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Old 30-10-2012, 14:43   #1
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Cat-Building Contract

This one should be a doozey. We're pretty new to this business.

If you were going to contract to buy Hull#2 of a cat for which only conceptual drawings exist: 1) Would you have yourself committed? 2) What conditions would you put in the contract?

Seriously, can anybody point me to a sensible model contract for a to-be-built purchase? I do realize that anything that the persons involved will agree to can be in a contract, but it's not easy to think of everything necessary to minimize the risk of needing to shoot one's self.

Can anybody point me to US regs for building standards for a cruising cat? Comments about enforcement in the US?

Thanks!
Krol
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Old 30-10-2012, 14:53   #2
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Re: Cat-Building Contract

I do mean this with all due respect...there really is one born every minute!!!
You HAVE to be joking!
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Old 30-10-2012, 15:22   #3
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Re: Cat-Building Contract

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Originally Posted by cruisingkrol View Post
This one should be a doozey. We're pretty new to this business.

If you were going to contract to buy Hull#2 of a cat for which only conceptual drawings exist: 1) Would you have yourself committed? 2) What conditions would you put in the contract?

Seriously, can anybody point me to a sensible model contract for a to-be-built purchase? I do realize that anything that the persons involved will agree to can be in a contract, but it's not easy to think of everything necessary to minimize the risk of needing to shoot one's self.

Can anybody point me to US regs for building standards for a cruising cat? Comments about enforcement in the US?

Thanks!
Krol
You're basically becoming a partner in this business. Why would you even consider this? I wouldn't consider something like this unless I was (1) going to become a financial partner in the business, and (2) able to provide direct supervision in all phases of the project.
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Old 30-10-2012, 15:44   #4
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Re: Cat-Building Contract

I don't know why these guys are acting like its so crazy. All buyers of hulls no. 1 and 2 have to buy sight unseen. However, I would make sure that at least detailed drawings and specs existed, and not just conceptual drawings, before I committed myself. Sorry can't help you more with terms of the contract, but I imagine they are out there. Look at Chris White's site. He lists specs pretty carefully and I imagine that, at a minimum, should be in the contract.
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Old 30-10-2012, 15:47   #5
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Re: Cat-Building Contract

Is this an established builder or a start-up company? I think there's an important distinction to be made.
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Old 30-10-2012, 15:51   #6
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Re: Cat-Building Contract

Maybe hire an architect or surveyor to be your rep. Word the contract such that his "independent" word is the deciding factor in disputes. good luck! Beware, if this is a new unknown builder, many go out of business with multiple deposits on future boats.... or boats a-building.... the suppliers may be first in line before you get what's left (nothing).
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Old 30-10-2012, 17:58   #7
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Re: Cat-Building Contract

Quote:
Originally Posted by cruisingkrol View Post
This one should be a doozey. We're pretty new to this business.

If you were going to contract to buy Hull#2 of a cat for which only conceptual drawings exist: 1) Would you have yourself committed? 2) What conditions would you put in the contract?
l
Actually in my business we actually do sell contracts for products that are concept, for delivery up to 5-7 years in advance. We call them paper airplanes.

Some of the considerations -

Design

The parameters of the design must be fixed - in boating terms this would be things like length, weight, rigging configurations - basically all the specifications.

There should be redress for missing parameters at completion - especially weight

Performance

There should be clear performance expectations - a polar prediction if you will and penalties for missing the performance. The performance should be absolutely linked to weight - no project ever gets lighter once transferred from paper.

Equipment
There should be clear specifications on the quality of the equipment - engines, mast sections, winches and deck hardware. The interior fit out and criteria must be clearly specified

Delivery

There will be building delays. It must clearly specify what redress is available for delivery slips.

Financial

It must be clearly specified what the payment schedule is. In our world we call them progress payments. i.e. 20% down, 40% at 25% complete, 60% at 50% complete etc. You need a definition of what "complete" means. Hulls completed? Hulls joined? Decks laid? Mechanical equipment installed? Interior fitted? Systems Installed?

Financial Redress

It must be clear what happens if anything fails or if the boat never gets completed.

There are big discounts for the first few buyers of new planes in recognition of the commitment and the risks of delay. Of course the discounts consider order size.

If this builder hasn't thought about this stuff and already have a contract template, that would be a red flag. If he has a contract template I would be seeking a good lawyer where all the things above can be laid on him.

The contract is nothing but risk management. You need to ascertain whether the builder has any credibility in the business at all and whether the contract will be worth the paper it is written on.

Someone said you are a partner of the builder - it's not quite that bad because if he fails you aren't on the hook to pay everyone else he is in debt to. You are just the last creditor who will "never" get paid back.

