Subcontracting in shipbuilding projects : The Norwegian standard form Shipbuilding 2000

Shipbuilding, being one of the oldest industries in the world, consists of more than just of building a ship. Many yards around the world design, build, test and repair ships. And even one project to build a ship consists of several lengthy stages. Going through these stages requires different background and expertise. Even though there are two main parties, the buyer and the builder, the success of a final “product” will also depend on professionalism and efforts of many other parties. When it comes to performance of a shipbuilding contract, in many cases the builder won’t be able to undertake all contractual works all by himself. Therefore he will have to subcontract a portion of contractual works. There might be several different reasons to subcontract a part of project. For instance, the shipbuilding project is too big and the yard has no capacity or resources, so there is a need to create an organization at minimal cost. Or perhaps the yard have the capacity, but some parts of project are too costly, and it is reasonable to find a cheaper yard. In Norway shipbuilding is an important branch of maritime activity. Norwegian shipbuilding industry is characterized as technologically innovative and professional, and this makes it adaptable and internationally competitive. However, Norwegian shipbuilding industry is also marked by costly production and high wage rates. In particularly it concerns hulls – that is the most costly and time consuming part of construction. Therefore Norwegian yards prefer to subcontract hull building to cheaper yards abroad. This is where the analysis of this thesis starts. Even though the building of a new ship is just one of ways to acquire a vessel, it is the most expensive way. Therefore the buyer is very precise in choosing a builder. Although the question regarding the price of a vessel is important, the yard’s reputation and experience are also major factors in this decision. This leads to a situation that when it comes to the subcontracting of a major part of construction works to another yard, the buyer might be not willing to allow this predicating, for example, on uncertain reliability of the subcontractor or any other reason. However, if the parties to a shipbuilding contract have agreement regarding subcontracting, then they have to accept the fact that a certain complexity is added to their legal relation. The builder and the subcontractor are parties to a contract which is secondary to the prime shipbuilding contract. Although the builder decides to subcontract on the grounds that are beneficial to him, his position in the whole shipbuilding project becomes rather more difficult. At the same moment when he signs the subcontract, he becomes responsible for the work of another yard, and this makes him dependent from the professionalism of the subcontractor’s specialists. If the subcontractor undertakes to perform a major part of construction work, his failure might mean huge losses to the builder. The buyer’s position with regard to subcontracting becomes more complex as well. As long as the work is performed according to the contract and there is no negligence on the part of the subcontractor, no problems arise. However, defects or negligence are not unusual in this kind of projects and the buyer might be in need of protection