SuperYacht Refit or Conversions

What to consider before you get your Project started

Dr. Anthony Galea

Founder, AG Advisory 

As the winter season is well underway, many yacht captains, owner representatives, and managers also enter a key phase of winter works or even refit or conversions projects, if these are intended to be finished by Spring. Yacht refits and moreover conversions are intricate endeavours, requiring multiple tasks and skill sets, experience and specialized knowledge on various aspects. A successful refit demands meticulous preparation, comprehensive oversight, and the expertise to navigate technical, legal, and financial complexities. 

Attempting this endeavour and planning for it requires professional skills. All too often we have seen that the several tasks are not tackled (as there is not enough time), or left to one person who is not given adequate support for many reasons which could be related to budget, time or even know how. 

Whilst discussing with superyacht lawyers it appears that the matter of refit or conversion projects has been approached lightly so that many lament that they are too often involved in disputes when its too late, rather than the early stages as it ought to be. 

This anomaly in the way our industry works ought to be addressed. A refit or conversion project is serious business. In a recent article Hein Velena from the Superyacht Alliance has quoted some very important numbers collected by SYBASS. 

Perhaps the industry has focused its attention on the new builds and has not adopted the best approach to refit and conversions. It may also be that the requests from yacht owners, family offices, and managers who sought specialized skills to support this multifaceted process were not met as they could not find the support required as they, or their team, attempt or plan a refit or comprehensive winter works. 

In this paper we look to start addressing the matter well ahead of the 2025 season. So here are a few insights at what it takes to ensure your winter works or refit project achieves its goals, and how we can assist you. 

Consideration 1: Build a team 

In our view, the foundation of any successful refit lies in building a great team.

A starting point would be handing the task to an owner representative who has the knowledge and experience in the field. He could be a captain, or ex captain, a project manager, surveyor, ex refit yard manager, or similar experienced professional. His main task is to put the project together and see it through. 

The owner representative must be first and foremost a great manager and communicator, resilient, and able to adapt to the needs of the refit. He must plan ahead, but nonetheless, as we all know too well, be ready to deviate his course as during the course of a refit, its likely plans may need to change. Adapting and being flexible to such needs is also key. 

An experienced owner representative will approach the task as if it’s a marathon, rather than considering it as a race, even though it might appear otherwise, and this notwithstanding the pressure he or she may be under from the yacht owners who are rightfully eager and await the results of their investment, ever so keen to go on board and commence/continue their yachting experience. 

Projects will span from several hundred thousand euros to conversion projects running into tens of millions, running over many years. The responsibility for such a budget is indeed a large one and owner representative will require the organization and skill to plan and handle also the finances, on budget and on time. 

Whilst it is possible to find experienced owner representatives who have the knowledge and skill set to navigate through all the intricacies, we have no doubt that he or she will work at their best when they put together a team of professionals. Together they are better poised to tackle the technical, logistics, legal, financial and fiscal aspects prior to commencing the project and during its duration. 

Every successful team requires a great leader so given the intricacies, risks and multi-disciplinary knowledge involved in we strongly recommend to every owner, family officer or owner representative to put a team together to ensure final success. 

Consideration 2: A Good Technical Spec, Contract and the Legal Framework 

A well-drafted contract provides the framework of any refit or conversion project and ensures clarity and accountability between the owner and the yard. 

This process begins with developing a detailed specification list (Spec) and General Arrangement (GA) plan, which provide the technical and operational blueprint for the project. The detail is important and time should be spent to develop same with the yard, the designers, the naval architects and other professionals as may be needed to ensure the outcome meets the owners needs and wants. 

Engaging a lawyer well-versed in maritime law and the local legal system is essential. The contract can be developed pari passu as the Spec progresses. Nowadays it’s possible to find templates which generally form a good starting point as that provided by ICOMIA, and many experienced yards will present their own preferred version, however any legal professional will confirm that its only when you adapt and craft the contract to the circumstances of the project that you can protect your client's interests, while ensuring compliance with local rules and regulations. 

