CONVERSIONCON

Overview

Ship conversion projects range from small scale modifications to full scale conversions when, for example, a ship is converted for a whole new purpose. CONVERSIONCON is designed to be scalable for both small and large projects. This is achieved using annexes and industry-familiar clauses that are found in BIMCO’s forms for shipbuilding and ship repairs – NEWBUILDCON and REPAIRCON 2018.

CONVERSIONCON

Supporting documents

Explanatory notes

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Background

Ship conversions are typically "one off" projects, which conceptually rest somewhere on a spectrum between repair and newbuilding. Smaller conversions are typically closer to repairs, whereas larger conversions are closer to newbuildings. CONVERSIONCON has been designed for larger conversions but reflects the wider range by including clauses from both BIMCO’s standard shipbuilding contract, NEWBUILDCON and the standard contract for ship repairs, REPAIRCON 2018 – while also introducing new clauses that are tailor-made for conversions. For the same reason, the drafting team has aimed at producing a contract that provides flexibility in terms of allocation of different responsibilities. For practical purposes, the contract has been designed to regulate both the conversion project as well as any repair works which may be arranged in parallel.

One of the ways in which a high degree of flexibility is offered to the users is through the inclusion of annexes. The contract itself sets out the general terms. For project specific points it refers to a string of annexes that the parties will fill out. Examples of this are the specification of the conversion works to be undertaken, vessel documentation, guarantees and HSSE policies.

In addition to including clauses from NEWBUILDCON and REPAIRCON 2018, which the industry may be familiar with, elements from other BIMCO forms are also used. For example, this is the case for the insurance provision which incorporates elements from the much-used time charter party for offshore support vessels, SUPPLYTIME 2017, which have been adapted to fit the context of a conversion.

It should be noted that, in CONVERSIONCON, the term “delivery” covers the owners’ delivery of the ship to the yard, whereas in NEWBUILDCON it covers delivery of the newbuilt ship from the yard to the owners.

BIMCO would like to thank the drafting committee for their commitment to the project and their considerable time and efforts in producing CONVERSIONCON:

  • Mr Gregory Fossion, Exmar (Chairperson)
  • Mr Matthew Keane, BW Offshore
  • Mr Kenneth Chong, Keppel Offshore & Marine
  • Mr Carl Ratjen, Lloyd Werft Bremerhaven
  • Ms Nicola Cox, West P&I
  • Mr Chris Kidd and Mr David Choy, Ince
  • Mr Adam Goldschmidt, Danish Maritime

BIMCO secretariat support was provided by Mads Wacher Kjærgaard, Manager, Contracts & Clauses, and Christian Hoppe, General Counsel.

During the development of CONVERSIONCON, a round of consultations was carried out with a selected group of industry experts, primarily shipyards. BIMCO is thankful for all the comments received during this consultation. An area to be highlighted from the consultation is the approach taken on design responsibility where the consultees were specifically asked whether they agreed with the approach taken in the contract, ie that the owners provide a basic design and the yard produces the detailed design. The consultees were divided: one group was supportive of the approach, while the other felt it was the wrong starting point. This reflects the wide range of conversions as larger conversions typically follow the approach taken, whereas smaller conversions will often have the owner provide the full design and the yard’s work will be of a production or fabrication nature. BIMCO will monitor the use of CONVERSIONCON. If this indicates a need for a standard contract for smaller conversions, a CONVERSIONCON “light” could be developed.

Explanatory Notes

These explanatory notes are intended to guide users by providing background to the development of CONVERSIONCON and the drafting team’s thinking behind key clauses. This document is a living document and, if and when BIMCO receives questions on some of the clauses, we will expand the notes.

Structure

The contract is divided into three parts: Part I, Part II and Annexes. Part I is used to insert the contract variables such as the name of the parties, the details of the ship and yard, payment amounts and due dates, guarantees and warranty periods. Part II contains the standard terms and conditions and is divided into six sections to provide an easy overview. The content and structure known from NEWBUILDCON has been maintained, in so far as possible, to ensure consistency between the BIMCO forms.

Part I

The box layout in CONVERSIONCON is a standard design used by BIMCO.

Part I incorporates the BIMCO Authenticity Clause above the signature boxes. The objective of the clause is to decrease the frequency of the industry’s – often unknowing – use of counterfeit and often erroneous copies of BIMCO forms. If one of the parties provides the contract template for negotiation and is reluctant to include this clause, then this should serve as a warning that the offered contract may not be a genuine BIMCO standard agreement.

