1
PROJECT MANAGEMENT
WITH REFERENCE TO THE
CAPITAL ACQUISITION
PROCESS
Copyright C. R. Cushing
2011
2
Charles R. Cushing, Ph.D., P.E.
30 Vesey Street, 7th Floor
New York, NY 10007
Tel. (212) 964-1180
Fax (212) 285-1334
E-mail ccushing@crcco.com
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4
Typical Ship Prices
Ship Type
$, Millions
Container Ship, 12,600 TEU
165
Tanker, Capesize
95
Tanker, VLCC
115
Container – Reefer, 7450 TEU / 3400 Reefer
143
Container Ship
70
Bulk Carrier, 92,500 DWT
70
Bulk Carrier, 34,000 DWT
37
Tanker, Chemical 4,300 DWT
20
Ore Carrier, VLOC 350,000 DWT
135
Cruise Ship, 6,400 Passenger
1,240
Log Carrier, 35,000 DWT
30
Multi-Purpose Cargo, 5,670 DWT
14
Bulk Carrier, 92,500 DWT
70
5
World Population of Merchant
Ships, December 2010
Commercial Ships:
No.(%)
General Cargo
18,178(23.4)
GRT x 1,000(%)
63,525(6.8)
Container Ships
4,869(6.3)
158,112(16.9)
Ro Ro Ships
1,556(2.0)
41,704(4.5)
Bulk Carriers
8,920(11.5)
292,906(31.4)
Oil and Chem Tankers
12,014(15.4)
260,735(27.9)
Gas Tankers
1,552(2.0)
48,159(5.2)
Passenger Vessels
6,382(8.2)
34,100(3.7)
Offshore Vessels
6,283(8.1)
19,248(2.1)
Tugs
3,757(17.7)
3,879(0.4)
Other
4,257 (5.4)
10567(1.1)
77,768(100)
932,935(100)
Total
6
Ships on Order
(December 2009)
No.
9,226*
GRT
300,500,000
CGT
152,000,000
* Of which 7,282 are cargo vessels
Source: Lloyds Fairplay Dec. 2009
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Process Applies To:
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Ships
Ports
Cranes
Factories
Refineries
Other Capital Projects
8
Capacity Acqusition Alternatives
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New Construction
Conversion
Purchase Second-hand Vessel
Bareboat Charter
Time Charter
Contract of Affreightment
Freight Service Agreement
Consecutive Voyage Charter
Spot Charter
Vessel Pooling
Slot Charter
9
History of Project Management

Dates back to early civilization
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Creative architects and engineers
10
Capital Projects

Egyptian Pyramids
11
Capital Projects

Great Wall of China
12
History of Project Management
Imhotep – Pyramids (2630 BC)
 Qin Shi Huang – Great Wall (221 BC)
 Vitrvius – Roman Aqueducts (100 BC)
 Christopher Wren – St. Paul’s
Cathedral (1632 – 1723 AD)
 Thomas Telford – Bridges & Canals
(1754 – 1834 AD)
 Isambard K. Brunel – Great Western
Railway (1806 – 1859)
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13
Recent Developments in Project
Management
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Fredrick Wilson Taylor – Pioneer in
theories of scientific management (WBS)
Henry Gantt – Father of planning and
control techniques – (Gantt Chart)
Dupont / Remington Rand – Critical Path
Method (CPM)
Booz – Allen & Hamilton – Program
Evaluation and Review Technique (PERT)
14
Capital Projects
Ships
 Ports
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15
Project Management
Planning
 Organizing
 Managing
 Resources to Achieve Specific
Goals

