Installments for new boats

[SuzieWong]

I am having the thoughts of purchasing a newly built boat.
The contract requires several payments, 10% on order, 25% before start building the boat,...
How do different contracts compare? Is it possible to request a different installment plan?
How to make sure, you never wish it happens but you never know, that you get your assets back in case of bankruptcy?

Any thoughts?

[Stu Jackson]

Put it in an escrow account.

[transmitterdan]

There are at least two ways you can be protected if the builder goes bankrupt. One is to not give them the money until the boat is finished and accepted by you. But it sounds like they need your money to pay for the build. Another way is to ask for a bank guarantee that refunds what you paid in the event they declare bankruptcy or fail to deliver. But if it is a small builder the bank will just hold the money so the builder will not be able to use the money for expenses.

You should engage an attorney to advise you on such a transaction IMO.

[monte]

Contacts can be negotiated. Companies vary on policy though, but my experience is they ask for 10% deposit and the remainder at handover with large volume builders. I've negotiated a 5% deposit in the past. I would be very wary of a contact that asks for any more than that or for progress payments. Some smaller companies need the progress payments to pay the bills along the way, but essentially you are in investing your money in the company. Investing in a boat building company...crazy! Many, many people have been caught out by boat builders that have gone belly up and left with nothing more than half a hull after paying for half a boat.
The only way I would commit to instalments would be after careful investigation of the company, and also I would want to be on site for all of the build. Keep in mind the easiest way for any company to bail themselves out of financial difficulty is to use new customers funds to pay for old debts. This works for a while, till it doesn't...

[a64pilot]

If they need the money to build the boat, they aren't going to go for an Escrow account, and a Bank guarantee means the company has to escrow the money being guaranteed. I've only seen this in Government contracts. That ain't happening if they are cash poor.

If they are just wanting to ensure your on the hook to buy the boat, then they won't mind an escrow account.
I'd be leery of anyone that needed progress payments to finance the build. Lots and lots of people have gotten good buys this way, and just as many have ended up with nothing at all.
I think the world of a Westsail, but didn't they go down this route before going under for example?

[Stumble]

In custom builds this is a pretty common system, even for established builders. The payments are supposed to be for reimbursement of things already done, not prepay,net for the next batch of work. Where people get screwed is when the company is actually using their money to finish another persons boat, so they get the remainder (includes their profit) from that contract.

The best way to insure this type of deal is with a performance bond. It's an insurance contract with a third party where they guarantee the build goes as planned (within limits). Any contract with the builder is pretty much worthless without a forensic audit, since you have no way to know their financial stability. If they go bankrupt 'your hull' becomes an asset of the business, which can be sold to satisfy debts (including your claim) of the company.

Performance bonds are very common, and almost every construction project over $1 million it's just assumed.

[captmikem]

I have built a number of boats at good yards (not for me, I was project manager for the owners). ALL boatyards will try and make extra money so a few things to look out for:

Installments at phases of construction, for instance” 33% when the main engine is installed”.. They actually put the main in, and then took it out because it was not ready, but they needed the money.

Change orders… this is where the yard makes a lot of profit.. Try and nail everything down before signing. There will still be change orders, but try to keep them to a minimum. If their “standard” is not what you want, then make sure what you want is stipulated before signing. (and this is for EVERYTHING on the vessel). Examples, you want the decks vacuum bagged instead of mechanically fastened, even though it is less expensive to bag it, they will charge you thousands for the change. You want a different brand of pump/filter/whatever, it is going to cost you much more to change to it than to stipulate it at signing.

Profit on purchased items. Everything is marked up, try and negotiate a “cost plus 10%” or less.

Shipping costs for large items, always marked up.

All boats are late, put a penalty clause in the contract stating of so much per day if the vessel is not delivered on the contract date. (thousand a day is normal).

Watch out for “consumables” (tools, brushes, tape, etc) these are always over priced and over charged.

Many more, but those are the biggies, really best to have a good attorney spend time on the contract before signing, no matter HOW well you know the yard or its owners/managers.

Good luck, and try and enjoy the building.

Michael

[Cheechako]

I would buy a boat that is already built whenever I could.
The advise above is good. I have been in the situation where I gave money and the builder went bankrupt. You have no way to get out of that. Unless you do it with escrow etc as mentioned above.
There are builders that live from boat to boat, often completing the current boat with the money you gave them to build your boat.
You may be OK with a big name builder. Run a D&B on them before signing up.

[thebootlegger]

All good advice/suggestions!

[Rough Magic]

Escrow the money with a bank, with payments at completion of various steps; and combine that with a perfomance bond for delivery. You either get your boat, or your money back. Many contractor funding companies offer these services.

[dannc]

I saw a documentary on Boeing, the guy the created the aircraft company, and one of his factories when he started out was originally a boat builder. Boeing had contracted to get a boat built, the boat did not get finished and Boeing got the boat building. This does not seem to be an uncommon event.

Much of the risk in building a boat is like building a house. You have to watch the builders mark up, build quality, cash flow, etc. When we were looking for a builder our house, one guy kept increasing the cost for things like extra power outlets. He nickled and dimed his way out of a contract, and years later, out of business. We found a much better builder well before we signed a contract. A big difference in building a house vs a boat, is that at least you should be able to recover the house in some decent state of completion.

Later,
Dan

[SuzieWong]

Thank you for helpful replies
Am happy that I did not stumble into the contract without the inputs from you.
Contacted some banks and the shipyard and hope we can work out a solution that works for all parties involved

[BCMorelli]

Hi Suzie,

My wife and I purchased a new 45' yacht in July last year from one of the French production boat brands. Your original description sounds similar to the process we went through with payments, 10% on signing contract, 50% when boat departed the factory for shipment to Australia. Another 20% when arrival in Australia, 10% when placed in the water and the final 10% at handover after full commissioning.
Its a nerve-wracking process handing over considerable sums of money for nothing you can touch ! We used an Australian agent, who is well-known in the industry and the only importer into Australia, so we had a high level of trust and in the end it all worked out. The boat arrived as planned ( I did track it daily on the container ship) and commissioned in mid December.
We still have a few niggly things to get completed, but overall a great experience. Judging by the process we experienced I do not believe we could have negotiated different payment options, although I didn't try. It is set out accurately in the contract when you sign, so theres no surprises .. and time to get your head around the large payment cheques!
Dealing with one of the larger production boat companies is also a less-risky issue. If you are using a local builder and you can visibly see progress it would be different I would imagine, and one I would have preferred if that was possible.
Good luck in your quest for a new vessel ... it is a great experience to have a new boat .. one we hopefully keep for many years to come.

Cheers .. Brett.

[GordMay]

Greetings and welcome aboard the CF, Brett.

[Terra Nova]

Originally Posted by a64pilot

...I'd be leery of anyone that needed progress payments to finance the build...

This is simply bad advice.

Progress payments are standard procedure on custom builds.