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Newbuilding Contract Procedures


We sometimes get newcomers into the market who wish to start shipping with newbuilding orders. These newcomers ask us about the procedures of newbuilding contracts. Therefore we have decided to insert below guidelines in our website:

- If you have decided what type of vessels you wish to contract for newbuilding, we locate suitable shipyards in the world and we get their firm quotations for your enquiry. Most essential point for today (economical crises in the world and it is the buyers market today for shipping) to choose the right shipyard who will be around at the time of delivery as well. Many shipyards in the world today are having problems with their financials therefore even if it is more expensive than the others, we suggest you to go with the first class well known shipyards with financially sound status.

- We will bring you firm offers from various shipyards which we think are the most suitable to your project. These offers usually come with the vessels outlined specs and G/A plan only.

- Thenafter it would be better to go and visit each shipyards facilities for you to satisfy yourself about their quality of workmanship and meet with the shipyard's managers etc. We make the necessary meeting arrangements for you and travel with you to the shipyards.

- Once you decide which shipyard you like most, we shall start negotiating the LOI (Letter of Intend) terms. LOI usually have a few important items only: i.e the price, payment terms, delivery time, refund guarantee, number of firm vsls, number of option vsls (if any), validity of the LOI etc.

- Once LOI is signed by both parties, the shipyard will send you the full specification of the vessel together with the makers list. They will also send you their draft shipbuilding contract. As soon as you have the shipbuilding contract in hand, you need to send it to your shipping lawyer for him to start working on his comments. If you need help to find a good lawyer specilised on shipbuilding contracts, we can give you a few good names and their contact details. Since the shipbuilding contracts are done under English law, we always suggest to have an English Lawyer working for you on your newbuilding contract.

- Studying full specifications and making comments to it requires certain expertise and knowledge therefore we strongly suggest you to work with specialized companies for this work. We can guide you locate such companies.

- LOIs are usually valid for 30 days meaning you have 30 days to negotiate on the full specifications (abt 150 pages, makers list and the shipbuilding contract (abt 60 pages). It is always better to send your own technical team (or specialized company who will be working on yr behalf) to the shipyard in order to agree on the full specifications, any extras, makers list etc before you start negotiations on the shipbuilding contract. For your guidance, we find it easier to kindly request shipyard representatives to come to your office to negotiate on the shipbuilding contract terms. 

- It is always better to have a few email exchanges on the shipbuilding contract terms between the buyers lawyers and the shipyard before we come face to face meeting. Lawyers usually prepare their comments on the legal points. We as brokers prepare our comments on the commercial matters. When we are at the face to face contract negotiations, it is essential that your decision making commercial person attends to this meeting.

- Your original company documents (Board Resolution, Power of Attorney, Good Standing Certificate, Articles of Incorporation) should be ready before you sign the shipbuilding contract. If you are a large holding group, it usually takes long time to prepare these documents therefore such documents should be ready before the shipyard reps and the buyers reps meet for the shipbuilding contract negotiations. 

- After the original shipbuilding contract is signed, shipyards usually have maximum 30 days to issue a refund guarantee from a first class bank acceptable to the buyers bank equivalent to full purchase price minus last installment amount. Immediately after the buyers bank receives the refund guarantee from the shipyards bank, buyers shall make the payment of first installment.

- If any performance guarantees required by the shipyard (which is usually required if you are having your first deal with the shipyard), you have some number of days to prepare the same according to shipbuilding contract. Such performance guarantee may be in form of bank guarantee OR it may be a corporate guarantee only.

- You need to work on building up your supervision team in order to attend the building stages at the shipyard on yr behalf. If you are the newcomer into the market, we strongly suggest you to work with a specialist companies who would do the work for you. We can guide you locate such people if necessary.

- It is always better to arrange the vessels finance before you sign the shipbuilding contract. But if you have signed the shipbuilding contract and made the first installment with your own cash money, you should immediately start working on the financing discussions with your bankers.