Former Senior Management Team of Ferguson Marine Engineering Limited (FMEL) Response to the Rural Economy and Connectivity Committee’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland
June 2021
“Whilst acknowledging many of the conclusions in the report, we are concerned that most significantly important issues have either not been addressed, are factually inaccurate or have been presented in a way that is grossly misleading. This is a serious failing influenced by the failure to question witnesses who were pivotal in the process and played a significant part in shaping the eventual outcome.”
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 1
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 2
We are certain no member of the Rural Economy and Connectivity Committee would ever wish to have a report left hanging which is in any way misleading, contains factual inaccuracies or leaves questions unanswered. To that end we offer this report to correct several factual inaccuracies, amend misleading statements and highlight important unanswered questions.
One inescapable and fundamental flaw in the process of the RECC inquiry into the production and procurement of ferry vessels in Scotland was that the Committee failed to call the three individuals from the Scottish Government who were most intimately involved in the ultimately catastrophic dispute between Ferguson (“FMEL”) and CMAL. These individuals were the First Minister, Nicola Sturgeon, the Cabinet Secretary for Finance, Derek Mackay and the Director General for the Economy, Liz Ditchburn.
The Ministers who were called to give evidence were at no time involved during the period of the dispute between FMEL and CMAL and were not competent to contribute to this crucial aspect of the inquiry. Despite this, they were erroneously presumed to be qualified to apportion blame.
Only a public inquiry, chaired by an independent judge - with the mandatory provision of evidence given under oath, has any prospect of revealing the full truth behind the mismanagement by the Scottish Government of its fully owned subsidiary, CMAL, the resultant loss of FMEL and along with that outcome, the destruction of prospects for shipbuilding on the Lower Clyde.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 3
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 4
Contents
Background 6 The Ferguson Marine Shipyard: The Damage 7 Opportunities Lost 8 Davie Shipyard – A Parallel Experience 11 Relationship between CMAL & FMEL 14 Delays and Cost Overruns 16 The Procurement Process 18 CMAL Fit for Purpose? 23 Commercial Loans 25 Hidden Financial Arrangements 28 Design Specifications & Design Process Issues 29 Project Planning and Management 31 Ferguson Marine Capabilities 32 The Inconvenient Truth 33 CMAL 34 Post Nationalisation Performance 35 An Urgent Need for Action 38
Appendices
1. Response to Mr Tim Hair’s Report 40 > Sub Appendices
2. Alex Vicefield & James Davies interviews 55 by Tom Gordon, The Herald Scotland “Our shipyard wasn’t nationalised, and we became a success” & Shipyard takeover the act of a 'banana republic'
3. Davie Strategic Journey: Generation 2040 63
4. Scottish Government loses court battle over £5m 65 Ferguson shipyard insurance payout by Alastair Dalton, The Scotsman
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 5
Background
Early in fulfilling the contract for CMAL of the two dual-fuelled, Marine Diesel and Liquified Natural Gas (LNG) vessels, it became obvious to Ferguson Marine Engineering Limited (FMEL) that variations to the original contract were resulting in significant changes and cost increases, well beyond what would be expected in a standard “New Build Contract”. Despite repeated attempts to engage CMAL in a meaningful discussion about these changes and the serious cost implications, they repeatedly refused to discuss the issues.
In order to resolve the stand-off thus created, our Chairman Jim McColl met with the First Minister on the 31st of May 2017 at Bute House to request her intervention to facilitate a meaningful discussion around the very significant unplanned changes and cost increases being experienced on the two ferry contracts. Following this meeting the First Minister asked the Director General for the Economy, Liz Ditchburn, to work with both parties to find a resolution.
During the summer of 2017, including numerous interventions by the Director General for the Economy, Transport Scotland, and other officials from the Scottish Government, they failed on every single occasion to get CMAL to agree to meet with FMEL. Consequently, a Notice of Mediation was served on CMAL by FMEL. With concentrated intransigence, CMAL refused to agree to the proposed scope of the mediation. As a direct result of the Government failing to take control of a serious situation with its own, Government-owned entity, that standoff continued to its inevitable and tragic conclusion.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 6
The Ferguson Marine Shipyard
The Damage that could and should have been avoided:
The Nationalisation of Ferguson Marine Shipyard was an act of aggressive opportunism and gross incompetence. The Scottish Government “confiscated” a business that had been well invested; had a talented and committed workforce and management team; an award-winning apprenticeship scheme; and a strong pipeline of future work. The only weakness in the business was its major customer, CMAL refusing to pay a fair price for the change-ridden work it was instructing to be done and refusing to allow an independent expert determination of a fair price.