Refits often take place in jurisdictions with complex legal landscapes, such as Italy or Germany, where local laws favour the rights of shipyards sometimes notwithstanding that what may be contracted by the owner and the yard. For example, yards commonly hold a right of retention over the yacht until all payments are settled – a legal requirement that requires careful navigation. 

The project may span over a number of months or even years so financial guarantees may be required or advisable. It may also be the case that the project is time sensitive so that delays become a concern. Introducing timelines, and incentives or disincentives in the form of damages or penalty clauses may also become necessary. Finally a clear delivery process and provisions as to the warranties are key considerations. 

Ultimately a well written contract which finds a balance between the yard and owner interests is the target. Any contract leaning heavily one way or the other is likely to cause concerns and lead to disputes as soon as frictions start arising during the refit months. This will undermine the success of the project. We therefore recommend the appointment of top legal professionals to draw up your contract and will happily recommend the persons we deem best suited depending on your project, whilst we will also work hand in hand with the lawyer/s appointed to achieve the best possible contract. 

Consideration 3: Price, Budgeting and Cashflow

As suggested above refit and conversion projects usually involve hundreds of thousands of euros, or millions, so putting together a budget is an important aspect. It is often the case that the designers tasked with a project may provide an indicative cost, both for the structural works and the interiors, but validating same is a key consideration. The larger projects may do so via a tender process so that yards are asked to put together the skills, people, equipment, goods and services needed and bid for the project. Smaller projects sometimes follow an old fashioned practice of obtaining 3 quotes for each line item, though in practice this is not always possible. Many yards have long standing arrangements with trusted suppliers and will put same forward on any project as they know they can count on them to deliver on time and within the quote provided.

The price tag of any project is of course vital. However price alone should not be the driving factor for a refit and any discerning advisor would do well to consider all the other points we raise below. 

Further, once the budget is in place, and a price agreed with the yard, the job is just at the beginning. The hard work is too ensure that the project remains on track with the budget. The owner’s team should therefore track spend against the budget and organize payments in line with same, questioning any exceedance and updating the plan accordingly as necessary. This may sometimes be necessary on a weekly basis and not only monthly. As important as the budget is the cashflow. The owner's team needs to organize that it will have the funds to pay for the progress of the build in good time. Deposits, which may be substantial, may need to be paid upfront, so the cashflow projection may require this uploading as budget will not be spent in a linear manner. Further, many suppliers, especially those in a different continent will not ship goods until they are paid. Failed shipment may lead to delays, and these cannot be attributed to the supplier or the yard. Infact, we may conclude that cashflow in such projects is never linear. 

Another matter, which may appear obvious and reasonable is proper book keeping. However, book keeping during a refit also requires experience as it is not uncommon to have suppliers hailing from all parts of the world, all requiring confirmations and payments at more or less the same time, so that it’s not only the cashflow that need to be looked into but also the logistics and customs processes. Keeping track and proper books will help. There may also be the need to have warehousing organized, as goods might be shipped early or the project delayed. Warehousing in a free trade zone might be needed not to incur customs charges or VAT unnecessarily, or ahead of time. 

VAT is an important consideration to be made linked to cashflow. Whilst the VAT element is an issue only for refits occurring in the EU, it must be said that the majority of the major refit yards are currently in the EU, and the services and goods the yard and suppliers provide are subject to VAT. Depending on the circumstances of the project, the legal set up of the owner of the vessel, the tax residence of the beneficial owner, his/her intentions, the status of the yacht’s flag, and other similar considerations it may be possible to obtain VAT deferrals, exemptions or refunds. VAT is indeed a complex matter and one to be treated with caution, whilst getting it wrong will have a crucial impact on your cashflow as on average VAT is charged at 20% of the value of the goods and services delivered during a project. 