16
Project
Temporary Endeavor
 Defined Beginning
 Defined End
 Unique Goals and Objectives

17
Traditional Project Management
Initiation
 Planning
 Design
 Execution
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Commercial
 Production
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Completion
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Project Management Process
Traditional PM
 Critical Chain PM
 Extreme PM
 Agile PM
 Event Chain PM
 Event Chain Methodology
 Prince2 (Prompt + Prince)
 Process-Based Management
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21
The Process Consists Of:
 Planning
 Design
 Commercial
 Production
22
“Now here’s an advanced organism. You’ll
note the nucleus and cytoplasm development, along
with what appears to be the first draft of a strategic
plan.”
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Origins of Strategic Planning
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473 BC
1645
1800
1850’s
1860’s
1900
Sun Tzu’s The Art of War
Miayamoto Mushashi’s A Book
of Rings
Napoleon
Industrial Revolution
Policies and Procedures
Work Norms and Standings
28
Origins of Strategic Planning (Cont’d.)
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1916
1920’s
1930’s
1940’s
1950’s
1970’s-80’s
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1990’s
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WWI Battle Strategy
Financial Planning and Control
Management by Objectives
WWII O.S.S./C.I.A.
Strategic Planning
Global Spread of Strategic
Planning
Strategic Management
29
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Development of Planning
30
Factors that Make Strategic Planning Essential in
the Marine Industry
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Cyclical market conditions
Fluctuating currency exchange rates
Uncertainty in fuel costs
Uncertainty in interest rates
Emergence of trading partners and trading
alliances
Over tonnaging due (partially) to overly generous
subsidies
Regulatory and governmental restraints
Fast paced technology (leading to premature
technological obsolescence)
More rapid response by Safety and Environmental
Regulatory Bodies to disasters
31
Benefits of Using this Process
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Opportunity to optimize vessel characteristics
Improved delivery time
Better use of lead time
Better financing and currency terms
Better guarantees
Control of extra costs and changes
Improved quality
Chance to introduce innovation
Product is more “obsolescence – proof”
Fewer disputes or litigation
32
Strategic Planning Asks Four
Questions
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How did organization get to its present
position?
Where does organization want to go?
How will it get there?
How will it function successfully when it
gets there?
33
Strategic Planning Process
Appraisals
External
Internal
Create Strategies
Evaluate and Choose Strategy
Implement Strategy
34
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Strategic Planning Process (Cont’d)
34a
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Strategic Planning Process
34b
The Company Environment
The Industry
 The Company
 The Market
 The Competitors
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37
Other Aspects of the Company
Environment
Legal
 Regulatory
 Suppliers
 Service
 Technology
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38
Internal Factors
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Company strengths
Company weaknesses
Areas of vulnerability
Profitability
Productivity
Customer satisfaction
39
Other Internal Environmental Factors
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Load factors
Service levels
Transit times
Frequency of sailings
Schedule reliability
Cargo damage statistics
40
The Competitive Environment
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Strength of competitors
Weakness of competitors
Market shares
Technology
Pricing
41
Analysis of the Market
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Historical demand
Current demand
Forecast
42
FORECASTING
43
Sources of Data for Cargo Flow Studies
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Government report (National and U.N.)
Custom revenue statistics
Manifests
Census data
Government statistical abstracts
Industry commodity trade data
Trade association reports
Newspaper/trade journal traffic reports
Port authority statistics
Trade Conference data
Market research consultants
44
Sources of Data for Competitor Analyses
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Advertising
Sailing schedules
Web sites
Directories
Classification society computer searches
Shipping directories
Ships-on-order publications
Search services
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Pricing Studies
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Tariffs
Charter fixture data
Industry scales
Periodical summaries
Cost analyses
National and international economic
indices
49
Pricing Perturbations
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Government aid
International conflicts and calamities
“Cut Throat” competition
Predatory pricing practices
Price wars
Technology breakthroughs
50
Global Events Affecting
Shipping and Shipbuilding
Natural Disasters
 Major Earthquakes (i.e. Kobe)
 Tsunami
 El Nino Effects
 Drought in Panama
 Global Warming
 Pollution
 Epidemics, Plague, etc.
51
Global Events Affecting
Shipping and Shipbuilding
Economic Conflict
 Subsidies
 Embargoes
 Protectionism
 Trade Wars
 Monopolies
 Etc.
52
Global Events Affecting
Shipping and Shipbuilding
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Protectionism
Nationalism
Tariffs
Subsidies
Cabotage
Preferential treatment
Bi-lateral trade agreements
Cargo sharing
Restriction on flow of capital
Barriers to investment
Government aid
53
Global Events Affecting
Shipping and Shipbuilding
Economy and Trade
 OPEC
 Shipbuilding Shifts: Europe to Japan to Korea to
China
 Availability of Capital for Investment
 World, Regional, and Local Economies
 Confidence of Investors
 Availability or Shortage of Workers
 Depressions and Recessions
 Inflation
 Market Volatility
54
Global Events Affecting
Shipping and Shipbuilding
Technology
 Channel Tunnel
 Second Isthmus Canal
 Superconductivity
 Fuel Cell Propulsion
 Post-Panamax Containerships
 Double Stack Rail Cars
 Land Bridges
