Five MSPs on the Public Scrutiny Committee visited the Ferguson Marine shipyard in Port Glasgow on a fact-finding mission last October, and interviewed the workforce and management about their experiences building the two ferries, 801 and 802.
The workers, quoted in the committee's report published today, said "securing these contracts was the 'demise' of the yard', and that the events at the shipyard since the contracts were awarded to Ferguson Marine had led to the spirit of the yard being 'broken', and that it had 'destroyed our shipyard'.
"It was explained that vessel 801 is a 'constant source of embarrassment' and that staff don’t tell people that they work for Ferguson Marine."
Their testimony described "non stop scrappage", "money getting wasted", vessels never painted to protect them from rust, the purchase of a £380,000 machine that was not fit-for-purpose, yard changes that made unloading lorries take eight hours instead of 20 minutes, and "a funnel built without any pipes allowing some managers to receive a bonus". The work later had to be redone.
The report added: "Concerns were also expressed that there remains a risk that the vessels may not be considered fit for purpose once they are completed. The importance of senior managers facing up to these risks was highlighted during the meeting."
This month the public spending watchdog Audit Scotland said it expects the project to cost at least £293 million – three times the original contract. Deputy First Minister John Swinney has warned that costs may rise again.
Mr Swinney announced a further delay for the Glen Sannox from May to this autumn, if not the end of 2023. Glen Sannox’s sister vessel, the as-yet unnamed Hull 802, will also be delayed, from March 2024 to “late summer”, if not the end of 2024.
Caledonian Maritime Assets Ltd (CMAL), the state owner of CalMac's ferries which contracted Ferguson Marine to build the two new ships in 2015, said: "We remain confident in, and committed to, their delivery.”
David Tydeman, chief executive of Ferguson Marine (Port Glasgow) said: “The focus of the senior leadership team is the completion of the two hulls and securing the future of the shipyard."
In this latest report into "a ferry fiasco riddled with failures", the Public Scrutiny Committee's convener, Richard Leonard MSP, said: "The people of Scotland and island communities have been badly let down. There have been collective failures at government and agency level from the start.
"It has been dogged by a lack of transparency; by ineffective governance arrangements; by poor record keeping within the government; and by baffling communication failures.
“We recognise the efforts by the Scottish Government to protect jobs at Ferguson Marine, and commend the workforce for their resilience during what has been and continues to be an extremely challenging time. Their experienced voices should have been listened to from the outset.
“It is vital that lessons are learned. That means much needed reform of governance arrangements for future vessel projects. But it also means a change in the way the Government and its agencies conduct themselves and are accountable to Parliament and the people. That is a challenge for the Permanent Secretary and the new First Minister.”
How did we get here?
The report first sets out the background: "In October 2014, the Minister for Transport launched the procurement process to build and design two new ferries for use on the Clyde and Hebrides Ferry Services network.
"The vessels were designed to provide a fully flexible year-round service for the Arran and the Uig Triangle and be powered by hybrid marine gas oil /Liquid Natural Gas (LNG) engines.
"Scottish Ministers approved the decision by Caledonian Maritime Assets Ltd (CMAL) to award the two shipbuilding contracts to Ferguson Marine Engineering Ltd (FMEL) as the preferred bidder in August 2015.
"On 16 October 2015, CMAL awarded two separate contracts, one for vessel 801 and one for vessel 802. The Auditor General for Scotland's (AGS) report stated: 'Each contract was for a fixed price of £48.5 million. The two contracts were identical except for: the contractual delivery dates; the milestone payment dates for the launch and delivery of the vessels.'
"The new vessels project quickly encountered several problems and delays which contributed to a deterioration in the relationship between CMAL and FMEL. Cash flow problems also became apparent during 2016.
"A claim for additional costs was made by FMEL to CMAL in July 2017 for £17.5 million. CMAL refuted this claim, resulting in an 18-month dispute. Over this period, the dispute and the value of the claim escalated. In June 2019, the Scottish Government advised both parties that there was no legal basis for CMAL to pay more than the fixed price of the contract.
"In August 2019, FMEL entered administration, and in December 2019, the Scottish Government completed a commercial transaction to bring the shipyard into public ownership.
"Since the shipyard was brought into public ownership, work has continued under the new organisation, Ferguson Marine Port Glasgow Limited (FMPG) to complete the vessels. This has involved extensive remedial work which remains outstanding.
"FMPG provides quarterly updates of progress on the vessels to the Scottish Parliament."
