What is a Shipyard Escrow and why is it used?

Introduction

Shipbuilding, yacht construction and major marine refit projects often involve large upfront payments, complex international supply chains, and prolonged lead times. These projects also carry significant financial risk for both the shipyard and the client. Delays, insolvencies, disputes or underperformance can lead to substantial losses.

To manage these risks, high-value marine contracts increasingly make use of shipyard escrow accounts - secure, neutral accounts through which funds are held and released only upon satisfaction of pre-agreed conditions, such as milestone completion or certification.

This article explores how shipyard escrow accounts function, what types of marine projects use them, and how they protect clients, yards, and financiers from risk.

What Is a Shipyard Escrow Account?

A shipyard escrow account is a financial structure in which payments made under a shipbuilding, vessel refit, or marine equipment contract are deposited into a safeguarded account held by a neutral escrow agent. Funds are released to the shipyard (or other contractor) only when specified conditions are met - typically tied to construction milestones, surveyor certification, or delivery.

The purpose is to de-risk the transaction for both parties:

• The client retains control and confidence that funds will only be paid once performance is proven.
• The yard has certainty that money is securely available, avoiding delays in funding or concerns about creditworthiness.

Why Use Escrow in Shipbuilding and Refit Contracts?

Marine construction and refit projects often span 12–36 months and involve significant capital exposure, long production cycles, and bespoke craftsmanship. Shipyards typically require staged payments, but clients are understandably cautious about releasing substantial sums in advance.

Escrow provides a mechanism to balance these interests. Payments are made in advance - but only released on completion of defined deliverables.

Key Benefits:

• Milestone security: Ensures funds are only released on proof of progress.
• Financial safeguarding: Funds are protected from insolvency or misuse.
• Contractual clarity: Conditions for release are defined and verifiable.
• Third-party neutrality: An escrow agent holds and disburses funds independently.

Typical Escrow Milestones in Marine Projects

Each escrow arrangement is bespoke, but common release triggers include:

• Execution of the contract and receipt of build approval
• Completion of hull construction
• Superstructure and mechanical installation
• Launch and commissioning
• Successful sea trials
• Final delivery and flag registration

In refit projects, milestones may relate to dismantling, mechanical overhauls, interior outfitting, and surveyor sign-off.

Real-World Public Examples

Escrow is increasingly standard in high-value marine construction and yacht transactions, even though specific contractual details are usually confidential. However, publicly available references provide clear evidence of escrow's role in shipbuilding and vessel-related contracts.

SEC-Filed Shipbuilding Contract

A U.S. Securities and Exchange Commission (SEC)-filed ship construction contract explicitly provides for an escrow account to be used in the event of payment disputes between the client and the shipyard. In this case, milestone payments could be deposited into escrow pending resolution - highlighting how escrow mechanisms are embedded in real-world marine construction agreements.

How Shipyard Escrow Accounts Are Structured

A robust shipyard escrow arrangement typically includes:

• Escrow agreement: A formal agreement between client, yard, and escrow agent setting out the release conditions and documentation requirements.
• Safeguarded account: Funds held separately from the parties’ own accounts - often at a central bank or secure institution.
• Independent certification: Release of funds usually requires documentation from a naval architect, marine surveyor, or classification society.
• Dispute resolution clause: Clear process for resolving disagreements if milestone sign-off is contested.

Who Uses Shipyard Escrow Services?

• Private clients and family offices commissioning new vessels
• Yacht brokers managing transactions on behalf of buyers
• Shipyards seeking to reassure international purchasers
• Marine lenders providing project financing
• Refit yards undertaking multi-million-pound restoration programmes

Conclusion

Shipyard escrow accounts are a key tool for managing risk in large marine construction and refit projects. By securing funds in advance and linking payment to performance, escrow provides confidence and clarity to all parties involved. For clients, it removes the risk of advance payment without delivery. For shipyards, it ensures access to funds without relying on the client’s ongoing liquidity.

At dospay, we provide fully safeguarded escrow services for shipbuilding, refits and yacht purchases, with funds held at the Bank of England where required. Whether you are commissioning a new-build yacht, overseeing a complex refit, or advising a client on project structuring, escrow adds professionalism, control and trust to the process.

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