 Etc.
55
Global Events Affecting
Shipping and Shipbuilding
Anti-Social Activities
 War
 Terrorism
 Piracy
 Drug Trade
 Government Corruption
 Commercial Corruption
 Etc.
56
Global Events Affecting
Shipping and Shipbuilding
Legal Impact of Marine Disasters
 Torrey Canyon
 Amoco Cadiz
 Herald of Free Enterprise
 Estonia
 Braer
 Erika
 Prestige
 Etc.
57
Global Events Affecting
Shipping and Shipbuilding
Shipping and Shipbuilding Conventions and
Legislations
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Port State Control
Erika I and II
Basel I and II
Ballast Regulations
Air Pollution Regulations
Etc.
58
Strategy Development
 Corporate
objectives
 Strategic objectives
59
“Objectives
are the fundamental strategy
of a business.”
- Drucker
60
Corporate Objectives
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Profitability
Return on Investment/Payback period
Market share
Growth
Stability
Product or service quality
Meeting market needs
Competition
61
“No Smedley! I said we need more profits, not more
prophets!”
59a
Strategic Objectives – Fixed Elements
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Competitive environment
Company resources
Management values
Societal expectations
63
Strategic Objectives – Controllable Elements
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Corporate structure
Marketing policies
Finance policies
Accounting policies
Manufacturing or service policies
Human resources policies
Research and development policies
Organizational policies
64
Strategic Issues
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Volume of cargoes
Actions of competitors
Technological developments
Governmental restraints
Other external environmental factors
impacting the company’s ability to meet
its projections.
65
Strategy Selection
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Develop a number of options
Prepare pro forma financial projections
Compare alternatives against corporate
objectives
Compare alternatives against each other
Select best alternative
Optimize selected alternative
66
Selection Process
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Pro forma financial projections
Carry out simulations
Perform sensitivity analyses
Test options against financial criteria
Minimize risk
Optimal use of corporate resources
Examine impact of unexpected changes in
forecasts
67
Risk Analysis
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Risks we can afford to take
Risks we cannot afford to take
Risks we cannot afford not to take.
- Drucker
68
Entry Plan
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Timing and scheduling
Time table
Coordination of corporate activities
Coordination with external organizations
Marshalling of resources
Government actions, permits, licenses
Political support
69
Exit Plan - Actions
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Scrap the plan
Sell
Swap
Merge
Withdraw gradually
Withdraw completely
70
Alternatives to Exit
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Commit additional resources
Shift priorities
Reduce effort
Merge
71
Strategy Implementation
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Business plan
Marketing plan
Competitor plan
Operations plan
Financial plan
Technology plan
Organization plan
Corporate development plan
72
Business Plan
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Description of Company
Company History
Marketing Strategy
Management Team
Organization & Personnel
Operations
Funds Required & Their Use
Financial Data
Risks
R & D Required
Legal Issues
Insurance Considerations
Schedule
73
Financing Plan
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Amount Requested
Purpose of Financing
Use of Funds
Description of Collateral
Source of Repayment
Whether Seeking Other Debt Financing
History of Company
Description of Business
Description of Market
Financial History of Company
Financial Projections
Financial Assumptions
Schedule of Assets & Liabilities
Description of Management & Ownership
Financial Status of Owners
References
74
“On second thought, maybe a periodic re-assessment of the
MISSION STATEMENT might not be such a bad thing”
NON SEQUITUR
-WILEY
75
Mission Statement - Route
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Origin, destination and route
Transit distance
Transit time
Frequency of service
Delays in service, planned and unplanned
Weather conditions
Current
Vessel traffic systems
Canal characteristics
Ice conditions
76
Mission Statement - Cargo
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Quality of cargo
Type of cargo
Cargo characteristics
Cargo stowage and securing requirements
Cargo care requirements
77
Mission Statement - Infrastructure
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Port characteristics
Terminal characteristics
Physical restrictions
Port costs
Cargo handling methods and rates
Turnaround time
Inland transport considerations
Weather conditions
Docking assistance and mooring requirements
Fuel availability and cost
78
Mission Statement - Vessel
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Type of vessel
New, converted or existing vessel
Number of vessels
Capacity, normal and maximum
Speed, normal and maximum
Type of machinery if known
Type and source of fuel
Chewing – nationality, unions, quarter
standards
79
Mission Statement- Commercial
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Existing or projected freight rates
Competitor characteristics
Anticipated market share
Conferences
Trade restrictions
80
Mission Statement - Economic
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Required international rate of return
Prime and/or other rates
Subsidies and/or grants
Crew rates
Insurance rates
Fuel costs
Tolls
Port charges
Vessel financing and interest rates
Life of vessel
Tax schedules
81
Mission Statement - Government
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Vessel registry and classification
Governmental restrictions
Cabotage laws
Environmental restrictions
Safety restrictions
Registry
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 Planning
 Design
 Commercial
 Production
84
Engineering
The art of applying –
 Knowledge
 Scientific principles
85
DESIGN is the essence of
ENGINEERING
- Buxton
86
The CPCD Design Sequence
 Concept
 Preliminary
 Contract
 Detailed
87
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Design