'Significant risk costs will rise'
"The final cost of vessels 801 and 802 remains uncertain," the report updated. "Current FMPG estimates suggest around £9.5 million more will be required to fund the vessels, beyond the amount already approved. This would bring the total cost to £293 million.
"Since the report was agreed on the morning of 16 March, the Deputy First Minister advised Parliament of further delays in the delivery of the ferries. The expected delivery dates for the original contract between CMAL and FMEL were May 2018 for 801 and July 2018 for 802. Revised target dates for delivery are autumn 2023 for 801, and before late summer 2024 for 802.
"The Auditor General for Scotland's report states that 'the Scottish Government is committed to paying additional vessel costs, regardless of the final price'. In evidence to the committee, Scottish Government representatives challenged this assertion. Nonetheless, the committee is concerned at the ongoing significant risk that costs to the taxpayer will continue to rise."
Contract 'destroyed our shipyard'
The Public Audit Committee held an informal discussion with staff at Ferguson Marine Port Glasgow on October 31 2022. In their report, an anonymised meeting note begins with "experiences and reflections of working at the shipyard when it was owned by the former organisation, Ferguson Marine Engineering Limited (FMEL)."
The note says: "Concerns were raised about the way in which the shipyard was reconfigured, once FMEL had secured the contract to build vessels 801 and 802. It was explained that the approach was to 'knock everything down' and construct new buildings which they felt had a negative impact on the operation of the yard. For example, the committee heard that layout changes meant that unloading lorries could sometimes take eight hours when it had previously taken only 20 minutes.
"The committee heard that certain decisions taken by FMEL contributed to the significant increase in costs to construct the vessels. For example, purchasing a machine at £380k that was not fit-for-purpose. As there was no service contract for this machine, (which would have ensured it was subject to regular maintenance), staff had to wait for it to break down completely before it got fixed. It was explained that the machine would break down regularly, so production levels were often down at the yard while staff waited for the machine to be repaired.
"The committee was also told about the perceived level of wastage at the yard, with items left unidentified and/or sent to scrap. It was commented that staff 'could see the money getting wasted'. It was indicated that the level of scrappage was 'non-stop'.
"Concerns were also raised about the protection of the vessels during their construction, explaining that they were never painted to protect them from rust. This was something staff were used to doing for previous vessels approximately every six-months.
"It was also indicated that more senior staff were motivated by bonus payments and work on the yard was often prioritised to secure these payments. For example, it was explained that on one occasion, a funnel was built without any pipes, allowing some
managers to receive a bonus, however, the work later had to be redone."
The Public Audit Committee said that an earlier report, by the Rural Economy and Connectivity (REC) Committee in December 2020, had "noted strong evidence to suggest that FMEL deliberately proceeded to construct specific sections of the vessels either out of sequence or not according to the proper specification purely as a means of triggering milestone payments on the contract.
"The committee also heard that building the two ferries concurrently as well as making significant changes to the layout of the yard all at the same time, would have made it impossible to meet the original timescales. It was commented that securing these contracts was the 'demise' of the yard and that the events at the shipyard since the contracts were awarded to Ferguson Marine had led to the spirit of the yard being 'broken' and that it had 'destroyed our shipyard'."
'Vessels may not be fit for purpose'
The note then went on to describe "experiences and reflections of working at Ferguson Marine Port Glasgow Limited (FMPG) under current arrangements".
It said: "Reflecting on the more recent changes at senior management level, the new chief executive, David Tydeman, was said to listen to staff concerns and 'talks sense'. It was explained that the new chief executive had 'parked his ego at the gate', unlike previous senior management staff.
"A level of frustration was expressed about the number of units that had been completed for the vessels. For example, the Committee heard that the construction of MV Hebrides took 22 months to complete. In this same time period, only two units for vessel 802 had been constructed.
"The Committee heard that there is always something in the news about Ferguson Marine being a 'failed shipyard'. It was explained that vessel 801 is a 'constant source of embarrassment' and that staff don’t tell people that they work for Ferguson Marine.
"Concerns were raised about the possibility of further delays with the delivery of vessel 801. For example, some items that have been purchased for the vessels have been lying around the yard for a considerable amount of time and may therefore be out of warranty.
"Concerns were also expressed that there remains a risk that the vessels may not be considered fit for purpose once they are completed. The importance of senior managers facing up to these risks was highlighted during the meeting."
