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Report into fiasco

Ministers rebuked over handling of ferry contract

Glen Sannox ferry

Work on the two ferries continues

A Holyrood committee today says the process that led to the crisis over the delayed and over-budget Ferguson Marine ferries contract is “no longer fit for purpose”.

A year-long inquiry has resulted in the Scottish Government and Transport Scotland being accused of overseeing a “catastrophic failure” of management.

The Scottish Parliament’s Rural Economy and Connectivity committee called for a “root and branch overhaul” of the approach to the procurement of new vessels in Scotland.

The inquiry was launched shortly before the Scottish Government’s decision to take Ferguson Marine Engineering Limited (FMEL) into public ownership following delays in the delivery of the two hybrid ferries being built at the Ferguson Marine shipyard to serve the Clyde and Hebrides network.

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MSPs were seeking to establish what lessons could be learned for the future procurement and construction of new ferries after it emerged that the cost for the completion of vessels 801 and 802 had risen from an initial fixed price of £97 million to between £192.8m and £196.8m, with the delivery of the ships delayed from 2018 to 2022 and 2023 respectively.

A 129-page report published today, highlights a litany of failings and mismanagement that include lack of due diligence over the contract by Transport Scotland and Caledonian Maritime Assets Ltd (CMAL), insufficient work on ferry design, lack of engagement with Islanders who depend on vessels, and a lack of due diligence from procurement company Caledonian Maritime Assets Ltd. on the capabilities of the Ferguson shipyard to deliver the vessels. 

The committee was heavily critical of the Scottish government and Transport Scotland for failing to intervene more quickly when significant project planning and management problems became apparent, and believes that the Scottish government could – and should – have taken action at an earlier stage. 

Following the contract award, insufficient work was undertaken by the contractor to develop and secure sign-off on the basic design before commencing construction of the vessels, and thereafter it failed to manage the design iteration process effectively – resulting in delays and cost overruns.

The committee said it was “appalled” to learn that CMAL was legally bound to continue to make milestone payments on the contract despite ongoing concerns about the performance of the contractor, adding that there was strong evidence that FMEL deliberately proceeded to construct specific sections of the vessel either out of sequence or not according to the proper specification, purely as a means of triggering payments.

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It therefore urged the Scottish Government to take action to ensure that future contracts achieve the most appropriate balance between cash flow and risk and include more robust safeguards to prevent payment for work that has been completed out of sequence or otherwise contrary to the agreed terms of the contract.

The report also called on Audit Scotland to undertake a separate review of the financial management of the contract by CMAL and the role of Transport Scotland in the process, adding that it would be in the “public interest” for this investigation to take place as soon as possible.

MSPs further considered that the decision-making procedures for the procurement of ferries in Scotland is “cluttered” and suggested a root and branch overhaul should consider how these structures can be streamlined, including the possibility of merging or abolishing certain bodies.

Committee convener, Edward Mountain, said:  “The evidence to our inquiry into this fiasco has revealed that all parties involved must share in the responsibility for the catastrophic failure to deliver this contract on time or on budget.

“Based on the evidence it has received, the Committee believes that there has been a catastrophic failure in the management of the procurement of vessels 801 and 802, leading us to conclude that these processes are no longer fit for purpose and that a complete overhaul is needed.

“That could include merging or even abolishing certain bodies currently involved in decision-making on ferry procurement.”

Scottish Labour transport spokesperson Colin Smyth MSP said: “The buck stops with the SNP government over what has been a catastrophic failure from start to finish.  

“It’s clear that problems with the contract were flagged up to government ministers from an early stage and they could and should have intervened. Their failure to do so means taxpayers have been left with a bill double the size of the original contract and our island communities still don’t have the ferries they desperately need.”

Background

CMAL (Caledonian Maritime Assets Ltd) placed orders for two new ferries with Ferguson Marine Engineering Ltd (FMEL) in October 2015. The ferries are being delivered on a fixed-price basis under a design and build contract, with a combined fixed-price of £97m. The first ferry, MV Glen Sannox (vessel 801) was due to be delivered in summer 2018, with the second ferry (vessel 802) slightly later.

The Minister for Transport and the Islands wrote to the Committee on 9 November 2017, highlighting a delay in the delivery of the ferries with vessel 801 delayed until Winter 2018/19 and vessel 802 some time later. The Cabinet Secretary wrote again to the Committee on 16 August 2018 to advise that “…the first vessel, the MV Glen Sannox, will be delivered during Summer 2019 and the second vessel in Spring 2020”. The Minister for Energy, Connectivity and the Islands, wrote to the Committee on 25 April 2019 advising that he anticipated a further delay to the delivery of both vessels.

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The directors of FMEL filed a notice of intention to appoint administrators on 8 August 2019, effectively starting the process which would place the business in administration. On 2 December 2019, the Scottish Government confirmed that it had taken the Ferguson Marine shipyard into public ownership following the rejection by administrators of three commercial bids for the company.

On 18 December 2019, the Scottish Government published the Ferguson Marine Programme Review Board report, which indicated a delivery range for vessel 801 of October to December 2021 and a delivery range of July to October 2022 for vessel 802, with an estimated outstanding cost for delivery of the two ferries of £110.3m.

Assuming no further increase in costs or slippage in delivery dates, compared to an original fixed price budget of £97 million, the total estimated cost for the design and build of vessels 801 and 802 is now between £192.8 million and £196.8 million.

And compared to the original contractually agreed delivery dates for the vessels, delivery of vessel 801 will have been delayed by between 47 and 49 months and delivery of vessel 802 will have been delayed by between 53 and 55 months.



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