An index of clauses has been included after Part I to give an overview of the provisions in CONVERSIONCON.

Part II

DEFINITIONS

“Contractors’ Group” and “Owners’ Group” – these definitions come from SUPPLYTIME 2017. They define the entities that the relevant party is responsible for and have been included to ensure that the same entities are referred to throughout, when relevant. This is primarily used in the liabilities and indemnities provisions.

“Conversion Works” – this broad definition is intended to cover all activities that might be included in the specification. The definition plays a key role and is used throughout the contract, and although it includes the words “to the extent detailed in the Contract”, it is recommended that the parties carefully review the definition and amend it as appropriate depending on the scope of the project.

“Shipyard” – it should be noted that this definition has been broadly drafted to cover the shipyard but also any other place where work is undertaken. If other places than the shipyard are relevant for the performance of Conversion Works, the parties should include those in Box 5.

INTERPRETATION

Standard interpretation clauses have been included in this section.

SECTION 1 – Scope of Work

1. Basis of Contract

This clause sets out the primary obligations of the parties. The standard chosen for the contractors is “good international shipbuilding and marine engineering practice”. It is, of course, up to the parties to agree upon any other appropriate standard or reference if they wish.

2. Classification, Rules and Regulations

Subclause (a) – It should be noted that the relevant applicable laws, rules, regulations and requirements of class and regulatory authorities are not just those in force at the date of the contract but also those which are ratified and promulgated on or before the date of the contract and which will be compulsory for the ship on or before the actual date of the redelivery.

The contract deliberately does not address legal requirements in the area where the ship will be operated following the conversion. This should be addressed by the parties in Annex A, if they find it appropriate. It is not considered the norm and would therefore be too prescriptive for a standard contract.

Subclauses (c) and (d) – One of the areas where conversions usually differ from newbuildings is that either party can be responsible for both engaging and paying for the classification society’s and regulatory authorities’ approval of the conversion works as well as any surveys, tests and inspections. This will often depend on the type and size of the conversion project. These two subclauses allow for the parties to indicate which party bears these responsibilities in Box 6.

Subclause (f) – This subclause has been lifted from subclause 2(c) of REPAIRCON 2018 and requires the contractors to have all locally required licences and permissions in place to perform the works.

Subclause (g) – The parties have to cooperate and assist each other with obtaining the documents and approvals they are responsible for without any reservations. This is particularly important for conversion projects as there will often be a lot of dialogue with class and the authorities since conversions are often individual projects and not of a standardised nature.

3. Delivery

Subclause (a)(ii) – It should be noted that the ship only has to be gas free and/or inerted, free of cargo, slops etc. to the extent that the substance either affects the conversion works or is dangerous or harmful to health. For example, if there is sludge on board the ship, it either has to interfere with the works or be harmful to health in order for the owners to have to remove it from the ship.

Subclause (a)(iii) – This subclause provides a mechanism for the owners to keep the contractors informed on the ship’s arrival. Compared to newbuildings, this is necessary as it is an existing ship in operation rather than a ship under construction. The notifications are important to allow the Contractor to plan and prepare for the Conversion Works.

Subclauses (b)(i) and (ii) – These subclauses address the consequences of late delivery by the owners in terms of extending the redelivery date, losses and expenses of the contractors and entitlement to terminate. It provides a mechanism whereby the owners may extend the delivery date if they are unable to deliver the ship by the delivery date. The new delivery date is referred to as the “Delayed Delivery Date” and, if this falls within the defined grace period, then the contractors are obliged to accept delivery (and the redelivery date shall be amended to reflect the delay to the original delivery date).

If the Delayed Delivery Date falls beyond the grace period (but before the termination date) the contractors shall also be obliged to accept delivery but the delay to delivery (and the consequences thereof) shall be treated as a variation.

This subclause also addresses the consequences of failing to deliver the ship by the Delayed Delivery Date and Termination Date.

4. Vessel Documentation

Subclause (a) – This subclause requires the contractors to review the vessel documentation set out in Annex C (Vessel Documentation) that is provided by the owners. The review should be sufficiently thorough to discover any obvious errors or omissions. It should be noted that this process typically will take place before the contract is signed and, unless the contract is amended, the contractors will be deemed to have done so before entering into the contract. This gives clarity and certainty as to the scope of the Conversion Works, with a view to limiting variation orders and disputes.

Subclause (b) – In addition to the documentation set out in Annex C, the contractors can ask for more documentation or information necessary and the owners shall provide the same.