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Drawings
Sketches
Artist renderings
Diagrams/Schematics
Computer imaging
Calculations
Models
Model testing
Research/Development
Experimentation
89
Design Includes
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Industry standards
Classification society rules
Governmental regulations
Manufacturers’ specifications
Shipbuilder’s design detail standards
90
The Engineer Is Faced
With Conflicting Requirements
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Example
Physical – minimum weight
Economic – minimum cost
Social – maximum safety
Environmental – minimum impact
Commercial – maximum efficiency
Esthetic – maximum stylishness
Etc.
91
The engineer resolves these
conflicts and searches for
“optimum” solutions.
92
Design is solving a problem with
many VARIABLES.
93
Design is an ITERATIVE process.
94
Prior to 1970, designers used
The DESIGN SPIRAL.
95
DESIGN SPIRAL
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Hull form
Appropriate dimensions
Hull prismatic coefficients
Power estimates
Weight estimates
- Hull
- Machinery
- Outfitting
Deadweight capacity
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100
101
98a
Computers permit multiple criteria –
multi variate search patterns.
98b
“Conservative pressures increase as
the design progresses.
Hence the early stages should be
biased towards the novel.”
- Brown
104
“New ships should be
 25% novelty
 75% well proven practice.”
Baker
-
105
CONCEPT DESIGN
Requires
 Innovation
 Creativity
 Judgment
 Technical perception
 Economic awareness
 Analytic log
 “Hands on” control of the synthesis process
 No computers
106
Concept Design
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Synthesis takes place.
Requirements evolve into form and
configuration.
Some dimensions and principal
characteristics may evolve.
Results in sketch or drawing.
May include a written description.
May include more than one alternative.
10 to 80 man – days.
107
Preliminary Design
Should also establish
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Ability of vessel to meet mission statement.
Regulatory feasibility.
Patent infringements (if any).
Need for new technology.
Model testing requirements.
108
Preliminary Design
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The second iteration in the design process.
Provides more detail.
Provides more accurate dimensions.
Focuses on essential features.
Provides enough detail to verify.
- technical feasibility
- economic feasibility
Provides outline specification.
Provides enough information for
- Construction cost estimate
- Operating cost estimate
- Revenue generating estimate
103a
Contract Design
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The third iteration in the design process.
Creates definitive description of the vessel.
Can be used as contract documents.
Permits total meeting of the minds between
designer and builder.
Increase details and accuracy of the design.
Increase accuracy of feasibility checks.
Decreases risks.
110
Typical Ship Design Package
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Plans
Specifications
Reference material
- Drawings
- Guidance calculations
111
Contract Design
Should
 Avoid ambiguity
 Avoid excessive specifics.
 Be precise.
 Use legal terminology.
 Avoid use of guidance drawings.
112
Classification Societies
113
The Role of Classification Societies
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Construction Standards
- Rules
- Survey
Maintenance and Repair Standards
- Rules
- Survey
Certification
Safety Auditing (ISM)
Environmental Auditing (ISO)
Technical Guidance
Regulatory – Flag state
114
115
THE IACS SOCIETIES
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ABS
BV
CCS
DNV
GL
KR
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LR
NK
RINA
RS
CRS (Associate)
IRS (Associate)
PRS (Associate
116
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Class is not a substitute to an effective project
management, inspection and survey program.
An owner cannot delegate his responsibility to
assure that his vessel is seaworthy.
- Sundancer decision
117
118
Model Basins
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Resistance and Propulsion
- Still water
- Waves
Seakeeping
Mooring forces
Maneuverability
Forces and motions
Propeller performance
Wake field
Ice breaking
Wind resistance (wind tunnels)
Smoke flow (wind tunnels)
119
The Role of the Manufacturer
in High Tech Equipment
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Technical Information
Quality Control During Manufacture
Installation & Start-Up-Support
Guarantees
Service
Stock of Spares
Crew Training
Documentation
120
Consulting Naval Architects
and Marine Engineers
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Transportation planning
Marine economic analyses
Conceptual design
Preliminary design
Contract design and specifications
Working (detailed) drawings
Plan review
Tests, sea trials, witness same
Construction and repair inspection
Contract management (owner’s representative)
Guarantee engineering
121
Terms Used for Engineers
Working in Marine Field
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Naval Architect
Marine Engineer
Naval Engineer
Naval Constructor
Ocean Engineer
Shipbuilding Engineer
Marine Surveyor
Licensed Marine Engineer
122
 Planning
 Design
 Commercial
 Production
123
Commercial
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Selection of yards for invitation
Request for expression of interest
Invitation to bid
Bid analysis invitation to bid
Pro-forma contact invitation to bid
Negotiations
Financing
Contracting
124
Factors in Selecting Yards for Invitation
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Physical characteristics
Technical capabilities
Experience
Order book
Employment
Location
Ability to assist financing
Reputation
References
125
121
121a
Request for Expression of Interest
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Simple and brief inquiry.
Sent by e-mail or fax.
Saves time and effort.
Permits assessment of number of yards
participating.
128
Invitation to Bid (RFP)
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Best process.
Make create legal obligations.
Not to be used to develop price estimates.
Use standard formats.
Formality is required.
Use bid form.
129
Information to be Sent in
Invitation to Bid





