MOD vs Zvezdochka Shipyard: Oscar II "Orel"

Oscar II submarine "Orel" undergoing dock repairs at 82nd Shipyard (Roslyakovo) - March 31, 2012
credit: avsky

On December 30, 2010, the Russian Ministry of Defense signed state contract R/1/2/0137/GK-11-DGOZ with Zvezdochka Ship Repair Center for service maintenance and repairs of Northern Fleet ships and submarines, to include Oscar II submarine "Orel", Sierra II submarine "Pskov", and Victor III submarines "Obninsk" and "Tambov". Costs included in the table of work to be performed on "Orel" totaled RUB 10,529,136. While the contract was signed in December 2010, the specific repairs for "Orel" were not approved by the MOD until May 22, 2012 - nearly 17 months after the contract was signed. According to the contract, all work under the contract was to be completed by December 31, 2012.

On December 25, 2014, the MOD filed papers with the Arbitration Court of Moscow seeking RUB 3,042,920 in compensation for the shipyard's failure to complete the agreed to work on "Orel" by the specified deadline. According to its complaint, the MOD stated that some elements of the submarine's repairs were not completed as of October 16, 2013, or 289 days after the contract deadline.

The court determined that nearly all contract line items for the "Orel" repairs were completed by the deadline. Two line items, totaling RUB 7,260,831, were completed by May 13, 2013. However, this delay was caused in part by the MOD's failure to finalize the specifics of the submarine's repairs as they related to those two line items until May 2012.

On April 2, 2015, the court issued its decision (A40-217314/2014) in which it found Zvezdochka was not authorized to unilaterally stop work under the contract, as it violated Articles 309 and 310 of the Russian State Code. The court, however, dismissed the MOD's claim that a contract having multiple line items can only be considered complete when all line items have been completed. Since the shipyard did complete all but two of the line items within the stated deadline, the court limited the shipyard's compensation to the MOD to RUB 500,000 (about 16% of what the MOD was seeking), plus another RUB 13,000 in court fees.

Within a few days, both sides filed appeals with the 9th Arbitration Appeals Court, which is scheduled to begin reviewing the case on July 7.