Section 2 – Financial

5. Contract Price

The words “as may be adjusted in accordance with this Contract” are included to flag up that the price may change depending on, for example, variations, liquidated damages or change of applicable laws.

6. Payments

Under subclause (a)(i), the first instalment is not due and payable until after the contractors’ guarantee has been provided.

In the last paragraph of subclause (a), it is specified that “All Instalments other than the Redelivery Instalment shall be paid as advances and not deposits”. This is to make it clear that the payment should not be treated as a deposit for the reason that a deposit (which effectively acts as a guarantee of the contract being performed) will not be recoverable by the owners if the owners are in default. In contrast, it is possible that (subject to express terms to the contrary) an advance payment (which is considered as part payment) may be recoverable by the owners in the event of an owner's default, subject to a claim by the contractors for damages.

In subclause (b)(iii) the “other items” is intended to cover, for example, consumables, spare parts, mooring charges under subclause 30(b) and payment of indemnities under subclauses 35(d) and (e).

7. Interest

This clause gives a party the right to charge interest in case the other party fails to make timely payment. Please note that no default interest has been included in the event Parties do not put an interest rate in Box 15.

8. Taxes, Duties, Stamps, Dues and Fees

 The clause provides for a clean split of costs: the contractors are responsible for all taxes etc. applicable at the shipyard and place of delivery and the owners are responsible for all taxes etc. which apply outside the shipyard and place of delivery. It should be noted that Box 5 is deliberately worded to cover both the shipyard and place of delivery as these may be different and there could be taxes in both places for different reasons.

9. Right to Set-off

This clause has been worded widely in order to capture all the different ways in which amounts can be deducted from a payment.

10. Guarantees

Instead of having a very descriptive clause, the clause refers to Annex D (Owners’ Guarantee) and Annex E (Contractors’ Guarantee) which set out guarantee wordings that the parties can use. This avoids any potential conflicts between the text of the clause and the wording of the relevant guarantee. It is important that the parties fill out Box 19 appropriately as there otherwise will be no deadline for when the guarantees must be in place. The contract allows for two different types of guarantees from the owners: an instalment guarantee and a performance guarantee. It should be specified in Box 19(a)(ii) which of the two applies.

11. Liquidated Damages for Late Redelivery

The clause does not set out a default number of days as the relevant number of days will depend on the nature of the particular conversion project, such as the size and timeline. Instead, the parties will have to agree an appropriate number of days for late redelivery after which liquidated damages will be payable. A box is also included for the number of days after which the owners will have the right to terminate the contract.

Further, a box is included to insert the daily amount or percentage of the contract price for liquidated damages. This box also allows the parties to insert a maximum amount or percentage for the liquidated damages for late redelivery. A default value of 10% of the contract price will apply if the parties do not make a choice as this is often a figure that is used.

It is specified that the remedy under the clause is the sole remedy for the owners against the contractors for late redelivery. While this may not be necessary under the current English law position, it has been included for avoidance of doubt.

12. Other Liquidated Damages

In most instances, this clause will only be relevant for bigger scale conversion projects. To reflect that other liquidated damages depend on the scope of the project, the clause only applies to the extent that the parties have included special technical requirements in Annex F (Special Technical Requirements) and consideration would need to be given to providing for the thresholds, rates and maximum amounts of such liquidated damages.

13. Title to the Vessel, Materials and Equipment

Subclause (a)(ii) – This subclause reflects general practice for conversions which is that title to all removed items and scrap often transfers to the contractors when removed from the ship. It is the contractors’ responsibility to handle and dispose of these items at the yard or with professional recycling subcontractors. It should be noted that title to large and expensive items, ie propellers, tailshaft and heavy machinery parts, remains with the owners unless the parties agree otherwise.

Specific reference has not been made to owners’ supplies as title to these will usually remain with the owners.

Subclause (b) – The expression “when delivered to the Shipyard” is intended to cover the situation where material or equipment to be used for the conversion has been produced in another location and is sent to the yard.

Subclause (c) – This subclause clarifies that the only lien the contractors can exercise on the ship is for outstanding payments from the owners. The contractors are not permitted to exercise a lien on any owners’ supplies.

SECTION 3 – Performance of Conversion Works

14. Subcontracting

It is common practice for a yard to bring in subcontractors to undertake certain elements of the conversion works. This clause allows the yard to do that and where subcontractors are specifically identified in the Specification or Maker’s List, these shall be used. This is often done for major items. The yard will remain fully responsible for any subcontractor’s work.