• The government had the power to insist on independent expert determination to resolve the dispute but refused to do so. Why?
• They had the opportunity to insist on mediation but refused to do so. Why?
• And they turned down the advice of their own highly experienced independent expert who advised them not to nationalise the yard but to go for arbitration. They refused to take his advice. Why?
• By refusing the advice of their own highly experienced expert and failing to insist on CMAL’s participation in an expert determination process, the Government are guilty of failing to act where clearly a duty to act existed. This inaction has resulted in serious harm to FMEL, its workforce, its management, its investors, the future of the yard and the local Inverclyde economy.
Whilst CMAL were starving FMEL of the oxygen it desperately needed - fair payment for the additional work it was being instructed to do, the Government were scheming on how to take over the business, rather than using independent expert determination and mediation to help resolve the dispute between FMEL and CMAL
They succeeded in nationalising the yard but have severely damaged the business in the process and robbed Port Glasgow, the Lower Clyde and Scottish Shipbuilding of quite staggering opportunities.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 7
The Ferguson Marine Shipyard
Opportunities Lost:
At the time when the Government nationalised the shipyard the following initiatives were already at varying stages of advancement. Almost without exception, these initiatives promised considerable growth and long-term revenue not only for the shipyard but for the River Clyde, the local communities and the Scottish economy. These are all significant developments, almost all of which have now been lost or abandoned. All that was required to make this happen was for the government to take responsibility for CMAL to fully engage in a dispute resolution process.
(1) UK Government- type 31E Frigate Contract
In the first few weeks of the nationalisation of FMEL, Babcock was announced as the successful consortium bidder for the £1.25 billion Royal Navy contract for five new type 31E Frigates. Ferguson Marine had been working with Babcock for three years as part of their consortium, a partnership that envisaged fabrication of selected hull blocks to be built by FMEL as a key member of the UK National Shipbuilding Strategy. This was a working partnership that would have seen the Port Glasgow yard with naval work for at least 7 to 8 years and a steady core workforce of at least 400 people.
But that was only a starting point: the “E” In 31E stands for “export” and already, the UK Government has advanced interest from Nations worldwide for the purchase of these vessels. Something that would almost certainly have secured the long-term future for FMEL and a vastly increased workforce on the Lower Clyde for decades, if not, generations.
Outcome: With nationalisation of the yard, this opportunity was lost.
(2) HySeas lll – launching the world’s first hydrogen (H2) propulsion sea-going ferry
The €9.3 million-funded HySeas lll consortium to launch the World’s first hydrogen ferry was jointly led by FMEL and Saint Andrews University and included major partners from around Europe, including Orkney Council, Kongsberg of Norway; Ballard of Denmark; Interferry of Belgium; McPhy of France; and DLR of Germany.
At the World Green Tech awards 2019 in Berlin, FMEL won the Global Innovation Award for its work on a hydrogen propulsion system. After receiving this award FMEL was inundated with enquiries from around the World about its pioneering work in hydrogen. FMEL was seen as leading in this field with a fantastic opportunity to capitalise globally, not only in new build but retrofit.
Back home, Transport Scotland had committed - in writing - that the future of the Scottish ferry Fleets would be concentrated on Hydrogen, which would put FMEL at the forefront of the replacement market. Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 8
With shipping operators worldwide required to meet international emission reduction targets within the next 10 years, FMEL had the opportunity to be a leading world player.
Outcome: Since nationalisation, this team has been disbanded and FMPG have dropped out of the consortium. Norway has since launched the World’s first Hydrogen ferry.
(3) FMEL project to build a fishing boat factory at Riskend, adjacent to Inchgreen
Working closely with the Clyde Fishermen's Association and Inverclyde Council, agreement was in place for FMEL to build a new fishing boat factory on the Inchgreen site, adjacent to the FMEL yard,
The UK fishing industry predicts that Brexit will result in an increase of over 30% in size of the UK fishing fleet. The age profile of the UK fishing fleet indicates substantial opportunity.
The Scottish fishing fleet is generally even older than the UK profile. The potential market opportunity is accentuated by the only fishing boat factory in Scotland, Macduff shipyard, having a two-year waiting list for new builds.
A plan was developed for an FMEL fishing boat factory adjacent to Inchgreen where vessels would be constructed on a conveyor track system and launched by winch into the Clyde from the dockside. Depending on the initial investment this would allow for the production of up to 12 vessels at any one time.
As part of the partnership with CFA a new training facility and head office was to be built as an integrated part of the FMEL factory, allowing boat owners to send their new recruits to Inchgreen for training, in an environment which would allow viewing of vessels under construction, consolidating FMEL’s position within the industry.