Brief description of vessel.
Name and address of person requesting
proposal.
Number of vessels and options (if any).
Documents
- Plans
- Specifications
- Pro-forma contract or Heads of Agreement
Required delivery.
(cont’d.)
130








Requirement for cash price
Currency
Financing terms
Confidentiality of owner’s documents
Performance bond (if any)
Period of validity of bid
Obligations on owner concerning bids
Signature by authorized representative
(Cont’d.)
131


Additional yard information
- Quality information
- Yard standard details
- Current order book
- Financial statement
- Bank reference
- Management plan
- Technical plan
- Major event schedule
Complete bid form
132
Tips in Bidding






Hold bidders’ conference.
Use addenda, if necessary.
Be firm on submittal date.
Create short list.
Be courteous and fair.
Ensure ethical practices.
133
Bid Analysis










Price for one vessel
Price for a multiple vessel order
Currency of payment
Additional cost for financing
Location of yard (and distance to where vessel or
vessels will be deployed)
Cost of positioning vessel
Reputation, experience and quality of yard
Financial health of yard
Proposed building schedule
Owner’s costs as they relate to yard location (i.e.
inspectors’ housing, travel, taxes, etc.).
134
Negotiations








Have primary bidder and two back-up bidders.
Beware of driving bidder below level of
profitability.
Be well informed and prepared.
Be aware of legal obligations in negotiating stage.
Have at total and complete meeting of the minds.
Yard to take total responsibility for design.
Avoid split responsibilities.
Review, in detail, all documents and initial every
page and drawing.
- Contract
- Specifications
- Drawings
135
Tips in Negotiating




