Yacht New Build Contract: What to Negotiate

A superyacht new build contract runs to eighty to one hundred and fifty pages. Most of it is standard. Around ten clauses do the actual work of deciding whether the project runs well or badly. This piece covers those ten, in the order they matter.

It is written for owners and family offices about to sign a contract on a new build between 24 and 60 metres. It is not legal advice. It is a project manager's view of the clauses that decide outcomes.

1. Specification and Design Freeze

The contract should reference a specification document by version and date, and that specification should be complete before signature. "Specification to be developed in good faith after signing" is the most expensive sentence an owner can ever agree to.

A clean specification names every major system by manufacturer, every interior material by sample, every performance number by figure. If a number is not in the specification, it is a variation, and variations are where contracts bleed money.

2. Price Model

There are three: fixed price, target cost, and time and materials. Each suits a different project.

Fixed price is right when the specification is genuinely complete and the yard is taking design responsibility. The owner pays a premium for risk transfer. Variations are limited and expensive.

Target cost is right when the specification is eighty percent complete and both parties want a shared incentive to manage cost. Overruns and underruns split between owner and yard at agreed percentages. This is the most common model on serious new builds.

Time and materials is right almost never. It suits exploratory restoration work, not new builds. Avoid it on any project where the scope can be defined in advance.

3. Payment Milestones and Retention

Milestone payments should track actual progress, not calendar dates. Thirty percent on signature is acceptable. Sixty percent on keel laying is not, because keel laying is a one-day event that costs the yard almost nothing. Milestones should be tied to verifiable physical progress: hull turn, deck close-up, engine installation, paint completion, sea trials.

Retention of five to ten percent held until twelve months after delivery is standard. Less than five percent gives the yard no incentive to fix warranty issues. More than ten percent can stress the yard's cash flow on long projects.

4. Variation Procedure

Every change after signing is a variation. The contract must define how variations are priced, how quickly they must be quoted, what the owner's right to reject is, and what happens if the yard performs unagreed work.

A good variation clause requires: written quote within ten working days, signed acceptance before work starts, no recovery for work done without signed acceptance. Bad variation clauses allow the yard to invoice for "necessary" work without prior approval. That phrase should be struck out.

5. Performance Guarantees

Sailing yachts: speed under defined sail and wind conditions, plus stability on rated conditions. Motor yachts: speed at maximum continuous rating, range at cruise speed, fuel consumption at cruise speed, noise levels in named cabins.

Performance shortfalls should carry pre-agreed remedies, ranging from price reduction to rectification. "Best endeavours to meet performance" is not a guarantee. It is wallpaper.

6. Liquidated Damages for Late Delivery

Delay damages should be set at a level that reflects the owner's actual exposure: charter loss, alternative accommodation, financing costs. Common levels are twenty thousand to one hundred thousand pounds per week, capped at ten percent of contract value.

A delay clause with no liquidated damages is a yard that does not need to deliver on time. A delay clause with damages at five thousand pounds per week on a forty million pound project is the same.

7. Termination Rights

The owner needs the right to terminate for: persistent material breach, insolvency of the yard, delay beyond a defined long stop date, change of control of the yard. Each trigger should specify what happens to work in progress, who owns the yacht in its current state, and how the price is settled.

A contract with no clear termination ladder leaves the owner exposed to a yard that has stopped performing but cannot be removed.

8. Ownership of Work in Progress

Most jurisdictions assume the yard owns the yacht until handover. That is the wrong default for the owner. The contract should vest title in the owner progressively as payments are made, with clear documentation of what each payment buys.

This matters most if the yard goes insolvent. An owner who has paid twenty million pounds and has no title to anything is an unsecured creditor. An owner with progressive title can recover work in progress.

9. Warranty Terms

Twelve months from delivery is standard. Twenty-four months is achievable on serious yards. The warranty should cover defects in materials, workmanship, and design where the yard took design responsibility. Exclusions for normal wear and tear are reasonable. Exclusions for items beyond the yard's reasonable control are not.

A back-to-back warranty with subcontractors and equipment suppliers is essential. The owner should have a single point of contact, but the underlying chain of warranties must be sound.

10. Disputes and Governing Law

For a European new build, English law and London arbitration are standard. Maritime arbitration is well-developed in London and Hamburg. Avoid arbitration in the yard's home jurisdiction unless the yard is in one of these centres.

Disputes are best avoided. A contract written by lawyers who understand yacht building will produce fewer disputes than a contract written by lawyers who do not. Pay for the right lawyers up front.

What to Do Before Signing

Three things, in this order.

Engage an independent owner's representative. Engage them before lawyers, because they will tell the lawyers what to look for.

Get a specialist maritime law firm to mark up the contract. Not a generalist firm.

Hold a contract review meeting with the yard, the lawyers, and the representative in the room together, and walk through every clause that has been changed. The yard's reaction to your changes tells you more about how the project will run than any reference call.

Frequently Asked Questions

How long should a new build contract be?

Body of contract fifty to one hundred pages, with specification, drawings, and schedules attached. Total package often three hundred to five hundred pages.

Who drafts the contract?

Usually the yard provides a first draft. The owner's lawyers then mark it up. Assume eighty percent of the yard's draft favours the yard, and price your legal fees accordingly.

Can I use a standard contract form?

The Netherlands yacht builders association has a standard form. So do some UK and German yards. They are reasonable starting points, but every project needs negotiation.

What is the most commonly missed clause?

Variation procedure. Owners focus on price and delivery date and skim the variation clause, then discover during the build that they have signed an open chequebook.

How long does contract negotiation take?

Four to twelve weeks for a serious negotiation. Less than four weeks usually means one side has not read the contract properly.

If you are about to sign a new build contract and want an independent review of the terms, our owner's representation team works exclusively on the owner's side of the table.