Outcome: Since nationalisation, these plans have been abandoned. Another huge lost opportunity to Scotland. Another shameful waste.
All of these were ‘live’ projects at the time of nationalisation with the prize for FMEL, its loyal workforce, the local community, the lower Clyde and Scottish Shipbuilding, an assured future creating between 700 to 800 sustainable high-quality jobs building a market leading commercial shipbuilding business for Scotland to be proud of.
Compare that with the current embarrassment and questions have to be asked.
Just prior to nationalisation FMEL estimated that the cost of the two ferries would be double the original price. Had the Government listened to their own independent expert, or insisted on further independent expert determination, they would have drawn a line under changes, confirmed the additional costs and would have found in favour of the Shipyard. The costs
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 9
could have been contained to double the original price. The Glen Sannox would be in operation and 802 would be completed and in service early in 2022. Additionally, the yard would have a good spread of orders and a very bright future.
As it stands, the ships are likely to cost at least 3 times the original price, if they are completed at all, and there is very little chance of any future orders for the yard under government ownership.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 10
The Ferguson Marine Shipyard
The Davie Shipyard – A Parallel Experience:
In 2012 Alex Vicefield and James Davies took over Canada's largest shipyard, Davie in Quebec, through their offshore Inocea Group. The next year it won a $125 million contract with Quebec Government state-owned transport firm STQ, the equivalent of CMAL, for two dual fuelled LNG ferries. The two ferries were the first of their kind in North America as were 801 and 802 the first of their kind in the UK.
During the second half of 2018, Jim McColl was contacted by Mr Vicefield and Mr Davies who offered to share their experience of the contract, which they had recently completed: two first in class dual fuel ferries, both around 100m, with a hostile government owned entity refusing to pay justifiable additional costs over the original price, claiming it was a fixed price contract when the actual cost was double.
The similarities were uncanny: the outcomes very different.
Davie shipyard in Quebec offers a view of how the dispute should have been handled and how that would have allowed FMEL to flourish as a highly successful commercial shipyard. In the case of Davie, the Quebec government stepped in to resolve the dispute between Davie and STQ, by appointing an independent expert who mediated and agreed that the price to be paid was double the original price. Both the Chairman and the CEO of STQ, the Quebec Government’s equivalent of CMAL, left the company as a result.
The Parallels are striking, the outcomes very different.
Davie: The order proved highly complex and overrun by several years and $100 million, with STQ refusing to pay over the original price.
FMEL: landed a £97 million contract for two dual fuelled ferries from CMAL wholly owned by the Scottish Government The order proved highly complex and overran by several years and 100% in costs, with CMAL refusing to pay over the original price.
Davie: In Canada the Quebec government helped resolve the dispute with STQ, and Davie has gone from strength to strength under the same owner.
FMEL: In Scotland the government refused to take a leadership role in helping resolve the dispute with CMAL and FMEL was forced into administration.
In an article in the Herald, Mr Vicefield told Tom Gordon
“It's an almost identical Story”
“We had two prototype LNG ferries of similar design and propulsion systems to the ones at Ferguson's and we had a government buyer, the Government of Quebec”.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 11
“What happened with us is what happened with Ferguson's. We realised the ships were going to be twice as much as we first thought. We sat there for a long time in a stalemate with a part-built ship and a client saying, fixed price, fixed price, fixed price”.
“The difference in our situation was that the government of Quebec saw sense and took a leadership role. They appointed an independent expert who mediated and basically said, yes, Davie are right, the ships would cost that much to build”.
“The government got a fair price and so did we, and everyone won, because those ships were built no problems”.
“In Canada the blame was put onto STQ. Why wouldn't the Scottish Government at least appoint an independent expert to look at where the blame really lies?”
Mr Davies, CEO at Davie, said a fixed price for the Cal Mac ferries was “a complete fiction”, given the rules governing such boats in the UK didn't exist when the contract began.
Mr Vicefield said CMAL’s attitude showed a basic misunderstanding of shipbuilding.
The pair are critical of CMAL (“inexperienced” and “incompetent”) and the government.
“If they had built the ships in the biggest most experienced, most established shipyard in the world, they would still have encountered these problems”, said Mr Vicefield, adding he was impressed by the technical abilities at Ferguson’s.
“From our perspective, the nationalisation of a shipyard is a terrible idea and that's obviously the government's fault. But if you go back to looking at who's actually to blame for this situation you really have to look at CMAL.”
Mr Vicefield added:” The best the Scottish Government could do now is bring in some form of independent expert to address the situation.”
