(1)          Value of the Lump Sum works:

Issue 1(a): What abatement is due, if any, for the Lump Sum works not done at all?

Issue 1(b): What abatement is due, if any, for the Lump Sum works not done at all and/or partly not done?

(2)          Value of the Re‐Measure Works:

Issue 2: Was there a binding agreement regarding the signed VO-008, and, if so, in what sum and for which items?

Issue 3: In light of the answer to Issue 2 and/or in any event, what is the recoverable value of the re‐measurement portion of the Contract?

Issue 4: Is Bluewater entitled to a discount on VOs? In particular, is Bluewater entitled to a discount on VORs 1 and 8? If so, at what rate and on what sums?

(3)          Value of the Reimbursable Costs at Contract Rates:

Issue 5: What work is Mercon entitled to claim for on a reimbursable basis, and in what amount?

Issue 7: Is recovery of reimbursable cost dependant on proof of the costs actually being incurred?

Issue 6: How much credit, if any, is to be given for amount paid by Bluewater to ASPO?

Issue 8: On what basis is the percentage uplift to be calculated and upon which sums?

Issue 9: Is Mercon entitled to be paid for ‘yard improvement’/mobilisation/ demobilisation?

Issue 10: Is the Defendant claiming for reimbursable works which are in fact or ought to have been compensated for elsewhere (re‐measure or lump sum)?

Issue 11: What is the proper valuation of the Reimbursable Cost account?

(4)          Reimbursable costs (Star Rates)/ VOR 259:

Issue 12: Is Mercon entitled to payment for personnel who worked on integration at Astrakhan at STAR Rates?

Issue 13: If so, for what personnel and in what sums?

(5)          Other Variations

Issue 14. Did Mercon fail to comply with the notice requirements in clause 14.3 to 14.7 in respect of any claimed variations and, if so, what effect does this have (if any) on its right to payment?

Issue 15: What is the value of the variation account (excluding VOR 8), including discount (if any)?

(6)          Liquidated Damages/Entitlement to an Extension of Time

Issue 17: Is Mercon entitled to an extension of time to complete any of the Key Dates (and in particular the Key Dates which carry liquidated damages, namely B4.1, B4.2, B4.3, C3, C6 and C9)?

Issue 18: Alternatively, is time at large by reason of acts of prevention on the part of Bluewater and/or a break down in the contract mechanism for extending time?

Issue 19: In light of the answers to Issues 17 and/or 18, is Bluewater entitled to levy liquidated damages and, if so, in what amount (considering what the correct total contract price is for the purposes of the contractual cap)?

(7)          Termination

Issue 20: Did Bluewater validly terminate the Contract on or about 3 February 2009 or was Bluewater in repudiatory breach for wrongly purporting to terminate the Contract?

(8)          Other Bluewater Claims

Issue 21: What sums are due, if any, in respect of:

(a) LADs for Key Personnel?

(b) pre-termination damages?

(c) post-termination damages?

(d) NCRs?

(e) other costs to complete?

(f) Residual VAT?

(9)          Other Mercon Claims

Issue 22: Is Mercon entitled to claim for lost profit (if Bluewater wrongly terminated the contract) and, if so, in what sum?

“30.1 Bluewater shall have the right by giving notice to terminate all or any part of the WORK or the CONTRACT at such time or times as BLUEWATER may consider necessary for any or all of the following issues:

(a) To suit the convenience of BLUEWATER

(b) Subject only to Clause 30.2 in the event of any default on the part of the CONTRACTOR; or

(c) …

30.2 In the event of a default on the part of the CONTACTOR and before the issue by BLUEWATER of an order of termination of all or any part of the WORK of the CONTRACT, BLUEWATER shall give notice of default to the CONTRACTOR giving the details of such default. If the CONTRACTOR upon receipt of such notice does not immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default BLUEWATER may issue a notice of termination in accordance with the provisions of Clause 30.1.”

(1)          Bluewater must give notice of default to Mercon giving “details of such default” (“Notice of Default”);

(2)          Upon receipt of the notice Mercon must “immediately commence and thereafter continuously proceed with action… to remedy such default”;

(3)          That action to remedy the default must be “satisfactory to BLUEWATER”; and

(4)          If Mercon does not take such action, Bluewater “may issue a notice of termination” under clause 30.1(b) for default on the part of Mercon (“Notice of Termination”).