Consideration 4: Assessing the Yard’s Capabilities 

The choice of yard is critical. An assessment of the yard should be divided into three aspects:

1. evaluating the yard’s technical expertise, experience and capacity to deliver your project, and do so in time 

2. assess the yard’s financial stability. 

3. Assess the yard health and safety record 

It is not the scope of this matter to tackle the merits of each assessment but rather to highlight the need for such an assessment as it is seemingly often overlooked, as was recently confirmed by leading yards during a specialized panel discussion at the Global Superyacht Forum in Amsterdam last month. 

Notwithstanding the name, pedigree and brand held by any yard it is important to identify the ability for the yard to work on and deliver your project. Human capital and knowledge might exist at the Yard, but it’s well known that it is sparse, and a yard being evaluated might already be committed on other similar projects. In challenging economic climates, or during challenging months, a yard may prioritize one project over another (possibly concerned about any penalty clauses or other), driving resources and funds to other projects potentially delaying or compromising your refit. A technical assessment of the yard and its capabilities is definitely called for. In addition, we would also recommend having a discussion with the yard about its suppliers and supply chain. Particularly in those projects were all works and services are entrusted to the yard an assessment of the supply chain, and at least the key suppliers, would help ensure the process will be smoother. 

Any yard, even a yard having a good pedigree and history, may be struggling with cashflow and is likely to tighten the belt, perhaps beyond that what is needed. It is not uncommon that health and safety items on the budget start getting sidelined in favour of deploying cash in apparently more important areas. The health and safety record of the yard will not be immediately impacted so it’s only an assessment of the processes and policies that may bring this to the fore. 

Further, the yard’s facility may also be considered in the light of the facilities it provides for the crew and its connectivity. The yard itself need not have facilities or all the facilities in house, but certainly having crew facilities to allow for the crew to rest, receive their families, visit the families, be entertained, and attend training within the chosen yard’s proximity is a plus.

AG Advisory is able to conduct thorough financial and operational assessments of shipyards, providing you with insights into their reliability. We will draw on the know-how and knowledge of our network to evaluate their workforce capacity to ensure the yard can meet your project’s needs, timelines and quality standards. 

Consideration 5: Insurance and Risk Management 

Insurance is another pivotal aspect of refit planning. Both the yacht and the yard must be duly insured, that is they must have valid and up to date insurance covers. This is however not enough as once a project commences and a claim arises there may be doubts about who should handle any claim that may arise and if there is a conflict this may delay the processing of a claim or even lead to litigation. For instance, we have in the past assisted on a claim filed by a surveyor who got injured whilst climbing onto a yacht during a winter refit. Safe access to the yacht was the yard’s obligation, however this ceased once anyone was on board according to the yard. The surveyor was in the process of going on board when he got injured and a query arose about who was responsible then. 

Having compatible insurance policies, covering liability, health and safety, and unforeseen risks is important. Not all policies are drawn up similarly and not all insurers the same level of knowledge of yachting and sophistication. Ensuring the yard’s cover suffices to cover any liability in case of accidents, or even larger events such as fires, is nowadays commonplace but also critical. Specialized works, such as structural modifications or hot works, may introduce additional liability concerns. 

Insurance policies and covers is a difficult matter usually reserved for specialists for good reason. It is sometimes sidelined due to such complexity but a good policy is vital when an accident happens, however the need for same is underestimated until it happens. 

Consideration 6: VAT and Customs Considerations 

Navigating VAT and customs procedures is another key component of yacht refits. Improper Customs processes are all too often applied as not all yachts have similar circumstances. The circumstances of the yacht and the ownership entity must be properly assessed before deciding the structure to adopt, and EU and non-EU flagged vessels must be treated differently. 