The Chairman and CEO of STQ “resigned”. For the full Tom Gordon article see Appendix 2.
In January 2019 Gerry Marshall, Chris Dunn and Andrew Alexander visited Davie in Canada at the invitation of Mr Vicefield and Mr Davies to go over the details of the contracts. Mr Dunn and Mr Alexander are highly experienced Naval Architects and Marine Engineers. All three went through the similarities of the two contracts and were stunned at the parallels. The information they gleaned was passed on to the Scottish Government with the recommendation that they should contact the Quebec Government.
We believe that an official from the Scottish Government did contact the Quebec Government and that the response from an official in the Quebec Government was that they were not surprised that the cost to complete the two ferries was going to be double the original price. “They should never have been fixed price contracts”. Disappointingly, there was no follow up by the Scottish Government nor any attempt to appoint an independent expert to mediate the dispute.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 12
For the full Tom Gordon of the Herald interview with the Chairman and CEO of Davie see Appendix 2
Davie has gone on to have a very bright future. They recently announced 2021 as a year of generational significance for Davie in the Davie Strategic Journey: Generation 2040, as they entered a long-term partnership with the Government of Canada under the National Shipbuilding Strategy. (FMEL were approved as part of the UK National Shipbuilding Strategy as part of the Babcock consortium.)
They announced a 20+ year order book worth over $9bn.” Add to this more than $20bn in pipeline opportunities. Davie is embarking on a period of sustained success unlike any in its near 200-year history.”
For the full announcement see Appendix 3
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 13
The Ferguson Marine Shipyard
Relationship between CMAL and FMEL:
At the very heart of the issue is the extremely poor relationship between FMEL and CMAL. FMEL had an excellent relationship with the previous CEO and with the Director of Vessels during the build of MV Catriona which was delivered 6 weeks ahead of schedule and on budget. Both teams worked in an innovative and collaborative way throughout the project. It was only when significant changes were made to the CMAL board and management that the relationship started to deteriorate.
We know from evidence presented to the Committee that the CMAL Chairman was against awarding the contract for 801 and 802 to Ferguson. The CEO and the board structure had not changed by then and clearly the board, including the then CEO and a majority of the non- executive directors, voted for the contract to be awarded to FMEL against the wishes of the Chairman.
In the early stages of the contract Kevin Hobbs was appointed as CEO and Jim Anderson as the Director of Vessels, followed by two new non-executive directors, one of which was Anthony Graham from the Liverpool area who was also a non-executive director of Cammell Laird, a direct competitor of Fergusons - a serious conflict of interest - and the second, a colleague of CMAL Chairman, Eric Ostergaard, a fellow non-executive board member of the Isle of Man Steam Packet (ferry) company.
Our chairman lodged a complaint with the Scottish Government on 7th of August 2017 addressed to Liz Ditchburn and copied to the Cabinet Secretary for the Economy and the Cabinet Secretary for Finance: “Just read the announcement about the new non exec appointment to the CMAL board of a Cammell Laird director. Please tell me this is a mistake…. We cannot accept moving forward with any confidential discussions with CMAL as we see this as a huge conflict of interest.”
A second e-mail was sent to Roy Brannen and Liz Ditchburn on the 11th of August 2017: “I refer to my communications regarding the recent appointment of Anthony Graham as a non-executive of CMAL and I would like to lodge a formal objection to this appointment. As you are aware, Mr Graham also serves as a non-executive director of one of our main competitors, Cammell Laird. We therefore cannot under any circumstances accept that Mr Graham can be part of a board that makes decisions which impact the future and ultimate success of the Ferguson shipyard.
Despite what conflict of interest procedures may be put in place, this is simply not an appropriate appointment and cannot be in the interests of promoting and securing a Scottish shipbuilding industry. Indeed, we find it surprising that CMAL would find it acceptable to have one of its potential suppliers have a “man on the inside”. I trust the Scottish Government will take all appropriate action to reverse this decision and remove him from the board. “
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 14
Despite assurances from Liz Ditchburn that this would be taken care of, it was not. No formal response was received from the Government. Anthony Graham remained a director and only resigned from the board on 28th of February 2019, to move from being a non-executive director of Cammell Laird to a full time role as its Managing Director.
This appointment should not have been allowed to stand. Yet another clear example of CMAL exercising its hold over the Scottish Government. What reason could the government possibly have to allow this appointment to stand?
Following these management changes There was a very notable deterioration in the relationship between CMAL and FMEL.