15. Design

The design responsibility is a key part of a conversion project. The drafting team has opted for a position where the responsibility for the basic design sits with the owners and the responsibility for the detailed design sits with the yard. This may not be suitable for all conversion projects, but it reflects the most common position for larger conversions. For smaller conversion projects, it is not uncommon that the owner has engaged a design house to do a full and complete design which the owner will then provide to the yard. Where this is the case, parties may wish to adapt this clause so that both designs are the responsibility of the owner.

Subclause (a) – While the owners are responsible for the basic design, it is paramount that the contractors in a timely fashion review the provided design to ensure that they have sufficient details to do the detailed design. Where there are extensive errors in the basic design, subclause (a)(ii) allows the contractors to claim for a variation.

Subclause (b) – It is deliberately not specified when the detailed design should be completed. In practice, the different tasks in a conversion project are not sequential but are rather done in tandem. For example, detailed design work and engineering is often ongoing after the physical works have started.

16. Approvals of Plans and Drawings      

The timetable for plan approval as set out in this clause should be considered by the Parties and, if thought inappropriate, should be amended.

Subclauses (c) and (d) identify the difference between comments, amendments or reservations, on the one hand, and variations, on the other. If the contractors consider that the amendments amount to variations, but the owners disagree, the default procedure is set out in the second paragraph of subclause 21(a)(ii) and ultimately will have to be decided under Clause 40 (Dispute Resolution).

Subclause (e) permits the contractors to proceed with the construction in the event that the owners fail to return any plans or drawings in the time permitted, although the owners have a remedy in subclause 20(b) where they can request more time to consider the plans and drawings.

17. Owners' Supplies

This clause has been taken from NEWBUILDCON and has been logically amended for a conversion project. For example, the contractors right to direct where the owners’ supplies are to be delivered in subclause (a)(i) has been qualified by the word “reasonably” to reflect that work might not take place at the shipyard.'

Subclause (a)(iii) – It should be noted that if the delivery of the owners’ supplies is delayed, the contractors are allowed to continue their work. Depending on the scope of the particular project, parties may wish to consider changing the number of days.

Subclause (b)(i) – Once the owners’ supplies have been delivered, the contractors are responsible for labelling them so they can be identified from other materials at the yard. This was considered useful in case of a bankruptcy event so that the owners can get their supplies back. After labelling, the contractors must safely store the supplies and install them in or on the Vessel.

Subclause (b)(iii) – This subclause allows the contractors to reject materials if they are unsuitable. This goes further than the initial inspection under subclause (b)(i), where it is only expected that the contractors check for obvious damages or defects.

18. Owners’ Work

This clause has been taken from REPAIRCON 2018. While the ship is being converted, it is not uncommon for the owners to carry out small repairs and maintenance in other parts of the ship, and this clause allows for that as long as it does not disturb the conversion works.

19. Owners' Representative, Assistants, Officers and Crew and Contractors’ Representative

This is a practical clause to help with the smooth operation of the conversion process.

Subclauses (a)(i)-(iii) – These subclauses come from REPAIRCON 2018 and have been expanded to include assistants, officers and crew in addition to the assigned representative. The owners’ representative must be present at the yard with full authority to act on the owners’ behalf and agree any variations to the conversion works. It is highlighted that the contractors must ensure that the representative has access to the relevant working areas. 

Subclause (a)(iv)-(vi) – In subclause (a)(iv), it is intended that the expression “communication facilities” also includes internet access. Subclause (a)(v) gives the contractors the possibility of requiring the owners to replace an assigned representative who is unable to carry out the required duties in a sufficiently professional manner.

Subclause (b) – This subclause comes from REPAIRCON 2018 and has been logically amended. It mirrors the procedure set out in subclause (a)(i).

20. HSSE (Health, Safety, Security and Environment)

Most shipyards and shipowners will have their own HSSE policies. For this reason, this clause refers to Annex G (HSSE) where the parties can include their relevant policies. Usual practice is that anyone who enters a shipyard will have to comply with the yard’s HSSE policies. In such instances, the parties’ subcontractors will automatically be covered. Due to the flexibility of the annex, the parties also have the option of providing specifically for the level of compliance with HSSE policies of their subcontractors in the annex.

In addition to the policies set out in Annex G (HSSE), the clause also clarifies that the parties will have to comply with mandatory requirements of relevant jurisdictions.

21. Variations

Subclause 21(a)(i) – This subclause gives the contractors the possibility to make minor variations if, for example, they cannot get a particular material agreed in the contract but can get another which satisfies the requirements.