Incorrect handling of invoices or misapplication of VAT processes and/or exemptions can lead to financial and legal complications. Until a few years ago the application of exemptions was common and few or little analysis was undertaken by yards and suppliers. Nowadays even the yards and suppliers appreciate the difference between the provisions of goods and services, and the different treatment reserved by VAT laws to such supplies. Authorities are also better equipped to spot incorrect processes, and scrutiny is more likely. One important point to keep in mind that such scrutiny may occur years after the project is complete, in some cases up to 8 years later so proper book keeping and record keeping is also important. Furthermore, as we move into a digital age, it’s likely that EU laws will impose the digitalization of invoicing and this will allow real time assessments. Keep an eye out for this new consideration! 

AG Advisory ensures compliance with customs regulations while identifying opportunities for VAT optimization. By managing these processes effectively, we can provide cash flow advantages and reduce your tax burden. We will also ensure proper book keeping and record keeping of the project finances. 

Consideration 7: Ongoing On-Site Representation 

Effective on-site representation is essential for monitoring the progress of your refit and addressing any issues as they arise. This role can be filled by your captain, a project manager, or a dedicated owner’s representative, as long as the person chosen has the competence and experience needed. Reporting is also a useful tool to allow the owner and the whole team keep abreast of the project. 

Co-ordination and collaboration with the yard is key, as the person on-site needs to be a great communicator and organizer. 

Co-ordination is also needed with the team to ensure the persons responsible for the book keeping, logistics, supplies, are up to date so that any orders and deliveries needed to be done are executed in a timely manner not to hold up the progress. 

It is sometimes the case that projects falter and action may be needed to restore the trust and bring the project back in line. An experienced person will read the signs and act to identify there is a problem, possibly offering solutions or calling for them, so that any concern doesn’t become a problem. 

How AG Advisory Can Help 

At AG Advisory, we take a holistic approach to yacht refit management. We like to be brought on at an early stage and be involved in the pre-refit process, defining and shaping same, or even help build the team, to ensure a successful outcome. We can also be brought on later to help improve processes and get involved in the team. We do not need to be involved with the yacht and its ownership structure, and will accept project based engagements if we believe this is the best interests and need of the owner. 

We will start by identifying the project and the needs and wants. We strongly believe in helping you identify your key person/s and building a team. We will make our extensive network available to achieve same. 

Thereafter, here’s how we can support you or the team: 

1. Due Diligence: We assess the yard’s financial and operational capacity, including undertaking a risk assessment, to ensure it can deliver your project successfully. 

2. Legal Expertise: Our network of maritime lawyers ensures robust contractual arrangements that protect your interests, and shapes agreements according your needs and circumstances. Working with the designers, surveyors and technical team we will help shape the project correctly from the start. 

3. Insurance Coordination: We review the yard’s policy and risk, align the yard’s insurance policies with your yacht’s coverage to ensure a comprehensive cover and minimize risk. 

4. Customs and VAT Compliance: Our expertise in customs procedures and VAT ensures the processes adopted are correct, including invoicing, whilst we also seek to optimize the VAT position. 

5. Budget Building and Oversight: We provide assistance with building the budget, tracking same and book keeping ensuring that a project is delivered within the budget and books and records are properly kept. 

Conclusion 

A superyacht conversion project, refit or even winter works is a significant undertaking that requires expertise, attention to detail, and strategic planning. With AG Advisory by your side, you can navigate these complexities confidently and efficiently. Our goal is to make your project a seamless experience, freeing you and your team to focus where it matters most. Whether you’re a captain, manager, or family office, project manager or owner representative, we provide the tailored support you need to achieve your vision and task. 

We hope that our paper creates more understanding and awareness about the importance of approaching refits and conversions in a more professional manner, and trust that the above can provide some guidance in respect to such an approach. It will not substitute professional or specialized advise in the various fields, but should hopefully allow you a good starting point about what to consider ahead of your project. 

For more information on how we can assist with your yacht refit, visit www.agadvisory.mt or reach out to us on ag@agadvisory.com

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Dr. Anthony Galea is the founder of AG Advisory, a leading consultancy specializing in superyachts and bespoke advisory services for luxury maritime projects. 

28th December 2024