Be fair.
Be patient.
Be firm, until it is absolutely necessary to
be flexible.
Take enough time for the process.
136
McCormack’s Rules for Negotiating










Do not get stranded by “how much”. Money
issues are only one part of the transaction.
Let the other party go first (with terms and
numbers).
Play in majors.
Do not deal in round numbers.
Avoid showdowns.
Negotiate backwards.
Trade places.
Mollify then modify.
Deflect with a question.
Question positions but do not ignore them.
137
McCormack’s Rules for Negotiating
(Cont’d.)








Improve the offer with other parties’ self
interest.
Consider barter.
Keep your time frame quiet.
Step back and relax.
See emotional outbursts as opportunities.
Act in anger – never react in anger.
Give the other parties side victories.
Use candor.
138
Silbiger’s Rules for Negotiating






Know your opponent.
Know yourself.
Do your homework.
Understand your strategy.
Understand your limits.
Review your negotiations, afterwards.
139
Buyers’ Market






Low prices
Early delivery
Attractive financing terms
Proactive engineering
Yard flexibility
Buyers’ contract terms
133a
Sellers’ Market





High prices
Long delivery
Little or no yard financing
Sellers’ terms
Inflexibility
133b
Ship Finance
Sources



Equity
Debt
Grants
142
World wide need for
Ship Financing
$250,000,000,000 per year
143
What form of financing to use?
FRICT approach
 Flexibility
 Risk
 Income
 Control
 Timing
144
Factors to Consider in Financing








Unused tax depreciation
Excess debt
Potential business risk
Buyer’s market
Large earning power
Strong, predictable cash flow
Low stock price low expectation
Long term, fixed rate
- Leasing
- Equity
- Equity
- Shipyard Credit
- Debt
- Debt
– Hybrid
- Bonds
145
Debt Financing







Least expensive
Most restrictive
Commercial or government loans
Loans secured or collateralized
Mortgages
Possible pledge of:
- earnings
- insurance
- corporate guarantees
- pledge of shares
- personal guarantees
Seldom 100%
146
147
Sources of Debt Financing











Commercial banks
Ship finance banks
Investment banks
Government banks
Commercial finance companies
Saving and loan associations
Pension funds
Insurance companies
Commercial credit companies
Account receivable factors
Manufacturers and vendors
148
Debt – Commercial Finance Cos.







GE Capital
Greyhound
CIT
Kleinwart Benson
Henry Ansbacher
Samuel Montagu
Others
149
Debt – Commercial Banks




Norwegian owners
Chinese owners
Japanese owners
Greek owners
-
Norwegian banks
Hong Kong banks
Japanese banks
Non-Greek banks
150
Debt – Mezzanine Financing






Used when bank unwilling to loan owner
sufficient money.
High yield corporate debt, i.e. Junk Bonds.
Closes gap.
Provides high return.
Compensates for high risk.
Usually arranged by investment banks.
151
Debt - Bonds




Issued by shipowner
Certificates of indebtedness
Specific purposes
Specific rates and period
152
Debt – Ship Mortgages
Purposes:
 Public record of lien
 Priority of the lien
 Sequence of prior liens
 Agreement between lender and owner:
- Operation
- Insurance
- Maintenance
- Trading areas
153
Debt – Factors Considered in
Granting Loans










Age of business
Type of operation
Method of payment
Currency of loan and repayment
Collateral
Character of management
Credit history
National economic factors
Industry
Mortgage and loan terms
154
155
Quality of Borrower


Liner Co.
- Ability to Market it’s Service
Bulk Carrier Owner
- Ability to Service Debt
- Cash Flow
- Quality of Charters
156
Debt - Rates





Floating (variable)
- usually tied to LIBOR
Fixed
- Rare from commercial banks.
“Swap”
- Swaps are more costly
- Lender and third party who have excess
variable and fixed rate funds arrange
swap.
“Cap”
- Protects against rising rates.
- Lender pays interest over an agreed level.
“Collar”
- Reduces extra costs for a cap.
- A combination of a cap and “floor”.
157
Spread


