Success story | Re-negotiation of financial conditions of a naval program

Re-negotiation of financial conditions of a naval program

CHALLENGE

Our client, a middle-sized company in the naval construction sector,  wished to revisit its contractual commitment after production of the 4 first ships. The program had suffered losses due to economic difficulties such as hyper-inflation on raw materials, energy, labor and subcontractors as well astechnical and organizational difficulties in shipbuilding.

CYLAD’s assignment was to help building a clear, quantified argumentation to the end-customer, explaining the unpredictability of the current situation and the impossibility to continue the contract under its current conditions.

SOLUTION

CYLAD mobilized various stakeholders (Finance, PMO, Sales, Purchasing, Engineering and on-site Production) to:

• Re-forecast costs at completion (EAT), considering inflation, suppliers feedback, experience and lessons learned from the first production runs as well as an improvement plan
• Breakdown and characterize increases in 3 categories: (1) changes in the economic situation, (2) cost overruns driven by client requirements on product’s architecture, and (3) company non-performance.
• Adjust contract price and conditions to consider the updated production cost
• Tailor a detailed, illustrated and quantified negotiation file

KEY DELIVERABLES

• Cost and price comparison including risk quantification
• Economic conditions evolution analysis
• Technical difficulties and internal organization assessment
• Comprehensive and quantified negotiation file

Contact: 

boris.cochet@cylad.com