Subclause 21(a)(ii) – This subclause gives the contractors the possibility of requesting variations in limited circumstances arising out of delayed delivery, errors, omissions or discrepancies in the basic design and owners' comments, amendments and reservation on plans and drawings.

Subclause 21(b) This subclause gives the owners the option of requesting reasonable variations Very often, shipyards have very tight schedules and immediately after the conversion project is finalised the slot is required for another project. For this reason, subclause (b)(ii)(1) gives the yard the possibility to reject the request if it disturbs their other commitments.

22. Changes in Rules and Regulations

The clause applies if there are changes after the date of the contract (in other words outside the scope of subclause 2(a)). It should be noted that the parties will have to cooperate and agree on adjustments to the contract. If they fail to do so, the matter will ultimately be resolved in accordance with the Dispute Resolution provision (Clause 40).

23. Inspections, Tests and Trials

 It should be noted that subclause 23(c) extends the owners’ representative’s right to attend inspections, tests and trials to not only the shipyard, but also to anywhere else where work is being performed or items connected to the construction are being stored.

24. Sea Trials

Sea trials are not always carried out for conversion projects. It very much depends on the scope and nature of the specific conversion. To cater for this, a clause and corresponding box have been included. The box defaults on “no” and should be changed if it has been agreed to carry out sea trials. The parties should further specify the extent of the trials in the specification.

25. Method of Acceptance or Rejection

This clause sets out tests and trials regime for the converted parts of the ship and the procedure for acceptance and rejection based on the result of such tests.

26. Redelivery Defects

What constitutes “Redelivery Defects” is defined in subclause 25(c). In case of minor redelivery defects, a practical solution has been included whereby the contractors can require the owners to take redelivery. Although redelivered, the contractors are still responsible for correcting the defects at their cost, and the owners are allowed to hold back an amount equal to the estimated cost until the defects have been resolved but parties may wish to include other arrangements.

SECTION 4 – Redelivery

27. Redelivery

This specifies that the ship should be redelivered on or after the redelivery date. It should be remembered that this day could be adjusted, in the sense that the contractual date of redelivery may be extended by permissible delays in accordance with Clause 31 (Permissible Delays).

28. Documents on Redelivery

The parties should ensure that the list of documents and how they are described complies with their requirements and those of their regulatory authorities. In the event that required certificates are not available at the time of delivery, subclause 28(c) sets out the procedure that is to apply.

29. Redelivery Instalment

 Where newbuilding contracts often refer to a deposit being made for the final instalment, this clause is simplified in the sense that it only deals with payment. It should be noted that the reference to the redelivery instalment being “adjusted in accordance with this Contract” takes into account the various price adjustment mechanisms set out in the contract.

While it is often not included, the parties may for some conversion projects find it appropriate to include a mechanism for a “post redelivery instalment” to deal with any items that remain outstanding at redelivery.

30. Possession and Removal of the Vessel

This clause requires the owners to take possession immediately and remove the ship latest five days after redelivery. If they do not remove the ship, the contractors are entitled to move it to another place provided that the place is safe.

SECTION 5 – Legal

31. Permissible Delays

This clause is key to the calculation of the redelivery date and the owners’ right to terminate the contract for delay (see Clause 38 (Suspension and Termination). It should be remembered that the structure of the contract incorporates a fixed date (the contractual date of redelivery, specified in Box 12) which may, but in most cases will not, be the actual date on which the ship is redelivered, and the redelivery date, which may move as the result of this clause. The liquidated damages payable for delay under Clause 11 (Liquidated Damages for Late Redelivery) apply with reference to the redelivery date, as does the owners’ right to terminate the contract under subclause 38(a)(iv).

Subclause 31(a) identifies two categories of events, either of which would amount to a permissible delay extending the redelivery date:

(i) force majeure events (in other words events which are outside the control of the contractors); and
(ii) other events which can be categorised as events which are either caused by the owners, or are the owners’ responsibility.

It is important to note that with both categories, the overriding requirements in subclause 31(a)(iii) apply, namely that the event should not have been caused or foreseen by the contractors, who must also do what they reasonably can to avoid or minimise the effect of such events, and the notification requirements have been complied with.

The contractors have to give notice of the beginning and ending of any event which they intend to claim as a permissible delay. The purpose of this is to enable the owners to check the circumstances simultaneously.

32. Contractors’ Warranty

The clause uses the expression “warranty” rather than “guarantee” as this is more common terminology and to avoid any confusion with Clause 10 (Guarantees) and the forms of guarantee set out in Annexes D and E. It should be noted that where the yard under a shipbuilding contract guarantees/warrants the entire ship, this is not the case for most conversion projects. Instead, the contractors under this clause only warrant the conversion works themselves. In case of a major conversion of a ship, parties could consider extending the warranty to include the ship itself.