“Both the CONTRACTOR and BLUEWATER shall uphold the highest standards of business ethics in the performance of the CONTRACT. Honesty, fairness and integrity shall be paramount principles in the dealings between the parties.”

“(a) BLUEWATER has the right to issue instructions to the CONTRACTOR at any time to do any of the following:

(i) make any revision to the WORK which may include additions…

…

(b) On receipt of any instruction under Clause 14.1(a), the CONTRACTOR shall proceed immediately as instructed.”

“Site Instructions shall be submitted on a sequentially numbered SI form as indicated in Attachment 8D. The instruction shall reference the applicable documents and shall have a copy of these documents attached.

Site Instructions shall be endorsed by CONTRACTOR and returned to BLUEWATER within one (1) working day after receipt.”

“In the beginning of this week we discovered that a number of timesheets were incorrect. Therefor [Bluewater] and [Mercon] refused to sign them.

From that moment came the reaction from ASPO, slowing down the work Supervision of ASPO told their workers that they are unable to pay their workers because Peter vd Brule from [Mercon] is not signing the timesheets.”

“You don’t have right to delay the payment of works according to the specified stages because of dissatisfaction with the completeness of any additionally provided information. We consider the deductions of payment of unpaid invoices as the rigid non-fulfilment of contract conditions.”

“Please explain why Mercon delays in payment of invoices and makes the payment not in full volume. All issues concerning amounts under the contract should have been solved within 10 days since the date of invoice issuing. Voluntary deductions don’t conform to the contract. We should inform you that the present situation can negatively influence on the progress chart under the contract. In case you don’t fulfil your obligations under the contract we will have the same attitude towards fulfilment of our obligations under the contract, we will decrease the scope of provided services for the amount of your deductions.”

“It is the third time you are requested to effect full payment of invoices otherwise we will have to reduce the services proportionally to payment”

“According to ASPO, this was promised by Peter in order to prevent delay. I made it clear that our financial department could not see that stated in the contract and therefore did not pay. The financial man here was able to understand this, but not the project manager because he had made an agreement with Peter. Here I promised to try to convince you to pay this. Herewith, therefore. Indeed, I think that it would be good to pay this invoice because it was promised. It would also be good for me in order to use it to generate a bit of goodwill. Although they were not very happy that I was only going to stand up for this small invoice.”

“Our site staff has informed us around 11:30 (NL-time) of the fact that ASPO has disconnected the telephone and internet lines at our and your site offices… So far, rumours are that the none [sic] acceptance of invoices from ASPO, and the resulting refusal to pay, is the cause for the present situation.”

“Could you send me a copy of the rotation test procedure of the turntable, which Bluewater and RRMS signed off? Bluewater needs this report today in connection with the handover to Lukoil. I understand that previously Mercon had refused to issue this report but I am assuming that this has now been resolved. Before I present the report to Bluewater, I will also liaise with Ron about it.”

“Sirs, indeed prepare before handover, i.e. ensure that this document is available, but for the time being there will be NO handover. This means look, look, but not buy and so not get! After the discussions (NL), we will decide whether to hand over. I would therefore like to leave the possibility open of saying, “Regrettably, we are not ready for handover yet.”

“Lastly, you must get it into your heads that we are NOT completing. We are only reporting that we have achieved C6. Now we must first obtain EoT and a modification of C9 before they are able to offer to Lukoil.”

“This list is split-up in the following types of activities:

(1)   Punch-list items; those elements of the original scope which formed part of the WORK at the time of agreement on the Recovery Schedule submitted in December 2007, and could have been completed on the 18th of December 2008.

(2)   Bluewater delayed activities; those elements of the original scope which formed part of the WORK at the time of agreement on the Recovery Schedule submitted in December 2007, and which could not be completed on the 18th of December 2008 due to unavailability of required materials or information to be provided by Bluewater.

(3)   Storage activities; those activities required to allow due care & custody during the storage period as instructed per Bluewater letter 1-0445-0-S001-BES-MSSL- 396, dated the 29th of August 2008.

(4)   Late instructed activities; those activities which were instructed after agreement on the Recovery Schedule submitted in December 2007, which are not completed on the 18th of December 2008, and for which no Extension of Time has been received per the 18th of December 2008.