CMAL were perfectly aware of the design and construction activity which led to FMEL’s claim for additional costs on the contracts. They stonewalled for months before the £17m claim was submitted, to avoid discussing a very uncomfortable topic. At every possible stage they dismissed all requests by FMEL to discuss additional costs, claiming that the contracts were ‘fixed price’.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 15
Delays and Cost Overruns
The Committee stated that it was “appalled” to learn that CMAL was legally bound to continue to make milestone payments on the ferries’ contract despite ongoing concerns about the performance of the contractor. The Committee also questioned why CMAL continued to make milestone payments in a situation where the sign off from the basic design of the vessels had not been secured from class or flag. They suggested there is strong evidence that the contractor 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 milestone payments on the contract. This is factually incorrect and a grossly misleading statement.
This should have been a red flag to the Committee, and we are astounded that the members did not dig deeper, to find out what actually happened - and why it happened.
CMAL were legally bound to make milestone payments on the ferries’ contracts because FMEL had legally completed the work and was due payment. There was significant diligence undertaken on the work done before these milestone payments were made.
The ongoing concerns that CMAL had, were that FMEL were pressing hard to be paid for the additional work it had done as a result of changes requested by CMAL. By mid 2017 that figure had accumulated to a staggering £17m.
The Government’s own appointed independent expert, Commodore van Beek testified to the Committee that he was surprised at the number of changes that were continuing to be made by CMAL after signing of the contract, and that they were causing ongoing problems with the construction of the vessels.
The suggestion that FMEL deliberately proceeded to construct specific sections of the vessel ‘out of sequence’ is presented in the report in a misleading way, suggesting that FMEL did something wrong. The contract does not (nor should it) dictate the sequence in which specific sections of the vessel should be constructed.
FMEL were required to vary the planned sequence of work throughout the build period to accommodate delays in decisions from CMAL - or design changes which CMAL had instructed. When this happened, to keep the job going forward, mitigating additional costs and delays, FMEL would move on to work where the design had been suitably developed and risks considered low. The build sequence was being dictated by the approval of the design drawings, which was being dictated by the buyer.
FMEL was extremely concerned about the number of design changes coming from CMAL and the associated costs. Despite numerous attempts to engage CMAL in discussions they continued to refuse to do so, claiming that this was a ‘design-and- build’ contract with a fixed price. Costs arising from criteria conflicting with the original contract that comes to light during design development are taken by the buyer. CMAL refused to communicate or cooperate in discussions concerning these costs.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 16
Commodore van Beek gave the following statement to the Committee.
“If you are going to put in place a design and build contract, you should have the specification almost complete when you let the contract. That was not what happened at all.”
The Committee states in the report that when presented to CMAL in July 2017, the claim from FMEL for over £17 million in additional costs on the contract should have been viewed as an immediate red flag that should have triggered an immediate freeze on any further milestone payments.
Prior to these costs being presented to CMAL our Chairman Jim McColl met with the First Minister on the 31st of July at Bute House. The Chairman’s meeting with the First Minister was to alert her to the seriousness of the situation, to raise that very red flag and to request her intervention to facilitate a meaningful discussion with CMAL around the very significant unplanned changes and cost increases. The FM asked that a detailed account of the additional costs be given to CMAL. She also asked the Director General for the Economy, Liz Ditchburn, to work with both parties to find a resolution. £17m in additional costs were presented to CMAL in July 2017.
The evidence to the Committee appears to very clearly point to the nub of the problem. CMAL were legally bound to pay FMEL for the milestone payments on the ferries’ contract because they had done the work specified in the contract. The obvious question to have asked is – if this work was done and met the milestone payment requirements then why is it going to take over three times the original price to complete the two vessels?
The work originally specified and laid out in the milestones was completed. It is the large number of design changes coming from CMAL and the disruption that this has caused and continues to cause, that has given rise to the runaway costs and the severe delays. This is self-evident. The reason it was costing so much more is because there was so much more work to be done than was originally specified.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 17
The Procurement Process
In the second half of 2017, FMEL commissioned an Independent Review of the Technical Background to the CMAL contracts from Burness Corlett Three Quays. BCTQ is an independent marine consultancy with offices in Southampton, the Isle of Man and Dubai. Their highly qualified Naval Architects and Marine Engineers offer expertise in ship design, project management, plan approval and supervision of construction. Their findings exposed serious weaknesses in CMAL’s procurement process: -
• “From our review of the ITT and other information provided, it is clear, that at the ITT stage, CMAL had not thought through and did not have a clear idea of the consequences of what they were asking for in terms of the ITT specification; the design concept for the vessels had not been thoroughly developed.