“Defect” is a defined term and, therefore, if the parties decide to extend or reduce the areas of work covered by the warranty they should do so by amending this definition in the definitions section.

Subclause (c)(ii) – Wording has been included to allow the owners to arrange for the repairs to be completed at another place than the shipyard in situations where the contractors are unable to complete the necessary repairs or replacements without delaying the ship’s operation.

In subclause (d) it has been clarified that the owners might not perform the repairs themselves, but rather will arrange for them.

Subclause (e) is an addition to the NEWBUILDCON regime and comes from REPAIRCON 2018 subclause 10(d). The purpose is to allocate to the owner the cost and responsibility of taking the Vessel to the place of repair.

Subclause (g) gives the owners the right to require the contractors, in certain circumstances, to assign rights against subcontractors or suppliers to the owners. This might apply in the event that the subcontractor or supplier’s guarantee (to the contractors) is for a period in excess of the warranty period or the contractors have failed to rectify warranty defects, for instance in the event of financial difficulties.

33. Contractors' Exclusion Clauses

 Instead of covering all exclusion clauses in one clause, it has been split into three where this Clause 33 covers the contractors’ exclusion clauses, Clause 34 covers the mutual exclusion clauses and Clause 35 covers liability and indemnity. In this Clause 33, the contractors’ exclusion clauses have been divided into four categories where relevant cross references are included.

34. Mutual Exclusion Clauses

Subclause (a) – this subclause is based on the REPAIRCON (subclause 9(d) (Exclusions of Liability)) clause.

Subclause (b) – This subclause contains a mutual exclusion clause in respect of the liability that follows termination. However, the second paragraph contains an important mutual reservation of rights if the conduct of the other party is such as to amount to what under English law is known as a repudiatory breach. Similar concepts are found in other legal systems. This covers particularly serious or intentional breaches of the contract such as a total failure to convert the ship, or a refusal to pay instalments. The clause emphasises that the restrictions on a party’s right to recover damages (as set out elsewhere in the contract) do not apply in such circumstances.

35. Liability and Indemnity

Subclauses 35(a) and (b) are “knock for knock” provisions. This means that each party takes responsibility for loss of or damage to their own property or injury or death of their personnel, regardless of fault. Knock for knock provisions in contracts limit the risk and minimise insurance costs by avoiding duplication in the cover required, as each party’s insurance should only be called upon to respond to losses in respect of their own property and personnel.

Subclause 35(b) (responsibility for damage to or loss of property), is subject to provisions to the contrary in the contract (so that it would not over-ride, for instance, the warranty provisions in Clause 32).

The wording follows the Limitation Convention 1976 and therefore will be easily interpreted by the Courts.

36. Limitation

 The drafting team did not find it appropriate to specify the amount of a fixed cap on liability as this depends on the scope of the particular conversion project. If the parties wish to have a cap, they should agree such and insert it in Box 26(a). If the box is left blank, no cap will apply.

37. Insurances

The insurance arrangements can vary from project to project but, following input from different insurers, it is noted that the chosen allocation is often the position for larger conversions, where the risk of loss and damage to the ship while in the yard’s possession is generally undertaken and insured by the yard during the course of the conversion on the premise that until redelivery, the yard is in a better position to assume, manage, mitigate (principally through insurance) and thus price the risk. This is reflected in the drafting of subclauses 17(b) and 35(c), coupled with the approach taken in the drafting of Clause 37.

Subclause (a) points to Annex H (Insurances) which provides for the yard’s typical insurance, Builders’ All Risks Insurance. The limit of the cover should take account of the (aggregate of the) values of the ship under conversion, the contract price for the conversion and the value of the owners’ supplies that will be delivered to the yard during the course of the conversion in order for the coverage to be adequate to protect against the risks assumed by the yard under the contract.

Subclause (d) requires the owners to maintain P&I, H&M and War Risks Insurances throughout the conversion. It should be noted that it might not always be possible for owners to get P&I insurance during a conversion project. It can be the case that the only obtainable insurance is a more general liability insurance. If the owners are unable to obtain P&I insurance, this wording should be deleted or P&I should be replaced with whatever form of insurance is obtained, for example liability insurance.

