We frequently draft and review construction agreements at our firm. As expected, the most commonly negotiated terms are the purchase price and delivery date, which are important components of any type of contract. Buyers often push for a firm delivery date, but the factors surrounding the timing of delivery are not always in the builder’s control, especially the past couple of years. We counsel all of our clients, including the builders, not to rush the last stages of a build project, even if it means delaying the delivery date by a few more weeks.
The parties to a new-construction agreement, especially the buyer, tend to become impatient as the end of construction nears. However, the buyer should allow the builder to thoroughly check all systems, perform trials, and ensure the functionality of all components to the greatest extent possible. There will undoubtedly be a few “bugs” in a new boat, but this process can certainly reduce that if the parties allow time for it.
Meanwhile, the buyer should be finalizing financing, binding insurance, and reviewing necessary paperwork for registration and appropriate permits, as applicable. The buyer, or their representative, can also work with the builder on things such as assigning warranties and compiling manuals for the boat’s systems. Spending the proper time on the final stages of construction and addressing nonconformities prior to closing will allow the boat to perform better at the time of delivery and prevent parties from making mistakes related to administrative matters.
Consequences of Rushing
All of my articles are based on real-life events, many of which happen through work at our firm. We recently had a client who completed a new-construction project that was substantially behind schedule. The parties closed on the boat and the buyer accepted delivery, with a post-closing arrangement that certain items related to the boat’s performance would need to be fixed before leaving the builder’s premises. The buyer also decided the boat would be delivered on its own bottom rather than be put on a ship as planned, but he did not inform his insurance company.
During a sea trial, the boat was involved in a substantial accident caused directly by the known issues, suffering extensive damage. Not only did the boat require significant repairs, but insurance coverage was also denied because the incident occurred outside the policy’s geographic limits, which were never adjusted after it was determined that the boat would be delivered to its home port by the buyer’s captain rather than on a ship. This was an extremely unfortunate and unlucky incident, but it probably could have been avoided to some extent with a bit more patience and communication between all relevant parties.
Communication is Key
I believe that constant and honest communication between the boatbuilder and the buyer is one of the most important factors in keeping the parties happy from the beginning stages of negotiation to the date of delivery.
The builder should share challenges in the construction process, and the buyer should voice preferences and concerns along the way. Additionally, using written change orders is crucial for both parties because it keeps track of modifications to the specifications and the ramifications of those changes, and keeps the parties’ expectations aligned throughout the build process.
A Form of Art
I certainly understand that buyers do not want to wait for a new boat forever, and I understand it is easy for me tell the parties to be patient when I am not the one writing the checks or seeing any monetary gain. By no means do I want readers to think I support builders delaying delivery for factors within their control. However, I do believe parties should exhibit patience on the final items after a boat is substantially complete, even if it is already behind schedule. Modern-day sport-fishers are not only complex pieces of machinery with complicated systems, but they are also aesthetic works of art. Both builders and buyers should have equal incentive to get things done right prior to delivery.
Raleigh P. Watson is a contributing author, and a Partner at Miller Watson Maritime Attorneys.