• For a complex and innovative vessel design such as this, the concept development carried out by or on behalf of the buyer, and on which the ITT would be based, would normally be quite detailed. In addition to economic factors, including the balance between capital and operating costs, and environmental impact, important technical factors which should be taken into account include the basic arrangement of the proposed vessel; the likely lightship weight; and consideration of regulatory requirements such as the intact and damage stability. These need careful consideration because they can have an impact on the feasibility of the overall concept. In this instance there was the significant added complications of dual fuelling for the propulsion plant, and for the vessels to be able to operate efficiently on more than one route at different speeds.
• From our investigations, there appears to have been inadequate consideration of these fundamental issues, either in terms of accuracy or detail, prior to issue of the ITT. This includes an apparent lack of consideration around the requirements and processes involved in the classification of the proposed vessels.
• We understand that CMAL did not have any technical assistance post contract other than from CalMac personnel. This is unfortunate because there were complex naval architectural and marine engineering issues to be evaluated in the assessment of the technical bids and then in plan approval for the design. Independent design review and/or verification at all levels is valuable and important and this does not appear to have happened here because CMAL did not have the technical competences to make such evaluations. In addition, detailed requirements and requests made by CMAL post contract stage went beyond what would be considered to be industry norms.”
Inadequate consideration was given by CMAL to many of the fundamental issues required to establish the feasibility of the conceptual design, both in terms of accuracy and detail. The result was that CMAL’s requirements were not adequately set out in the tender documents (which of course included the conceptual design) and subsequently changed throughout the contract.
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Commodore Luke van Beek was appointed by the Scottish Government on 9th of November 2017. He was the only Scottish Government appointed, independent expert, who had the expertise to fully understand the complex technical issues for both CMAL and FMEL in building these two first-in-class, effectively prototype, vessels.
Commodore Van Beek was based at FMEL for 17 months and was forensically involved, focusing on the issues surrounding the delays and increased costs being experienced in both vessels.
Commodore van Beek expressed surprise at the number of changes to the design that were still being introduced at that stage and suggested that a failure by CMAL to sign off certain aspects of the design were causing ongoing problems with the construction of the vessels.
Excerpt from the RECC Report:
92. Commodore van Beek went on to suggest that a key issue for the project was a lack of maturity in the design specification of the vessels at the point at which the contract was awarded and construction began: “If you are going to put in place a design and build contract, you should have the specification almost complete when you let the contract. That was not what happened at all.”
95. He also indicated that, at a certain point, he had proposed a freeze on design changes being proposed by CMAL, but this was ultimately not adhered to, a point of view which seems to support Jim McColl's claim that the design changes requested by CMAL were significant and numerous: “CMAL initially agreed to freeze the design but subsequently reneged on that and kept giving Ferguson design changes “
In August 2018, FMEL engaged dispute resolution consultants HKA to assemble a detailed claim for additional costs incurred on the ferries contract. HKA is one of the world’s leading privately owned, independent providers of consulting, expert and advisory services for the construction, manufacturing, process and technology industries. They are particularly experienced in advising clients on the economic impact of commercial and investment treaty disputes and in forensic accounting matters.
The HKA report resulting from this engagement also supported the findings of BCTQ and Commodore van Beek: -
• “The conceptual design was inadequate. Many fundamental design issues were not addressed or resolved by CMAL at award of the contract and had to be resolved thereafter”. • “CMAL interfered in the design process. It involved itself in design matters in which it had no right to do so; it required alternative designs to be investigated (in particular the propellers); and delayed decisions and approvals”.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 19
Excerpt from the RECC Report: page 1, 5th Bullet Point: - “Insufficient due diligence was undertaken of the financial stability of the bidders, including the winning bidder. This is particularly pertinent given the subsequent financial difficulties experienced by the winning bidder”.
This conclusion implies that there was an underlying issue with the financial stability of FMEL at the time the bid was submitted. This is factually incorrect and totally misleading.
Backed by Clyde Blowers Capital, the business was well funded and financially robust. CBC had made a very substantial investment in the yard; with significant further investment planned. The subsequent serious financial damage to the business was the direct result of an aberrant contract and a deeply flawed process, aggressively mismanaged by CMAL.
All Yards in the world rely on the buyers’ payments for cash flow whilst building their ships in line with agreed payment milestones with paid variations where required. The yard is not expected to supplement the project. When faced with a buyer who refuses to pay for continual changes and slows the production process, all yards will face financial difficulties and delay.
Excerpt from the RECC Report: 6th Bullet Point: - “There was an over-reliance, in assessing the bids, on the historic track record of the shortlisted shipyards and a lack of robust due diligence in assessing their current capabilities in areas such as project management and design”.
