Reducing Salvage Tender Costs

A small number of highly visible cases have thrust wreck removal into the public consciousness, and it is now provides more income to salvors than emergency response.

“One thinks, of course, of MSC Napoli; Costa Concordia and the Rena,” said Leendert Muller, president of the International Salvage Union (ISU). “It is even being called the “Costa effect” – the idea that anything is possible.”

Muller was speaking at the 2015 LOC Asian Marine Casualty Forum held in Singapore earlier this year, and he said that salvors are concerned that the tendering process for major wreck removals can now be prohibitively expensive.

When an invitation to tender for a wreck removal is issued, interested contractors want to deploy teams to the site to conduct their own analysis of the condition of the vessel and the nature of the ground where it is lying. It can require the services of divers, salvage masters, surveyors, naval architects and environmental specialists. Salvage vessels, work boats and helicopters may need to be chartered and bathymetric surveys carried out.

“One ISU member bidding for Costa Concordia job stated publicly they had spent €500,000 ($570,000) preparing their unsuccessful bid,” said Muller. “These costs will not be defrayed for the firms which do not secure the work, and contractors may decide it is uneconomic to mount a bid.”

In other cases would-be contractors have little opportunity to carry out a full wreck survey because of time pressure or access difficulties. “Even if they do, it is unlikely to be comprehensive and the wreck may subsequently reveal unpleasant surprises. It is in this context that “no cure, no pay” arrangements are unpopular with contractors for large wreck removals, and it may affect the authorities’ consideration of proposed methodologies.”

It is surely in everyone’s interest that there should be a body of competent, well-capitalized contractors available globally to conduct wreck removal operations, said Muller. “There should be competition. ISU has suggested one simple way to encourage bids and that is for the relevant Club to provide common survey data to all shortlisted bidders. Indeed there are some examples of this already having being done. We would like to see more of it, and it is something that we will continue to press for.”

Once contractors formulate their bid, the type of contract used will be an important consideration. The revised BIMCO wreck contracts - with an element of “carrot and stick” are popular and sensible. However, ISU feels there is still too much liability and risk for the salvor. 

“We would certainly like to see the insurers take more of that risk. It would lower costs as salvors would not build that element into their price. There is also the question of the contractor’s own liability “C” insurance and where the cost for that should lie. In short, we seek more leadership from the Clubs in showing flexibility and partnering in the risk of the job. We think it will lower tender prices.”

Muller said that more of a joint effort in the tendering phase could reduce costs as there would be more transparency between the parties. “We recognize that it takes time to build trust and that our members must play their part. I do not believe that, generally, ISU members set out to milk a project, and ISU would certainly disapprove of this kind of behavior. It is in our long term interests that we should be trusted partners, and we recognize the potential for suspicion.”

A joint effort would also enable a more united front if it is necessary to challenge the requirements of the authorities. “We are all agreed that the role of the authorities is central in driving up the costs of wreck removal.” In the spirit of cooperation, Muller said that salvors need to recognize that officials and politicians are the servants of the wider public. And there is no doubt that society’s attitude to the environment has fundamentally shifted in the past 30 years. 

“Rather than fighting against it, we should embrace it and present ourselves as partners able to solve a state’s problem. But the quid pro quo is that they should respect our judgement of what is a sensible and proportionate approach that will also be clean. We have a great body of evidence to show what can be done.

“I suggest we have the twin, and dangerous combination, of the authorities having too much knowledge and too little knowledge. On the one hand they have had visibility of hugely complex and successful wreck removals. On the other hand they do not have deep technical knowledge. 

“It means that unrealistic expectations may be raised and unnecessary demands made. Just because something can be done does not mean it should be done. And I come back to the importance of presenting a united front in the proposition of the best removal method and requirements.”

Unlike good wine, wrecks do not improve with age, said Muller. Often the quicker an operation can be undertaken the less expensive it will be. All efforts must be made to expedite the survey, tendering and engineering phases, and the authorities must understand this and play their part.