might be for the supervisor to be entitled to allocate supplies, manpower and services on a “fair and reasonable” basis between all vessels being supervised for the same buyer or related buyers, although this will only be appropriate in circumstances where a buyer or related buyers are having a series of vessels built under the supervision of the same third party supervisor.
Responsibilities (Clause 14)
The liability provisions of SUPERMAN are based on the same provisions of SHIPMAN 2009. The supervisor’s liability to the buyer (see Clause 14(b)) for negligence, gross negligence or wilful default is limited to ten times the supervisor’s fee or such other amount as is agreed between the parties and inserted into box 14. A suitable alternative figure for insertion into box 14 (rather than ten times the supervisor’s fee) may be the limit of the supervisor’s professional indemnity policy, which the supervisor is obliged to maintain pursuant to clause 14(c).
The supervisor’s liability is also limited in clause 14(b) to 12 months from the earlier of:
i. the date of delivery of the vessel; or
ii. the date of termination of the SUPERMAN agreement.
This time-bar corresponds with the one year guarantee generally offered by shipyards on newbuildings, however, and as discussed above in the context of “Scope of Services”, where additional post-delivery services are to be provided pursuant to SUPERMAN (assistance with post-delivery warranty claims, for example) then this provision will also require logical amendment so as to extend the supervisor’s liability in line with the post-delivery services.
One important point to note from a buyer’s point of view is that their liability to the supervisor is not limited under the indemnity provision at clause 14(d). A buyer will have to consider whether this raises any issues from an insurance perspective. One assumes, however, that the indemnity is drafted in this way so as to reflect the fact that in the context of the shipbuilding contract, the supervisor acts as the buyer’s agent. Therefore, notwithstanding the presence of the supervision agreement, the indemnity operates in such a way to ensure that under the shipbuilding contract the buyer retains all the liabilities that they would have borne had the supervisor not been engaged in the first place.
Termination (Clause 17)
SUPERMAN can only be terminated early when there has been a breach of contract by either party or some other specific event occurs, for example the loss of the vessel or the termination, transfer or novation of the underlying shipbuilding contract. This drafting presumably reflects the fact that a supervision project only lasts for a finite period of time hence the lack of a right for either party to terminate the contract for convenience.
Be that as it may, the parties may nevertheless want to consider the inclusion of a right to terminate for convenience.
The SUPERMAN contract largely provides a good balance between the interests of the supervisor and the buyer. It is likely that SUPERMAN will soon be widely adopted within the industry, in much the same way as most other BIMCO standard form contracts. Further tweaks to the contract will undoubtedly be requested and required depending on the parties entering into the contract. However, in its current form SUPERMAN provides a solid base from which supervisors and buyers can start negotiating.
Sample copies of SUPERMAN and accompanying explanatory notes can be found on BIMCO’s website:www.bimco.org