Workforce commended
"The Committee’s scrutiny has highlighted significant failings throughout the lifetime of the project to deliver two new vessels for the Clyde and Hebrides," the report concludes.
"Both vessels are now millions of pounds over budget and years behind schedule. Scotland’s taxpayers and island communities have been badly let down by many of those involved in the project.
"We recognise the efforts by the Scottish Government to protect jobs at Ferguson Marine and commend the workforce for their resilience during the most challenging of times. Their experienced voices should have been paid much greater attention to throughout the project."
'Weak and toothless'
The committee's report, it says, "shines light on the serious failings of Transport Scotland, including the ‘weak and toothless’ Programme Steering Group it led and its’ consistent failure to accurately and timeously reflect CMALs concerns to Scottish Ministers.
"Late and incomplete information received from Transport Scotland, with little or no explanation, has further compounded the committee’s concerns about the level of respect and regard for accountability held for this important parliamentary scrutiny.
The report "also calls into question the role of various Scottish Ministers. The majority of the committee considered that both the First Minister’s decision to publicly announce the preferred bidder when considerable negotiations were still required – and the decision to proceed in the absence of a full guarantee, weakened CMAL’s position when the standard of FMEL’s work became an issue.
"There has been a significant lack of transparency and accountability throughout the project."
More questions and inquiries
The report continued: “Throughout our scrutiny, we took a wide range of evidence, navigating our way through many conflicting perspectives to reach the conclusions set out today. We had to battle to get some of the information we needed. Sadly, despite our best efforts, some questions remain unanswered."
This is far from the final inquiry - expect several more. "The report acknowledges that the Scottish Government’s ‘Project Neptune’ provides an opportunity for governance reform but says that a formal review of the entire project on completion of the vessels is essential for learning lessons for future projects."
The committee also believe "the serious allegations raised about the procurement procedure for vessels 801 and 802 highlighted during the BBC Disclosure programme in September 2022 must now be thoroughly and urgently investigated.
"In light of the BBC investigation, the Auditor General for Scotland has written to the committee to advise he is considering whether future audit work is necessary and that any such work would likely focus on: the circumstances that allowed FMEL to progress beyond the pre-qualification stage of the procurement, despite being unable to meet the mandatory requirements; FMEL’s access to restricted technical information about the vessels, and its use of this when preparing its bid for the contract; CMAL’s compliance with procurement rules (that apply to the Restricted Procedure) during the tender clarification and negotiation process.
"The committee notes that these allegations will be fully investigated by CMAL through its own due processes in the first instance. The committee awaits with interest the conclusion of this investigation."
The committee, the report says, has "serious concerns around the initial stages of the procurement process and, having now established that FMPG's holds FMEL’s financial records, calls on the Auditor General for Scotland to complete a forensic analysis of how £128.25m of public money was spent by FMEL."
David Tydeman, chief executive of FMPG, told The Oban Times: “Should the Auditor General of Scotland wish to examine the FMEL financial records we have on file, we will of course accommodate this.”
A 'well-researched and robust report'
A spokesperson for CMAL responded: “We welcome this well-researched and robust report into the contractor failures in the dual-fuel vessels project.
“Throughout the contract, CMAL acted professionally and appropriately in line with our legal obligations. We provided impartial advice and voiced our concerns when necessary. Like everybody involved, we are extremely disappointed by the delay to the two vessels, which we know island communities are desperately in need of.
“We have already taken forward many of the recommendations in this report. For example, CMAL lawyers Addleshaw Goddard have appointed a KC to conduct an independent investigation of the procurement process, and we have also re-established a strong working relationship with the team at Fergusons.
“We are seeing significant progress being made on the vessels. We remain confident in, and committed to, their delivery.”
A Scottish Government spokesperson said: “The Scottish Government welcomes the report from the Public Audit Committee. We will study its findings carefully before issuing a full response to the committee.
“Changes have already been put in place to address many of the issues raised. This includes working with the shipyard’s senior management team to improve governance and accountability and revising processes for vessel procurement.
"The Scottish Government is committed to transparency and has proactively published more than 200 documents on its website. We have co-operated at every stage of the PAC inquiry, as well as those previously undertaken by the Rural Economy and Connectivity Committee and Audit Scotland.
“Ministers have apologised for the delay to the ferries and the distress and difficulty caused. We are committed to their completion, securing a sustainable future for the yard and supporting our island communities that rely on this type of vessel on a daily basis.”
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