Difference between cost of funds to the
lender and the borrower.
Based on:
- Credit worthiness of owner
- Risk in shipping operation
- Size of loan
- Period of loan
- Type and amount of security
- General supply and demand for loans
158
Leases
 Operating
 Finance
159
Leveraged Leases
Most ship leases are leveraged leases.
Owner
Lessor
■ Provides equity portion of funding
■ Provides debt portion
■ Retains ownership
■ Make lease payments
■ Holds mortgage
■ Receives assignment of lease
payments.
■ Tax benefits
■ Residual at end of lease
(sometimes).
160
Off-Balance Sheet Financing



Indebtedness does not show on balance
sheet.
Usually done through chartering
Not legal in U.S. nor GAAP.
161
Sources of Equity Funds





Retained earnings
Cash Flow
Sale of Assets
Sale of stock
- common
- preferred
Limited partnerships
162
Sale of Stock


Public Offering
- Strict government controls
- Rigorous accounting
- Expensive
- Time consuming
Private Placement
- Insurance Cos. (casualty and property)
- Mutual funds
- Finance cos.
163
Hybrid Financing Schemes






Convertible debt
Debt with warrants
DIFKO (Danish)
K/G System (German)
Blocked currency schemes
Barter deals
164
Government Grants











Loans
Loan guarantees
Subsidized interest rates
Cash grants (owner or builder)
Cash or credit to allied industries
Operating subsidies
Favorable tax treatment
Moratoria on debt repayment
Training funds
R&D
Scrapping subsidies
165
The Shipbuilding Contract
166
Contracting
Why It Can Be Complicated






International transaction
Different laws:
- construction/building
- provision of services
- sale of goods
More than 2 parties
Much money
Obligation may occur early, during
- bidding phase
- negotiations
Constantly changing
- laws
- interpretations of law
- tax regulations
167
Contracting




Written (usually)
Involves legal advice and assistance
Often starts with “Heads of Agreement”
and a “pro forma” contract
Sometimes letter of understanding
168
Shipbuilding Is
Governed By Many Laws


Contract law
Other laws:
- tort
- fraud
- negligence
- employment
- environmental
- etc.
169
Contract



A promise enforceable by law.
“A contract is a promise or set of promises
for the breach of which the law gives a
remedy, or the performance of which the
law in some way recognizes as a duty.”
Pact Sund Serventa (Promises made must be
kept)
170
Conditions for a Contract









An offer
An acceptance
Consideration
Intent to create a legal relationship
In writing (sometimes oral)
Parties are competent
Form required by law
Not impossible of performance
Not contravene law or public policy
171
An Offer





Complete
Free of ambiguities
Properly communicated
Fixed time of acceptance (or kept open for a
reasonable time)
May be revoked
- before acceptance
- providing offer provides for notice of
revocation.
172
An Acceptance




Creates the binding contract
Must be absolute and complete
Qualified or conditional is NOT an
acceptance (it is a counter offer).
Silence is NOT an acceptance.
173
A Contract May Be Voided
 Material
misrepresentations
 Fraud
 Duress
 Improper
conduct
174
Shipbuilding Contracts



Specially drafted
Owner or builder’s standard form
Industry standard
- SAJ form
- AWES form
- MARAD form
- Norwegian form
-BIMCO
175
PRINCIPAL ELEMENTS OF A
SHIPBUILDING CONTRACT
166a

A Comparison of Standard Form Shipbuilding Contracts
177
178
Basic Elements of a
Shipbuilding Contract











The parties
What is to be done
Price
Delivery
Guarantees
Tests
Change procedures
Right to reject
Default
Title
Jurisdiction
179
Escaping Contracts
Walk Away
 Delay
 Renegotiate Delivery
 Frustrate Greenfield Yards

170
 Planning
 Design
 Commercial
 Production
171
Production Management






Specialized Management Techniques
To Plan and Control Projects
To Complete Defined Work
On Schedule
Within Budget
Meet Quality Constraints
182
Purposes of Production Management






Fulfill original objectives
Keep project within budget
Keep project on schedule
Coordinate project team
Detect need for and take corrective action
Communicate progress to management
183
Define Project




