Taxpayers will continue to pay bonuses to executives at the troubled Scottish shipyard building two ferries that are years overdue and over-budget.

Andrew Miller, the chairman at Ferguson Marine, told MSPs that it was contractually obliged to reward executives if targets were met.

He argued that they should be regarded as “retention payments”, rather than bonuses, and said: “It is very difficult to say to somebody, ‘We are pulling that from your contract’.”

He was responding to questions from MSPs on Holyrood’s public audit committee who asked how bonuses could be justified when the two ferries being built at Port Glasgow are more than five years late and three times over the original £97 million budget.

Earlier this year, the public spending watchdog Audit Scotland, had discovered £87,500 of bonuses were paid to Ferguson executives last year. It has since emerged that a further outlay of £47,000 will be due this year.

“There was a lack of transparency and good governance around the assessment and approval of these payments,” said the watchdog at the time.

Following his election as First Minister, Humza Yousaf, said that bonuses should be withheld. “I have made it clear there should not be bonuses paid in relation to vessels 801 and 802,” he declared.

Mr Miller and his board are now working with the Scottish government and the civil service on a review of remuneration terms at the yard and are expected to report their decision next month.

At today’s session the bonus issue prompted Tory MSP Craig Hoy to ask Ferguson chief executive David Tydeman: “Can you say, hand on heart, that gravy train culture has come to an end now?”

Mr Tydeman replied: “Yes I’m very determined it has come to an end and I’ve reduced payroll costs by about £3 million in the last 12 months.”

Adding a more positive note to proceedings, Mr Tydeman said the yard hopes to deliver MV Glen Sannox by the end of this year and its sister vessel, known as Hull 802, before the end of 2024.

He predicted a bright future for the business amid greater buoyancy in the UK shipbuilding sector.

There was up to £250 million of potential work available over the next five years through supporting Royal Navy shipbuilding for BAE in Govan as well as the small ferries replacement programme for the Scottish fleet.

He said: “This combination creates a really positive opportunity for us to get back on track and be competitive.”