(5)   Not instructed activities; those activities of which Mercon was made aware by the Bluewater site team, which are not completed on the 18th of December 2008, and which have not been instructed per the 18th of December 2008.”

“Fabrication of all components in the Netherlands has been completed as well as fabrication of all components as ASPO. Only equipment delayed by the customs clearance of Lukoil still needs to be fitted and tested where required.

…

[Bluewater] invited Lukoil to attend the delivery of the EQUIPMENT (SYMS Components) at ASPO in Astrakhan and sign a CERTIFICATE OF RELEASE FOR TRANSPORT (ready for Load Out) with a small punch list. Lukoil refused to do so.”

“MERCON have neither executed nor completed major elements of the Scope of WORK related to Key Milestone C6, such as:

1. Weighing of the SPM SYSTEM in accordance with the provisions of the Contract;

2. Preservation of the SPM SYSTEM;

3. Testing of the watertight floor;

4. SAT-testing of the winch foundations;

5. Follow up and execution of several NCR’s as issued by BLUEWATER.

BLUEWATER consider that these major elements of the Scope of Work, whether completed or not, can not be regarded as Punch List items.”

“Furthermore, BLUEWATER remark that BLUEWATER cannot accept the differentiation as applied by MERCON in their letter –L-314. Instead, BLUEWATER request that MERCON duly complete the WORK without differentiation.”

“Key Milestone C6             Ready Load Out

>Weighing

1. [Mercon] first agreement about the work         >compensation/time agreement before continuing

> [Bluewater] not further to LUKOIL

2. Recap after interruption:                proposal Grace Period

15 SEP 2008 > 01 JUN 2009

“Mercon requires confirmation of addition of these elements of work to the scope, confirmation of entitlement to financial compensation, entitlement of extension of time for key date C6 and agreement on the value of the referred activities, before the referred activities can be executed.”

“1) He cannot permit to [Bluewater] [guys] to be in ASPO and all [Bluewater] passes will be blocked until decision from Mr Marisov…

2) Sea fastening suggestion for the steel plates not under translation and during today Vlad will send to us, but without invoice, as [said] to me Ryzkov agreement between Bank and ASPO concerning Mercon payments been finished in the end of last year, when your main contract been finished and for the prolongation of this agreement Bank need to have signed additional agreement between ASPO and [Mercon]. ASPO tomorrow will send concept of this agreement to [Mercon] for signing, and asked to send back as soon as possible.”

“[Mercon] first wants to see money and time before they carry on with the yoke hinge and other items, which, as far as they are concerned, do not fall under [Scope of Work], such as yoke hinge/paint/preservation.”

“This additional agreement is needed for bank in order to prolong transaction certificate of this contract, otherwise we are not able to act under the terms of the contract without this agreement.”

“1. Completion Key Milestone C3 before completion of Key Milestone C6;

2. Completion of Key Milestone C6:

2.1  Outstanding WORK (Weighing, Preservation, Testing Watertight Floor, SAT

Testing Winch Foundations, Execution of NCR’s, Yoke Hinge);

2.2  Punch List Items.”

“Today morning Mr Marisov invited me to his office and asked about payments news, I told, that Jasper is working on it in Holland and after that he said that he want to have today a speakerphone meeting with Ron de Jong and Willem Griffioen regarding payments. Can you please find out, this is possible or not, and if possible at what time”

“We ask your confirmation that the referred instructions entitle [Mercon] to financial compensation and extra time for the related activities. Mercon will detail the referred cost and durations when available. The extended or additional durations will be incorporated in the Master Schedule where after our entitlement for Extension of Time will be determined.

We request your confirmation in order to allow preparation and scheduling of the associated activities.”

“It is considered that MERCON is in default of its obligations under the Agreement by reason both of its failure to complete the work items identified on the OUTSTANDING WORK LIST (as amplified in the list at Annex 1, which includes work items related to key date C3 which remain to be completed notwithstanding the confirmation given by Michiel Pors and in respect of which MERCON is also in default), and by reason of its non-contractual and unjustified refusal to do so unless BLUEWATER agrees additional compensation and extra time.”

“This identification is to be read together with the updated list at Annex 1 and the C3 and C6 items included therein are deemed included in the identification of the items in respect of which MERCON is in default.