I think it goes without saying that if this builder has never built before - you really are betting the lottery.
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Old 30-10-2012, 18:06   #8
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Re: Cat-Building Contract

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Actually in my business we actually do sell contracts for products that are concept, for delivery up to 5-7 years in advance. We call them paper airplanes.


.
Can't you get a bond of some sort that would cover any losses?
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Old 30-10-2012, 18:06   #9
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Re: Cat-Building Contract

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Someone said you are a partner of the builder - it's not quite that bad because if he fails you aren't on the hook to pay everyone else he is in debt to. You are just the last creditor who will "never" get paid back.
I said "basically a partner" because your money is likely the only money this business has, assuming that Hull #1 is going to the builder himself. If it isn't going to the builder, then you are really in business with the #1 buyer, paying for the construction of a couple of prototype boats.

I'm making some broad assumptions here. Maybe, in fact, the builder is a well-established boat designer and is coming up with something so cool that or OP is willing to take the financial risks to get one.

I made a similar offer to a S.A. builder, though he didn't bother to respond to my email. (after further research, he was probably much better backed than anything I was going to be able to offer him) I saw his boat and had an immediate sense of "gotta have it"
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Old 30-10-2012, 18:14   #10
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Re: Cat-Building Contract

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Can't you get a bond of some sort that would cover any losses?
There are insurers that insure contract risk in the aviation industry. I really can't talk about it much but that is one of the intricacies - The buyer has a contract performance warranty - he also has delivery insurance. Some try to get paid on both. Making neither the manufacturer or insurance company very happy...

Then there are the courts and if you watch the news you will periodically see where an airline is suing a maker for delivery delays. All part of the wonderful tapestry...

Not sure if you could get one on a boat - especially a new builder.

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I said "basically a partner" because your money is likely the only money this business has, assuming that Hull #1 is going to the builder himself. If it isn't going to the builder, then you are really in business with the #1 buyer, paying for the construction of a couple of prototype boats.

I'm making some broad assumptions here. Maybe, in fact, the builder is a well-established boat designer and is coming up with something so cool that or OP is willing to take the financial risks to get one.

I made a similar offer to a S.A. builder, though he didn't bother to respond to my email. (after further research, he was probably much better backed than anything I was going to be able to offer him) I saw his boat and had an immediate sense of "gotta have it"
Yeah - We don't know anything about the builder. Understanding his financing model is part of the risk assessment.

If the builder is relying on downpayments of 1-5 boats to finance his operation - without separate financing, I would definitely run.
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Old 30-10-2012, 19:14   #11
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Re: Cat-Building Contract

Put your money in escrow at a bank. Not to be withdrawn until your cat is ready to go.
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Old 30-10-2012, 20:16   #12
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Re: Cat-Building Contract

Run, don't walk to see a business attorney, particularly a contract and new startup expert. As Ex intimated there are a huge numbers of ways to fund a new startup or startup of a new design, and a lot of different ways to spread the risk.

For instance if this is a new design, I might suggest having the design built by a custom fabrication company, not try to start a new build company from scratch. At least this way the buyer has a financially stable company that can oversee the work, and already has suppliers, and workmen, and proven skills lined up. Alternatively if it is a proven design, I might be willing to test the waters of a new build company. Combining both of these risks into one house could be quite risky.

There are such things as completion and construction bonds, and insurance. But I would be doubtful that the companies that provide these would be interested in working with a new startup. They will want some sort of assurance that there is actual value to this company/idea. Which may be as simple as "the design was drawn by XXX well known designer and is owned by the company" or that YYY production manager at an existing yard is setting up a new company.

But rankle if it was my money, I would be charging a lot for it, and be very hesitant about getting involved in this type of deal at all.
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Old 30-10-2012, 20:31   #13
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Re: Cat-Building Contract

He's buying a boat; not investing in a joint venture. If I am the builder, I charge him one price for a boat. I charge him more for a boat and a piece of equity in the business, which is a headache he doesn't want anyway. He'll have to take care of insolvency risk and losing upfront payments, but this applies to many established boat builders. You're all getting carried away. This is not rocket science or, frankly, anything all that new. And I say this as a 20-year corporate lawyer and a buyer of a cruising cat after a lot of research. Talk to Chris White and Gregor Tarjan. They will give you a sales pitch for their boats but also answer your questions. Either one will give you advice that you'll find hugely valuable.
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Old 30-10-2012, 20:36   #14
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Re: Cat-Building Contract

Is the amount of money more than you can stand to lose? If so, consult with Boeing for contract. They are king of contracts.
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Old 30-10-2012, 23:53   #15
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Re: Cat-Building Contract

Krol, come clean. What is your motivation in this? Why buy an unproven design, in advance, when there are so many existing boats already on the water?
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