Subclause 37 (e)In the event that the ship is damaged (but is not an actual or constructive total loss), subclause 37(e)(i) reflects the typical scenario that the contractors shall make good the damage and that insurance proceeds should be applied to the cost of this accordingly. However, the parties may decide that it would be appropriate for the owners to have the option for another shipyard/contractor to undertake the work of making good the damage, in which case this provision would need to be amended to provide for this option

38. Suspension and Termination

To the extent possible, the clause is expressed mutually although, because of the parties’ different positions, the provisions are not identical.

Subclause (a) does not give the owners a right to terminate if the contractors fail to perform any work relating to the conversion works for a certain period but refers to the contractors’ performance guarantee issued in accordance with subclause 10(b) (Contractors’ Guarantee).

Subclauses (a)(ii)-(iv) sets out three events which have to be read together. To provide the parties with the flexibility to adapt the contract to the scope and duration of the project, no fixed number of days has been included and instead the parties will have to agree the numbers. Subclause (iv) includes a mechanism where the owners can calculate with certainty a “long stop” date following which they will be able to terminate (excluding any delays for which they are responsible).

The remaining part of subclause (a) concerns the situation where the owners’ right to terminate has materialised and gives the owners the right to request the contractors to agree a new redelivery date and sets out the procedure for this (and the position concerning the accrual of liquidated damages).

Subclause (b) covers the contractors’ right to terminate. In NEWBUILDCON, the contractors are allowed to terminate if the owners do not pay within 21 days. However, for a conversion project, this was considered a very long period and 5 days was considered more appropriate as a starting point. Depending on the scope of the project, parties can consider changing this number. According to subclause 6(a)(i), payments are due and payable after 5 days (unless otherwise agreed in Box 16). This means that the contractors can notify the owners of their intention to terminate after 10 days of not receiving payment and then terminate 5 days after this notice if payment is still not received – and additionally, the owners will have received the invoice a number of days in advance of the payment falling due.

In addition to the contractors’ right to terminate, they also have the right (but not the obligation) to suspend work if the owners fail to pay an amount that is due and payable for 5 banking days.

In subclause (d) it should be noted that the parties have both the right to suspend performance and terminate the contract.

Subclauses (e) and (f) set out the effect of the parties’ termination. The words “with the necessary assistance from the Contractors” acknowledge the fact that owners alone cannot move the ship without cooperation from the contractors.

39. Copyrights, Trademarks and Patents

This clause is mutual for both parties. This is especially important for a conversion project where both parties will be sharing information.

40. Dispute Resolution

Subclause (a) covers disputes relating to rules, regulations and requirements of the classification society or other regulatory authorities that are referred to the relevant body. It should be noted that the reference to the decision of class or regulatory authorities being “final and binding” is intended to cover the decision of the head office of the relevant body and not the local representatives.

Subclause (b) is dependent on the parties nominating an appropriate expert in order to achieve a prompt and effective resolution to practical issues where there is a difference of opinion. The provision is optional, in the sense that if the parties do not agree to nominate an expert within 7 days of a notice from one party to invoke this procedure, the dispute goes to arbitration.

If appointed, the expert acts as an expert and not as an arbitrator. The purpose behind this provision is to protect the expert from criticism or sanction in the event that the expert does not act as judicially as would be expected of an arbitrator. For instance, whereas arbitrators are constrained from using their own expertise without allowing the parties to comment on it, an expert should not be so restricted.

The intention behind this procedure is that it should be swift and efficient and not a mechanism for delay. The suggested timescale is that the expert should publish the decision within 28 days of appointment.

Subclause (c) – this is BIMCO’s 2020 edition of the law and arbitration clause which offers four named arbitration venues and a free choice of law and forum. When using SmartCon, the option chosen by the parties in Box 31 will appear automatically in the body of this clause. If the parties fail to make a choice, English law and London arbitration will be the default position.

Subclause (c)(i) determines the governing law; the place of arbitration; the applicable arbitration legislation; and the seat of arbitration (where the arbitration takes place in a jurisdiction other than the agreed place of arbitration). It is an “exclusive” arbitration agreement. This is emphasised by the addition of the phrase “referred exclusively to arbitration”.

Subclause (c)(ii) requires the parties to appoint three arbitrators but allows for a different number of arbitrators to be agreed.

Subclause (c)(iii) applies the terms (or rules) of the chosen arbitration association to the conduct of the arbitration. An appointment procedure is no longer included in the clause because the terms of the named arbitration venue contain a procedure to which parties should refer when making appointments of arbitrators.