This letter is intended to take effect as a Formal Notice of Default given under and in accordance with Clause 30.2 of the Agreement.

If MERCON does not immediately commence and thereafter continuously proceed with actions satisfactory to BLUEWATER to remedy the identified defaults BLUEWATER will be entitled to issue a Notice of Termination in accordance with the provisions of Clause 30.1 of the Agreement, and it will issue such a Notice if within 7 days of the date hereof MERCON has not remedied its default by completing to the satisfaction of BLUEWATER all work items related to key date C6 as set out above and as those are amplified in the updated list at Annex 1.”

“Bluewater have come to know that ASPO ceased all WORK with [Mercon] due to the fact that in contradiction with an agreement reached between ASPO and [Mercon] on 23 JAN 2009, as of 26th January 2009 [Mercon] have neither issued payment nor any proof of such a transaction confirming that outstanding invoices including RFVAT, up to and including December 2008 had been paid (approx.. 2.6Mio).”

“If MERCON does not immediately commence and thereafter continuously proceed with actions satisfactory to BLUEWATER to remedy the identified defaults BLUEWATER will be entitled to issue a Notice of Termination… if

… MERCON has not remedied its default by completing to the satisfaction of BLUEWATER all work items related to key date C6 as set out above and as those are amplified in the updated list at Annex 1.”

“CONTRACTOR shall safely and with due diligence perform Work as set forth herein on a continuous basis until completion and acceptance by BLUEWATER.”     

(1)          Weighing;

(2)          Painting and Shotblasting;

(3)          Fitting of the Yoke Hinge;

(4)          Load testing of the winch foundations;

(5)          Installation of flame and gas detectors;

(6)          Other items.

The contractual obligation

“The weights of all components are critical for early assessment of the SYMS during the installation phase and reliable and accurate weight reporting, taking account of items such as weld volume and paint, is therefore essential.

…

(1)     The final weight and centre of gravity (COG) shall be confirmed from the results of the physical weighing.

CONTRACTOR shall comply with the requirements of the SYMS Weighing Specification, Doc No. RUSA-JBE-N1-JS-64900-4014.”

(1)          By Section 2.5 that:

“The number of weighings for each assembly shall be two (2), as follows:

1. When the structural steelwork has been erected or when the assembly is structurally stable.

2. Immediately before load-out.”  

(2)          By Section 2.11, Load Cells, that:

“The weighing system shall consist of electronic strain gauge load cells. Other types of load cells may be used if approved by COMPANY.

The load cells shall be equipped with a spherical seating, or equivalent, in order to minimize horizontal forces.”

(3)          By Section 2.13 that:

“The jacking system employed in the weighing must produce uniform vertical movement at all weighing points.

The jack shall be double acting. For assemblies below 500 tonnes a single acting jack may be used.

The assembly weight must be directly applied to the load cells, either by jacking up and lowering onto the load cells (load cells adjacent to jacks) or by jacking the load cells up to the assembly and then lifting (load cells on top of the jack or inside the hollow of the jacks).

When the load cells are positioned adjacent to the jacks the assembly must be lowered smoothly and uniformly onto the load cells. This method of jacking/weighing shall be used only for smaller assemblies below 500 tonnes.”

(4)          By Section 2.14 that: “Each individual load cell shall have a measurement uncertainty better than ± 0.5% of rated capacity. The measurement uncertainty of the weighing system as a whole shall be within ± 1.0% of actual weighed weight.”

(5)          By Section 2.19 that “For each weighing operation a minimum of three (3) lifts/weighings/readings are required.”

Chronology

“Originally [Mercon] has anticipated to weigh the substructure with the weighing system of the Crane “Volgar” at Load out. Together with a weight control report with theoretical weights and COG this was considered sufficient. With the current 800T mooring load design the COG will not be in line with the central column due to the fifth leg. To determine the COG 5 individual load cells are required and weighing with crane Volgar is not possible any more.”

“At the same time I would like to draw your attention to the fact that the construction of the fabricated support foundation does not provide installation and usage of the equipment needed for weighing of SYMS construction. At our meeting with [Mercon] Representatives on 20.11.2007 it was pointed out that weighing with the equipment of f/c Volgar is not acceptable for [Mercon] and [Mercon] was to provide information of weighing method to ASPO, though ASPO has not received that yet.”