The underlying inference in this conclusion is that there were shortcomings in the competence of the FMEL management team in the areas of Project Management and Design. This conclusion appears to be based on issues raised by Mr Tim Hair in his report to the Scottish Government on the two ferries 801 &802.
In his report, Mr Hair wrongly cites the following issues as being at the root cause of the delays: “Lack of project management particularly critical on 801/802 which are complex ships where no one person has understood and controlled the overall programme”.
In total contradiction of that claim, the FMEL management had deployed and implemented a very detailed project management system known as Short Interval Control: a visual system set up in a dedicated project planning ‘War Room’. Within this room, all aspects of the programme were shown in complete transparency to all, including CMAL.
The programme was presented to CMAL in March 2017, and they agreed at that time that the delivery of the vessels to the contract dates were achievable, and all aspects of the build were covered. It was made clear in that meeting that this was subject to design and plan approval being completed in accordance with this programme.
FMEL Management put in place a rigorous series of daily, weekly, and monthly performance meetings, which included but were not limited to, update meetings held twice daily, with key individuals in attendance: the Ship Managers; Planner's; Engineering; Supply Chain; Operations; Finance; Quality; and Health and Safety. These meetings were led by three individuals with a wealth of experience in project management; the CEO, the Operations and
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 20
Business Improvement Manager; and the Lead Project Planner. All understood and were in full control of the overall programme.
The programme relied on successful completion of the design approval, which was controlled by CMAL, hence late or non-approvals had a major effect on the schedule, and this is the issue. CMAL also did not provide sufficient manning to support plan approval of systems required for advanced outfitting. This had a major impact on the strategy and hence eventual delivery and cost.
When FMEL went into administration and contrary to accepted commercial convention, the Scottish Government insisted on being appointed as the managing agents in return for underwriting all running costs. They appointed Mr Tim Hair with the illusory title of Turnaround Director who subsequently removed the entire, vastly experienced and talented management team. This cancelled out the considerable knowledge and understanding that the Company had built up.
Astonishingly, prior to their removal, no attempt was made to debrief the management team on the status of the projects. The Operations and Business Development Manager and the lead Project Manager also left the business along with many other talented individuals. It is testament to their experience and ability that the original team members have moved on to positions of high responsibility in some of Scotland’s’ leading, related industries.
A second point raised by Mr Hair in his executive summary: “An absence of planning and control systems has resulted in a lack of integrated working out of sequence activities and no useful management information”.
As stated above a very effective planning and control system was in place with twice daily meetings involving the Ship Managers, Planners, Engineering, Supply Chain, Operations, Finance, Quality, Health and Safety. An effective cross functional team to ensure fully integrated working, real time communication and a totally collaborative approach to management of the project. In a smaller yard, sequence planning is a main planning activity in order to minimise the effect on the footprint of the yard and maximise efficiency. It was an important part of FMEL strategic planning. Where the buyer approval was not complete, then this had a detrimental effect on sequence planning as building in sequence could not continue without the necessary approvals.
A third point raised in Mr Hair’s executive summary: - “Engineering processes and controls are weak. Specifications from the customer were not fully understood before design work was carried out resulting in an incomplete design and causing significant work”.
FMEL engineering processes and controls were robust. As stated previously, all engineering information received from CMAL was accepted, processed, documented and controlled at every point in the process.
What FMEL did not have control over was the level of continuous change and uncertainty at CMAL, with regards to the final design and vessel specification. Significantly, the Lloyds (Maritime Classification Society) approval plus the ironic outcome of the CMAL audit by their
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 21
own procurement manager stating, “your records are some of the best I have seen”- both further support the integrity of the FMEL engineering processes and controls.
In one of Commodore Van Beek’s reports to the Scottish Government, he stated: - “I believe that the factors which have led to this position were outside FMEL’s control. I repeat that I believe FMEL has the managerial and technical capability to deliver both ships.”
Disturbingly, in a process designed to establish the facts and the truths, much of Commodore van Beek’s correspondence has been withheld from FOI requests under the guise of “commercial sensitivity and GDPR.”
The assumption is clear, that the Scottish Government did not favour Commodore van Beek’s informed findings which turned the spotlight firmly on CMAL, a government-owned entity. Subsequently, they asked the infinitely less qualified Mr Hair (Mr Hair’s background experience is not in shipbuilding) to produce a report, the purpose of which, it is safe to assume, was to discredit the reports and comments made by Commodore van Beek and deflect from the failings of CMAL.
That “report” was then used by Scottish Government Ministers and officials as a source of soundbites, some even going as far as to extend the nonsense by referring to it as “expert opinion”.