Subclause (c)(iv) provides for the small claims procedures offered by the named arbitration association, i.e. the LMAA Small Claims Procedure for London, the SMA Rules for Shortened Arbitration Procedure for New York, the SCMA Expedited Procedure for Singapore and the HKMAG Small Claims Procedure for Hong Kong. Parties are free to decide on the maximum applicable sum for small claims, but otherwise the clause will display the default amount used by each of the named venues. If the London arbitration version of the clause is chosen, then an additional “intermediate claims procedure” provision will apply optionally.

Subclause (c)(v) applies the terms, rules and procedures of the chosen arbitration association current at the time that arbitration proceedings are commenced. This is the common approach for arbitration in London, Singapore and Hong Kong. In New York the rules are different and it is those current at the time the contract was concluded that will apply.

Subclause (c)(vi) addresses the correct service of arbitration notices and communications. Parties are free to serve notices by whatever effective means they choose, but if they choose email then they must provide the email address of someone authorised to receive arbitration notices (and advise the other party of any change of address during the period of the agreement). Notices are considered effectively served immediately on sending by email.

SECTION 6 – Sundry

41. Notices

This clause anticipates that the parties will wish to send notices and documents between them by electronic means, although from the point of view of evidence it would still be necessary to prove that the message had been transmitted. The clause takes account of the BIMCO Law & Arbitration Clause 2020 and that the persons meant to receive notices and communications under that clause may be different from the owners and contractors otherwise indicated in Part I of the contract.

42. Effective Date of Contract

The contract anticipates that the parties will wish to impose conditions on it becoming effective. If that is the case, such conditions should be inserted in Box 29.

43. Assignment

Both parties have a right of assignment for financing purposes. Additionally, the owners in subclause (b)(ii) have a right of assignment to a third party subject to the contractors’ consent.

44. Severance

This clause is intended to avoid a situation where the entire agreement is held to be invalid because a provision is deemed by an arbitrator or other competent authority to be illegal, void or unenforceable.

45. Entire Agreement

The purpose of the clause is to limit the rights of the parties to the written terms of the contract. As such it is intended to exclude representations, written and oral, not intended to be part of the final concluded contract.

46. Third Party Rights

The purpose of this clause is to clarify that only third parties expressly identified in the contract can benefit from it.

47. Sanctions

This is an adapted version of the BIMCO Sanctions Clause for Time Charter Parties 2020 which has been expanded to cover the group definitions. Explanatory notes for this clause can be found here.

48. Anti-Corruption

This clause is an adapted version of the BIMCO Anti-Corruption Clause for Time Charter Parties 2015. Explanatory notes for this clause can be found here.

ANNEXES

To give the parties the flexibility to adapt CONVERSIONCON to their particular project, the contract relies much on the use of annexes. These annexes are all meant for inspirational purposes and parties can attach their own documents marked with the relevant annex indication to their contract.

Annex A – Specification

This annex should include the scope of the project as well as the work to be undertaken.

Annex B – Maker’s List

This annex is used to identify key subcontractors, for example, the engine manufacturer. If subcontractors are listed in the annex, only these can be used according to Clause 14 (Subcontracting).

Annex C – Vessel Documentation

This annex should include documentation regarding the ship as it is before the commencement of the conversion works. This documentation should be provided by the owners to the contractors before entering into the contract. Such documentation could, for example, concern the structural design and drawings of the ship.

Annex D – Owners’ Guarantee

This annex sets out two different types of guarantee: a guarantee for the payment of instalments and a performance guarantee. The choice of guarantee should be made by deleting whichever does not apply in Clause 2 of the guarantee.

Annex E – Contractors’ Guarantee

This performance guarantee is an adapted version of the BIMCO Standard Refund Guarantee that was published in 2021. Explanatory notes for this guarantee can be found here.

Annex F – Special Technical Requirements

This annex is linked to Clause 12 (Other Liquidated Damages). If such liquidated damages have been agreed, the parties should reflect the requirements in this annex. It could, for example, be where new speed and consumption warranties have been agreed following the conversion.

Annex G – Health, Safety, Security and Environment

Many shipyards and owners will have their own HSSE policies. Rather than setting out a standard of HSSE, except for what is required by law in accordance with Clause 20 (HSSE), the annex allows the parties to include the relevant policies in this annex.

Annex H – Insurances

This annex mirrors the structure of the insurance annex found in SUPPLYTIME 2017. The annex should be amended to reflect the relevant insurance arrangements of the parties.

Annex I – Protocol of Redelivery and Acceptance

This annex sets out a template for a protocol of redelivery and acceptance. Many shipyards will have their own template which can replace this.

Copyright and availability

Copyright in CONVERSIONCON is held by BIMCO.

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