“At no occasion have BLUEWATER formally waived the requirement, as stipulated in the Contract, that weighing of the SPM SYSTEM is no longer required. The statement of MERCON is therefore considered incorrect.”

“MERCON have neither executed nor completed major elements of the scope of WORK related to Key Milestone C6, such as:

(a)    Weighing of the SPM SYSTEM in accordance with the provisions of the Contract;…”  

“The weighing of the structures in Astrakhan before load-out, has been proposed during our tender and included in our contract to be executed during load-out with the ‘Volgar’ by using the load-cells in the system of this crane vessel. The delayed load-out forces us to execute this scope element in June 2009 when completing milestone C9. We conclude that this scope element cannot form part of the milestone C6 scope.”

Analysis

(1)          PL CC4.1, painting on piping integration welds;

(2)          PL CC4.2, general touch up sub-structure, including Central Column;

(3)          PL CC4.2 NDT surfaces and drain put inside Central Column above watertight floor;

(4)          OWL TS4.2 General touch-up Top Side;

(5)          OWL TS4.3 Paint door of Pig Receiver;

(6)          OWL TS4.4 Touch up modified grating panel on PRD; and

(7)          PL TS 4.1   Four Integration welds columns Top Side (applying the top coat).

“I spoke with Ryzkov today morning concerning it, and showed him excel sheet with all remaining paint work, which we need to finish as soon as possible. But he said, that we can not make any plannings concerning works, which are not in the main contract before receiving all debts from [Mercon] and signing additional agreement. He said also, that is Marisov decision and we can not change it, we must to close main contract, to sign additional agreement, to receive depts. And only after that we will make plan for painting and for other additional works.”

“I spoke with Ryzkov again about Additional Agreement, and he said, that he red this letter today together with Marisov, and during today ASPO will send response (as he told me, for Marisov this letter is not enough, he want to receive signed agreement, which ASPO sent to [Mercon])

He also said that he cannot permit final painting before receiving payment for the main painting from [Mercon].”

“Winch Function Test

CONTRACTOR shall perform a winch function test in which the winch wire shall be routed through the various rigging arrangements. CONTRACTOR shall submit the winch function test procedure to BLUEWATER Representative for approval a minimum of eight (8) weeks prior to execution of the test.”

“1) Proforma Invoices

…

As already discussed only the fire and gas detectors have been imported on a temp. basis the value for this cargo should be the same as at the time [of] import as well as description [etc]

…

3) BOL

Because the Gas and fire detectors are mounted on the structure you will not be able to issue a separate BOL for this. In fact there is no requirement to issue a BOL for this. …”

“In our opinion there are 2 options i.e

1

Inform Lukoil about this matter, issue new documents and hope that the situation can/will be corrected. Most probably Lukoil will use this as an argument to pass on any delays on to us and create a lot of problems.

2

On paper load the detectors in a container, keep the documents as submitted, pretend nothing has happened and hope for the best. If at a later stage the detectors are not found to be in the container, investigate matters, apologise and hope that it can be corrected. In any case the vessel by then would have departed.

For the moment, we believe that option 2 is probably the best. It could create problems, however not certain if this will be the case, making sure that the vessel will not be delayed.”

"Last Friday, 12-SEP-2008, BLUEWATER understood from MERCON that certain items (Flame Detectors) have not been shipped, despite the fact that [Mercon] had confirmed that these items were on board. Moreover based on documents and pieces of advice as received, these short shipped items have already been declared with Russian Custom authorities upon arrival of the vessel in St. Petersburg.

BLUEWATER find this most disturbing, as the consequences for potential delays in Astrakhan could be severe. Moreover, at this stage BLUEWATER cannot determine what other consequences BLUEWATER or their Clients might face, resulting from this matter.

On several occasions BLUEWATER have underlined the importance to MERCON of a meticulous and precise administration of the cargo to be shipped in order to avoid any discussion with our Clients and/or problems with the Russian Custom Authorities. This is, and always has been, of the utmost importance.

MERCON will understand that for the moment BLUEWATER have no other option than holding MERCON fully liable for any and all consequences that might result from this short shipment.

In addition to the aforementioned, BLUEWATER are under the impression that MERCON are showing more and more reluctance to co-operate with BLUEWATER in order to issue the required documentation i.e. Certificate of Origin, shipping document, etc. despite BLUEWATER initial instructions for documents with exact specifications. These documents form the basis of [Bluewater] documents which, in turn, will be used by BLUEWATER Client for the Customs clearance of the cargo on board Ms. A. Marinesko.