State objectives and goals
Prepare mission statement
Develop work plan
Create Work Breakdown Structure
Document (WBSD)
184
Establish Schedule




Define Tasks
Select milestones
Define interrelationships
Establish timing and deadlines
185
Prepare Budget





Identify or estimate all costs
Allow for margins/contingencies
Establish timing of expenses
Adopt financial controls
Obtain approvals
186
Team Budget Elements







Wages
Benefits
Local taxes – if any
Global taxes – if any
Travel expenses
Supplies and equipment
Communication costs
187
Owner’s Expense Budget



Owner furnished equipment
Crew costs
Professional costs






Legal
Accounting
Technical
Stores and supplies
Fuel and lube
Entertainment and ceremonies
188
Team






Select and recruit team leader
Develop team position/tasks
Establish timing for each
Recruit members
Indoctrinate
Delegate
189
Managing Your Team






Staying in control
Evaluating your team
Identifying and dealing with different
personality types
Motivating your team
Managing clients
Effective team organization
190
Control Project






Communicate
Coordinate
Meetings – scheduled and unscheduled
Review and audit
Make adjustments/corrections as necessary
Document
191
Production Control Techniques





Full wall scale charts
Gantt charts
PERT
CPM
Programs
192
Gantt Chart
193
PERT Chart
194
Monitor Critical Elements






Require production statistics
Monitor milestones
Watch critical paths
Identify choke points/bottlenecks
Make projections/extrapolations
Anticipate problems
195
When Things Go Wrong







Identify real problems
Get input from team
Investigate thoroughly
Analyze possible solutions
Take timely corrective action
Meet with yard
Communicate with stakeholders
196
Tips








Delegate effectively
Be a good listener
Be fair with everyone
Use good time management
Avoid bureaucracy
Be decisive and clear
Communicate thoroughly
Insist on ethical behavior
197
Production Activities












Owner’s representative
Contract management
Project management
Plan approval
Inspection
Quality control
Testing
Crewing, storing, fueling
Delivery and acceptance
Post production activities
Warranty and guaranty
Closing the project
198
Detailed Design Materials













Working plans
Finished drawings
Posted plans
Vendor drawings
Field sketches
Shop drawings
Schematics
Drawing changes
Operating manuals
Safety manuals
Maintenance, repair and trouble shooting manuals
Test agendae, protocols and results
Tech specs for equipment procurement
199
Inspectors
Hull
 Machinery
 Outfitting
 Electrical
 Coatings
 Welding

200
Delivery and Acceptance

Title passes when
- physically delivered
- at another time, if both parties
contractually agree
- vessel registered
- execution of bill of sale
- when both parties so declare
- when ship is in a “deliverable” state
- bill is paid
- builder completes his performance
progressively
201
Post Production Activities




Deficiencies
Unfinished work
Temporary and permanent documents
Warranty and guaranty
202
Management Science Techniques












Linear programming
Integer linear programming (simplex method)
Network flow models
PERT/CPM
Queuing models
Inventory models
Computer simulation
Decision analysis
Goal programming
Analytic hierarchy process (AHP)
Forecasting process models
Dynamic programming
203
Innovative Techniques









Clarification of aims
Abstract reformulation
Morphological synthesis
Inductive reasoning
Deductive reasoning
Value analysis
Brain storming
Brain writing
Heuristic programming
192a
Innovative Techniques (Cont’d.)








Idea combinations
Negative brain storming
Re-thinking through questioning
Lateral thinking
Independent review
S Curve strategy
The in-and-out strategy
The 5-15 idea generating
192b
Problem
Solving
Define the Problem
Identify the Alternatives
Determine the Criteria
Evaluate the Alternatives
Choose an Alternative
Implement the Decision
Evaluate the Results
Decision
Making
206
Innovative Techniques (Cont’d.)








Synetics process
Attribute listing
PMI evaluation
Matrix thinking
Forced relationships
Force field analysis
The angel’s advocate
Extrapolation and interpolation
193b
Comparing
Technologies
Feasibility
Studies
Ideal Design
In one
Technology
Optimization
Studies
194
Economic Analysis
195
210
198
199