When done properly, the traditional model for refit works consists of thorough specifications and fixed price works - with the addition of variation orders when required. SuperyachtNews speaks exclusively with Peter Morton, the CEO of Southampton Marine Services (SMS), about the refit model required for a successful restoration project and why, more so than other projects, cost transparency and an especially close working relationship with superyacht owners are musts for such large-scale Classic projects.
“SMS’s principle shareholders are Sir Charles Dunstone and myself, Sir Charles is the owner of Shemara, a close friend and a business partner. SMS was founded on the back of Sir Charles’s Shemara project and the business that we’ve jointly built has leapfrogged significantly in size since we began the Alicia project,” starts Morton. “It is integral that, during a restoration project like Alicia, that the owner actively participates in the business. When we consider Alicia, the Owner became part of the family, a leading force within the business; he attends project meetings and is personally and intricately involved in every part of the restoration, and to a certain extent the business. As an example, the fact that we undertook all the joinery in-house is entirely down to his personal passion and enthusiasm, he’s been inspirationally incredible to work with”.
Morton explains that SMS has developed a unique refit model, largely in thanks to the experience gained through Shemara’s three-year restoration, a model that has a keen focus on complete transparency and total honesty. The model operates with extremely low profit margins, full disclosure and very, very minimal mark ups on services and subcontractors.
"We don’t want to go out on a limb and provide a fixed price when we don’t know what we’ll find, and perhaps more importantly we genuinely don’t want to exploit any owner."
“If we are working on a ship from the commercial marine or defence side of the business, or for that matter a superyacht with a very clear refit specification, then we are more than happy to work in a normalised fixed price environment just like everyone else. That is the norm, the way you manage a refit under most circumstances”, continues Morton. “If each piece of work is clearly quantifiable, then we work with fixed prices. However, when you take on restoration projects like Shemara and Alicia, where from the outset the Owner doesn’t necessarily known exactly what he wants and we don’t know exactly what we are going to find, the traditional model simply doesn’t work. We don’t want to go out on a limb and provide a fixed price when we don’t know what we’ll find, and perhaps more importantly we genuinely don’t want to exploit any owner. In fact, by working this way the owner controls the purse strings in finite detail.
“We would rather accept that, actually, we will make our money in the core commercial marine and defence environments, the fixed price space. But, when it comes to a major restoration project, we would rather make a minimal profit margin and have the customer coming back to us in the future, rather than taking an unnecessary gamble. For us it’s all about the life-time value of the relationship”.
However, this type of “pay as you go” model requires a high level of engagement on the part of the Owner. Without working from a single, defined and detailed specification, the Owner must be on hand to make regular decisions, and this is simply unachievable unless the Owner is willing to dedicate their time and energy to the project.
“I would suggest that this model is not suitable for perhaps the majority of superyacht owners...”
“I would suggest that this model is not suitable for perhaps the majority of superyacht owners,” Morton says. “Most people want to go to a yard with a very detailed specification, get a firm and fixed price and then await the call that informs them it is time to pay the bills and that their yacht is ready for collection. We are, however, seeing more and more interest from Owners who actually want to be intimately involved and completely immersed in the project - they want to know that if they change their mind halfway along, they aren’t going to be hit with big variation orders or significant penalty clauses, they are going to be greeted by a genuinely passionate team that buy into what they, as the owner, are trying to achieve and are quite happy for there to be perhaps a three month delay if that is what is takes to get the job done to the owner’s satisfaction”.
The SMS superyacht refit business model has been designed to be completely flexible around these highly specialised restoration projects which, according to Morton, account for around 60 per cent of the Group’s annual revenues (now that they have an expanded marine engineering and services business which includes the superyacht centric supplies and procurement business Global Services too). During periods where the principle yard doesn’t have such a major refit project, the business has been conceived in such a way that it is able to scale back down to its ‘normal’ operating level.
“What we are seeing is quite clear, there is a genuine interest in this type of project and this type of Classic restoration. Owners are interested in the history and the heritage and many of them, who are in their 50s and 60s, remember traditional maritime pedigree and would like to see it returned, in all its former glory, to the water. I think the passion and unique ideology for these projects was put best by the Owner of Alicia who recently said: ‘This boat is going to be a big part of our family for the foreseeable future’,” concludes Morton.
The complexities of the refit market and how they related to 'The Perfect Customer Journey' will form an integral part of the discourse at The Superyacht Forum 2017. The programme for TSF 2018 is now available to view online, if you haven't booked your place yet, click here to join 800 of the market's key decision makers in Amsterdam from 12-14 November.
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