By means of this letter BLUEWATER formally request MERCON to fully co-operate as precise and quickly as possible in order to provide BLUEWATER with all the necessary, true, accurate and correct documents as soon as possible."

“Moreover, BLUEWATER has demanded from MERCON to be the party verifying and releasing the Bill of lading for use with the second shipment. By means of its approval, BLUEWATER has taken responsibility for the contents of the Bill of lading. MERCON now has to conclude that BLUEWATER missed the referred discrepancy while checking and approving the Bill of Lading despite the knowledge it should have had that six detectors are destined for Baku and that the Flame Detectors installed on the Crane Structure in accordance with BLUEWATER’s design, would remain in Gorinchem.

Per L-474 BLUEWATER commits to assisting MERCON in this matter, MERCON however is not actually importing the cargo. In turn MERCON will of course do its utmost to assist BLUEWATER in correcting the paperwork used for the preliminary customs declaration. MERCON is willing to put effort in preparing a revision of this Bill of Lading as was done for the first shipment with the 1kg discrepancy between documents.”

“As already discussed with Maurice, the items still at MSS (4xflame detectors, 2x gas detector) are going to be delivered separate because Lukoil doesn’t want to do the declaration again. So we also need to take them of the packing list. Please inform how we are going to deliver them???”

“Lukoil have seen the two flame detectors which should already have been here on the previous ship. According to me it’s part of the structure and declaration is already done. According to them this is a BIG problem, they didn’t inform me how we could solve this.”

 Other items

(1)          Failures by Bluewater to provide RFC drawings on time and changes in scope of the design;

(2)          Delays to the transport of the SYMS components caused by matters which were Bluewater’s responsibility;

(3)          Delays to the integration works at Astrakhan due to Bluewater’s defaults.

(1)          On 5 August 2008 Mr Hoep was asking Flinter: “As regards the B/L instructions, what are all the things you need to prepare the B/L? Last time, I sent so much off to you, that I have forgotten what is actually needed.”

(2)          On 15 August 2008 Mr Hoep sent Bluewater a new set of revised documents for Ship 2. Mr Heij responded on the same day stating

“1) Proforma Invoices

…

As already discussed only the fire and gas detectors have been imported on a temp. basis the value for this cargo should be the same as at the time [of] import as well as description, [etc]

…

3) BOL

Because the Gas and fire detectors are mounted on the structure you will not be able to issue a separate BOL for this. In fact there is no requirement to issue a BOL for this.”

(3)          Mr Hoep checked this information with Flinter on 18 August 2008 and Flinter confirmed that this was correct.

(4)          On 19 August 2008 Mr Hoep sent revised transport documents to Mr Heij. Mr Heij responded that the detectors should form an integral part of structure on which they are mounted in order to avoid problems and if it is listed separately it will cause problems at customs and asked for documents to be revised. Mr Hoep then appears to have revised the documents, adding the flame and gas detectors to the Astrakhan Bill of Lading and Proforma.

(5)          On 19 August 2008 Mercon raised an issue with the Bill of Lading which it wanted Bluewater to check. Bluewater said that the Bill of Lading was Mercon’s responsibility and insofar as Mercon required Bluewater to sign the Bill of Lading, that was not required. Finally, also on 19 August 2008, Mr Hoep advised Bluewater that, although it had previously not been thought that the transport documents were urgent, they now were and he requested further comments.

“5. Where does stop [Mercon] responsibility for the machining of structural components? For instance, the bronze rings (free-issued by Bluewater) are rough or fine machined? [Mercon] need to provide only the machining of the structural steel. Bronze bearings will be free-issued final machined, ready to install in the structure.”

“[Bluewater] explained to [Mercon] that all details concerning machining were made available to [Mercon] before X-mass 2007 including the delivery of the main yoke casting to [Mercon]. [Mercon] has waited 3 months before starting the subcontracting process.”

“We are very concerned about the delayed subcontracting of the machining works for Yoke Hinge Assembly by [Mercon], furthermore we are surprised receiving such e-mail from [Mercon] at this stage of the project.

