TRANSFORMATION OF ADVANCED CONTRACT TYPES FOR THE SHIPBUILDING INDUSTRY WITH RISK ANALYSIS

Many shipyards today contract vessels based on the traditional Lump Sum Fixed Price (LSFP) contract. Even though the construction of vessels from contract to delivery lasts from a year to longer, there are limited mechanisms available to mitigate for risk during the project evolution, especially in the case of prototype vessels, which are being built by the shipyard for the first time and include much uncertainty with regards to project drawings, detailed material lists and man-hours. Shipbuilding is definitely a large engineering construction project (LECP). Therefore it is logical to analyse how LECPs are contracted and managed in other industries which successfully minimize contract risk and constantly ensure profit in its business. In this paper two new shipbuilding-contracting models are presented and applied in a generic case study of contracting the newbuilding of a prototype vessel. The Cost Plus Incentive Fee (CPIF) and the Cost Plus Fixed Fee (CPFF) contract models are demonstrated as improving the contracting process while yielding positive results for production, both in relation to the core capabilities of the shipyard as well as the sub-contracted activities in vessel production. Likewise a product work breakdown structure PWBS is shown as the model for shipyard business that very well complements the advanced contracting models. Finally a new contract risk analysis method using Monte Carlo simulation is developed to demonstrate how to practically analyse and compare the contracting methods in a case study so that shipyard management could choose the contracting model with the least amount of risk