Shipbuilder Guarantee; Contractual Engagement

The rate of shipbuilders guarantee has been on the increase over the last couple of years. When engaging in a contract for shipbuilding, the purchaser will require the builder to assure about the quality of material and artistry. It is also the expectations of the buyer that the vessel bought has a guarantee, its hull as well as all it machineries. The guarantee will run for a specified period and upon expiration of this time and the builder will not be held liable. Therefore any defects discovered after the expiration of the guaranteed period will be borne by the buyer.

Ship Building Deal

In a shipbuilding project, there are invariably at least three parties, the buyer, the Shipbuilding yard and the Ship building Bank which guarantees the builder’s obligations to repay the buyer instalment if the purchaser terminates. The contract does not bring the three parties together. Buyer and the Builder will enter into a contractual agreement with the bank guaranteeing the customer. The Bank will enter into a contractual arrangement under which a guarantee was provided at the Yard’s request to the buyer. A refund guarantee is a major dispute in the shipbuilding industry, and the buyer wants to call on the rebate guarantor to make good on the shipbuilder’s promise to repay instalments when the buyer lawfully terminates the contract[1].

A refund guarantee is written in a manner that discourages its cancellation, and cannot be called until any disputes existing between the Buyer, and the shipbuilder is resolved, in most instances through an arbitration process[2]. There is no independent or quasi-independent architect or contract administrator who deals with the issues of interim payments and time extension. That is to mean that a shipbuilder is bound by the contract to deliver the ship at an agreed time while the buyer should make good his payment on due time. The contractual method of the method varies depending on the cost of the ship to be built and strength of negotiating parties.

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