Please note that the [Mercon] notification is far too late, [Mercon] to indicate in detail what they have done to mitigate so far.

Note that the Yoke Hinge Casting is already at [Mercon] since before Xmas sufficient complete with documents allowing [Mercon] to shop around to subcontractors at that time when sufficient lead time was still available.

·         We have noted that [Mercon] have not done anything with the yoke hinge casting since its arrival at [Mercon] before Xmas.

·         We have noted that [Mercon] have not done anything with the yoke hinge document indicating the machining scope of work, that were issued before Xmas.

·         We have noted that [Mercon] started with the subcontracting process not earlier than March 2008.”

“Shipment 3: Loading 01..16 AUG-2008, Departure TBC. [Mercon] expect that fabrication completion will be 20-AUG-2008 (ready for loadout). [Bluewater] and [Mercon] agree that [Mercon] will have close look into the following matters to determine schedule optimizations:

o   Incorporation of detailed Vessel Transport Details into Schedule;

o   Detailing of Yoke Arm Subassembly Fabrication and critical activities;

o   Detailing of mitigating measures.

[Bluewater] clarified that [Mercon] shall consider closure of locks in Russian Federation, usually closing in period of 10…15-NOV each year, subject to weather conditions.”

“Mercon herewith informs Bluewater that the third vessel is expected to arrive in Gorinchem on the 10th of September. Despite earlier discussion and schedules we are strongly advised by our forwarding company to leave Gorinchem latest week 38 because of possible weather condition influence. These influences can have enormous impact on both cost and schedule. Departure of the third vessel is now expected the 19th of September.”

“BLUEWATER are extremely concerned by lack of progress, lack of confirmations and lack of information from MERCON’s side in consideration of MERCON’s notice that ETA of Ms Professor Kerichov or sister vessel at MERCON in Gorinchem was confirmed at 25 SEP 2008 on 19 SEP 2008.

Since 19 SEP 2008, MERCON has not been forthcoming with alternative details nor further confirmations.

Now, being 24 SEP 2008, BLUEWATER understand from MERCON that no further information and confirmations regarding the Third Vessel can be made available until an undisclosed date, which is unsatisfactory and unacceptable to BLUEWATER.”

FMS

The Central Column

Summary

Milestone C6

“Liquidated damages for late delivery shall finally be calculated over the last milestone, being Key Dates C9 or C12 respectively, achieved by the CONTRACTOR and delays and liquidated damages on previous milestones shall then be disregarded.”

“If CONTRACTOR fails to complete any of the items listed in the SCHEDULE OF KEY DATES in accordance with the relevant date included therein and/or fails to achieve the requirements of the CONTRACT in respect of any other items listed in Section 4 – Schedule of the Work, the CONTRACTOR shall be liable to BLUEWATER for Liquidated Damages. The amounts of such Liquidated Damages shall be as follows:

a) For late delivery of any and all individual elements as detailed in the SCHEDULE OF KEY DATES (Attachment 4A to Section 4), the amount of Liquidated Damages per calendar day shall be:….”

(1)          Milestone B4.1: 11 days (15 June to 26 June 2008):             €550,000.00.

(2)          Milestone B4.2: 37 days (15 July to 21 August 2008):         €1,850,000.00

(3)          Milestone B4.3: 69 days (15 Aug 2008 to 23 Oct 2008):     €3,450,000.00

“On a true construction of the Contract, including clause 17.9 of section 2A, clause 2.1 of section 5 and the detailed price breakdown in attachment 5B, the Claimant is entitled to make deductions from the Contract Price and/or the Contract Price is not payable if and insofar as Work was not in fact done as required by the Contract. From a practical perspective such deductions are necessary primarily in relation to lump sum elements of the Works which were to be reimbursed through payments for the completion of Key Milestones.”

“It should further be noted that an abatement is available only for defective performance. In a number of cases, Bluewater is claiming a rebate for work included in the price but which, for its own reasons, it asked Mercon not to carry out. It is not entitled to an abatement, although for a few such cases Mercon has agreed a rebate as a concession.”  

“Extended Delivery Date:

BLUEWATER can accept the proposal by MERCON for a reduction of EUR 300,000.00 (excl. VAT) due to the fact that management by ASTRAKHAN KORABEL will not be required, since MERCON shall manage the Works at ASTRAKHAN KORABEL.”