Shipbuilding Contract: Standard Templates, Critical Clauses, Negotiation

For a newbuild yacht or ship, the main contract is the shipbuilding contract. While Saleform / MOA is used for second-hand purchases, newbuild uses SAJ, NSF Newbuilcon or BIMCO Newbuildcon templates. This guide walks through the structure and negotiation points.

What this guide covers

The structure of a newbuild contract
Standard templates (SAJ, NSF Newbuilcon, BIMCO Newbuildcon)
Critical clauses — spec, milestone payments, penalty clauses
Refund guarantee, performance guarantee
Negotiation pressure points

Note: This page is educational. It is not a substitute for legal advice — for a project-specific contract, your legal counsel and financing advisor must work side by side.

Standard templates

Three main templates on the newbuild side:

1. SAJ Form (Shipbuilders' Association of Japan)

The most widely used template
Originated from Japanese yards, but adopted globally
Slightly more balanced toward the yard
Detailed milestone payment structure

2. NSF Newbuilcon (Norwegian Shipbuilding Contract)

Norway-based
Slightly more balanced toward the owner
Common across European yards

3. BIMCO Newbuildcon

Published by BIMCO in 2007
A modern alternative
Designed to be balanced for both owner and yard
Some clauses defined more clearly

On the yacht side: SAJ or a project-specific custom contract is most common. Superyacht projects often use custom drafting (every project differs).

Core structure

A shipbuilding contract typically contains the following sections:

1. Definitions + parties

Owner + Builder (Yard) identities
Vessel description (hull number)
Reference documents (spec, GA drawings)

2. Description of the vessel

Specification document reference
Class society + flag determined
Main dimensions + parameters
Standard vs. optional systems

3. Price + payment structure

Contract price
Currency (typically € or $)
Milestone payments + triggers
Late payment penalties

4. Delivery + sea trial

Target delivery date
Sea trial procedure + acceptance criteria
Late delivery penalty (liquidated damages)
Owner's right to cancel (if late delivery cap exceeded)

5. Performance guarantees

Speed guarantee (e.g. service speed in kn)
Fuel consumption guarantee
Deadweight / cargo capacity (commercial ship)
If guarantee fails: liquidated damages

6. Variation orders (spec change)

Variation order procedure
How the price impact is calculated
Delivery date impact
Approval process

7. Inspection + class society

Owner's right of inspection (owner's representative)
Class society surveys
Steps requiring prior approval
Yard's obligation on rejected work

8. Refund guarantee + performance guarantee

Refund guarantee terms
Identity of the issuing bank
Guarantee amount + scope
Performance guarantee (if any)

9. Force majeure + suspension

Force majeure definition
Notification procedure
Right to time extension
Termination right on long suspension

10. Risk transfer + insurance

Period during which risk sits with the yard (until delivery, typically)
Builder's risk insurance requirement
Owner's right to coordinate insurance

11. Warranty period

Typically 12–24 months post-delivery
Warranty scope (structural defects, system defects)
Excluded scenarios
Warranty claim procedure

12. Arbitration + governing law

Dispute resolution seat (typically London LMAA)
Governing law

Critical clauses — what to watch

Refund guarantee chain

Each milestone payment exposes the owner to yard risk. Refund guarantee terms:

Issuing bank: local to the yard, or international?
Amount: paid milestone + interest, or principal only?
Call conditions: under what circumstances can the owner call?
Tenor: does it renew with each milestone?

A weak clause → if the yard fails, the owner loses money.

Late delivery penalty (liquidated damages)

Daily / weekly penalty amount
Cap (e.g. 5% of contract price)
Owner's cancellation right beyond the cap
Force majeure time extension

Performance guarantees

Speed measurement procedure (test conditions must be explicit)
Fuel consumption measurement procedure
Margin (e.g. 3% deviation tolerance) defined
If guarantee fails: refund or compensation?

Variation order structure

Can the owner change spec at any point?
Price impact: transparent yard calculation?
Delivery date impact automatic, or negotiated?
Can the yard reject a variation?

Negotiation — who wants what?

Owner typically wants:

Lower milestone payments (cash flow comfort)
Higher refund guarantee amount
Strong performance guarantees
Clear spec compliance standards
Broad inspection rights

Yard typically wants:

Higher milestone payments (cash flow)
Lower performance penalties
Flexibility on variation orders
Broad force majeure definition
Short warranty period

Negotiation finds the middle. An experienced broker / legal counsel manages the process.

Coordination with the financing process

Points where the shipbuilding contract meets the financing side:

Drawdown conditions — the bank's milestone-disbursement conditions are tied to the contract triggers
Refund guarantee assignment — refund guarantee is typically assigned to the bank (collateral)
Owner's representative report — the bank wants this before every drawdown
Class society survey — the bank also tracks this
Delivery clauses — the bank's drawdown timing must align with the contract delivery clauses

FAQ

Who drafts the shipbuilding contract?

Typically the owner's legal counsel prepares the draft (off a standard template), the yard side revises, and negotiation proceeds. Experienced yacht lawyers exist on the yacht side; maritime law specialists on the commercial ship side.

SAJ or NSF — which one?

Depends on the yard's geography. Asian yards know SAJ; European yards know NSF. BIMCO Newbuildcon is a modern alternative for both. A standard template is the starting point — project details get layered on top.

Can a newbuild contract be signed without a refund guarantee?

Practically no — too risky for the owner. Possible on small projects, but mandatory in projects with professional financing.

Can variation orders increase the price significantly?

Yes — a common surprise. This is why finalising the spec before contract signature + transparent variation order procedures are critical. Owner asks for a change, yard quotes, owner accepts, then it's signed.

What does the warranty period cover?

Typically: structural defects, main engine defects, system defects (under normal use). Excluded: wear and tear, normal damage, owner misuse, third-party damage.

Talk to us about your project: let us plan the shipbuilding contract negotiation + financing coordination together. Reach out via the contact form.