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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
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