Committee probe into ferry fiasco calls for a ‘root and branch’ overhaul

A Holyrood probe into the construction of two overdue and over-budget ferries to serve the Clyde and Hebrides network has described the management of the process as a “catastrophic failure”
Picture ; John Devlin.  Dales Marine Services Ltd yard in Greenock where the troubled Ferguson ferry Glen Sannox has been dry docked.Picture ; John Devlin.  Dales Marine Services Ltd yard in Greenock where the troubled Ferguson ferry Glen Sannox has been dry docked.
Picture ; John Devlin. Dales Marine Services Ltd yard in Greenock where the troubled Ferguson ferry Glen Sannox has been dry docked.

It also called for a “root and branch overhaul” of the approach to the procurement of new vessels in Scotland.

The Scottish Parliament’s Rural Economy and Connectivity (REC) Committee, which launched an inquiry in October 2019, has demanded an independent review of the ferry procurement process after concluding that the established procedures are “no longer fit for purpose”.

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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 new hybrid ferries being built at the Ferguson Marine shipyard.

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 £97m to between £192.8 million and £196.8 million, with the delivery of the ships delayed from 2018 to 2022 and 2023 respectively.

In a 129-page report published last week, the Committee said the evidence exposed a “lack of robust due diligence” on the part of procurement agency Caledonian Maritime Assets Ltd (CMAL) in assessing the financial stability of FMEL and its capabilities in areas such as project management and design.

It was also critical of the Scottish Government’s apparent willingness to proceed despite the significant risks in awarding the contract to the company.

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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 Caledonian Maritime Assets Ltd 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 to be made.

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.

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The inquiry highlighted concerns about what the Committee considered to be the “complete lack of transparency” surrounding the purpose, agreement and payment of commercial loans totalling £45m to FMEL by the Scottish Government.

It was also concerned that there was no effective monitoring or oversight of how the loans were subsequently spent by FMEL. The Committee called on Audit Scotland to investigate the processes followed by the Scottish Government in granting and administering these loans to FMEL.

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 MSP, 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.

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“A lack of due diligence, poor project management and a failure by all parties to take the necessary action to resolve problems as they emerged, means that the cost of the contract has increased from £97m to almost £200m while the island communities who are relying on these ferries to be delivered continue to suffer.

“Our report calls on the Scottish Government to commission an independent external review of the processes for public procurement of ferries to ensure appropriate lessons are learned for the future. This review should consider the robustness of financial due diligence, the processes for assessing the technical capabilities of bidders, and the design development and sign-off procedures, investigating precisely how such a situation could have arisen and to ensure such errors are never repeated.

“The Committee acknowledges that existing processes for procuring new ferries to serve the Clyde and Hebrides ferries network have, in the past, resulted in new vessels being delivered on time and on budget. However, 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.”

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Other conclusions and recommendations in the report include:

MSPs expressed dismay that CMAL, as part of its responsibility as contract owner to monitor and oversee the delivery of the project, did not identify and act upon project planning and management failings as these were emerging, particularly given their on-site presence at the shipyard.

Transport Scotland, as project sponsors, failed to intervene when problems became apparent, while the Scottish Government could and should have taken action at an earlier stage to resolve these problems, the report stated.

Evidence to the inquiry highlighted that the problems were compounded by the rapidly deteriorating relationship between FMEL and CMAL, which eventually broke down completely.

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The Committee paid tribute to the workforce at the Ferguson Marine shipyard throughout, but also expressed concern about the impact of delays to the delivery of vessels 801 and 802 on communities throughout the Clyde and Hebrides ferry network.

The report found that the Scottish Government’s approach to the procurement and construction of new vessels to serve Scotland’s ferry network has been piecemeal and lacking in strategic direction.

The Committee also voiced its disquiet about the overall age profile of Scotland’s ferry fleet with many vessels now operating significantly beyond their lifespan, reflecting a failure by successive administrations to develop and implement an effective strategy for renewing the fleet.

MSPs said the Scottish Government’s future islands connectivity plan must set out a clear vision for Scotland’s ferries network, including a strategy to renew the entire fleet over the next 25 years.

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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.

“Once again government ministers have taken their eye off the ball when it comes to the day job and learned nothing.”

Background:

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

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The Minister for Transport and the Islands highlighted 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 in August 2018 to advise that “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.

The directors of FMEL filed a notice to appoint administrators on 8 August 2019, effectively starting the process placing the business in administration.

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In December 2019, the Scottish Government confirmed that it had taken the Ferguson Marine shipyard into public ownership following rejection of three commercial bids for the company.

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

Assuming no further increase in costs or slippage in delivery dates, compared to the original figure of £97 million, the total estimated cost for both is now between £192.8 and £196.8m.

Compared to the original delivery dates for both vessels, delivery of 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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Highlands and Islands MSP Donald Cameron has said that island communities in his region will be counting the cost of the disastrous mismanagement of the procurement of new ferries.

The Scottish Conservative MSP made his comments after a Holyrood probe described the process, which will result in the two new CalMac hybrid ferries being delivered two years late and at twice the original cost, as a “catastrophic failure”.

Mr Cameron said: “Hot on the heels of the BiFab disaster, we now have this confirmation of the calamitous mismanagement of the ferry contract by SNP ministers and their agencies.

“It will be our island communities who end up counting the cost, in terms of the lost jobs and lost opportunities that goes with an inadequate lifeline ferry service.

“Frankly, it amounts to a betrayal.”

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Comhairle nan Eilean Siar welcomes the report from the Rural Economy and Connectivity (REC) Committee which investigated the construction of two overdue and over-budget ferries to serve the Clyde and Hebrides network. The Comhairle urges Ministers to take on board all the recommendations made in the report.

The Holyrood probe into the construction of two overdue and over-budget ferries to serve the Clyde and Hebrides network has described the management of the process as a “catastrophic failure” and called for a “root and branch overhaul” of the approach to the procurement of new vessels in Scotland.

Commenting on the report, Cllr Uisdean Robertson, Chair of Transportation & Infrastructure said:

“Comhairle nan Eilean Siar welcomes the report from the Rural Economy and Connectivity (REC) Committee and hopes Ministers take on board the recommendations made in the report. The harm that the debacle of the contract for these two ferries has done to island economies is a scandal. The Government must not brush this under the carpet.

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The Comhairle has called on Ministers to commission an independent review of ferry procurement and strategic direction and are pleased that this is a key recommendation of the Committee’s report. This should be an independent expert led process with proper accountability to island communities.

A dedicated ferry on each of the Minch Crossings could have been paid for from the saving in unnecessary infrastructure costs. This would unlock huge potential to grow the Western Isles tourism sector.

The time has come to accept that ferry services should be managed and delivered by island based staff across the board from the ferry operator, asset owner and Government agency. Real and lasting change is needed.”

Island MSP Alasdair Allan commented: “The committee report does not pull its punches, though it tells us many things that people in the islands already knew. The delay in the building of new vessels at Ferguson’s has had real consequences for communities in the islands, something I have raised with Calmac and the government many times.

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“I hope that the report will lead to lessons being learned for future, and in the meantime work is stepped up to get the new Uig/ Tarbert/Lochmaddy service working without the schedule slipping any further.”