Commodore Luke van Beek, BCTQ and HKA are the experts, not Mr Hair. A simple comparison of credentials will support this.
The RECC might have considered what the likelihood was that the entire FMEL senior management team were all simultaneously incompetent, such that it was necessary to terminate the employment of all of them along with many of the middle managers. Against the wider context it seems very substantially more likely that there has been a concerted clear- out and silencing of anyone in a position to give informed and accurate first-hand evidence.
This has been illustrated by known, distasteful gagging orders, imposed in return for protection of financial leaving rights on departure.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 22
CMAL Fit for Purpose?
In the written submission on behalf of Scottish Ministers to the RECC on the final day of the inquiry, Paragraph 63 stated: -
The Scottish Government Procurement Directorate did undertake a focused review for Scottish Ministers of CMAL’s procurement process for vessels 801 and 802 in May 2018. The review concluded that:
“We found no evidence to indicate that there were any problems or areas of concern arising from the procurement process” and
“We found no evidence to indicate that at the point of contracts being signed there was a lack of shared understanding between both parties as to what was required under the contract (to the contrary, we found evidence that both parties understood what was required)”
In paragraph 69 of the RECC report, on behalf of Transport Scotland, Frances Pacitti defended the role fulfilled by CMAL as procurement authority for the ferries contract:
“…in 2018, we asked the Scottish Government's procurement directorate to do an independent health check of the procurement process that had been undertaken. Its staff did that at arm’s length, without any kind of influence, and came back to say that they were comfortable that the process had been robust and that there had been no material issues with it. I am satisfied that CMAL is the correct procurement authority, in general and specifically in this case.”
These are astonishing statements given the findings of BCTQ, Luke van Beek and HKA, all highly qualified experts.
We see here a concerted effort amongst Government Ministers and officials to defend CMAL. It is evident that the review undertaken by the Government Procurement Directorate focussed only on the administrative processes of procurement.
We welcome the Committee’s conclusion that there has been a catastrophic failure by CMAL in the management of the procurement of vessels 801 and 802 and that these processes and structures are no longer fit for purpose.
The conceptual design part of the procurement process carried out by CMAL was clearly flawed. It is fair to assume that the Scottish Government’s Procurement Directorate did not include any individual(s) sufficiently technically qualified in Naval Architecture and Marine Engineering to review the preparation by CMAL of the crucial technical elements of the conceptual design, which is a critical part of the procurement process.
Inadequate consideration was given by CMAL to many of the fundamental issues required to establish the feasibility of the conceptual design both in terms of accuracy and detail. The
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 23
result was that CMAL’s requirements were not adequately set out in the tender documents (which included the conceptual design) and subsequently changed throughout the contract.
We welcome the Committee’s call for “The Scottish Government to commission an external review of the processes for public procurement of ferries to ensure appropriate lessons are learned for the future and to keep the Committee updated of its progress and conclusions. This review should also consider, in particular, the extent and robustness of financial due diligence and detailed assessment of technical capabilities of bidders as part of any future exercise for the procurement of new ferry vessels “.
However, we should also stress that the review should consider the competence and technical capabilities required to ensure the robustness of the design development phase and the feasibility of the conceptual design – prior to finalising the specification, and before issuing an Invitation to Tender.
Where this has not been achieved, and development of the design proved aspects of the buyer’s initial design criteria is not feasible or conflicting, then this cost is taken by the buyer. This is the case in all other bespoke shipbuilding projects the world over.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 24
Commercial Loans
The Committee stated that it was concerned that the positive appraisal by the Economic Development Directorate of the Scottish Government of FMEL’s performance against the ferries contract (and its consequent signing off drawdowns on the Scottish Government loans) was entirely at odds with the ongoing concerns from CMAL about progress on the contract.
The positive appraisal by the economic development Directorate of the Scottish Government was aligned with the opinions of the Government appointed expert, Commodore van Beek and that of the independent shipbuilding experts appointed by the MOD, endorsed by Sir John Parker.
The committee should have been more concerned about CMAL’s performance given the evidence available to them.
The Purpose of the loans was to pay for work that was required to keep progressing construction of the ferries whilst a dispute resolution process was put in place after which a settlement would be agreed.
The Committee’s statement that there was no effective monitoring or oversight of how the loans were subsequently spent by FMEL is factually incorrect.
Indeed, there was extremely tight monitoring of the terms of the contract with both PWC and Commodore van Beek having to sign off how the loans were spent, confirming that all drawdowns were exclusively for work on the two ferries. Evidence was presented to the Committee to confirm this.
The Scottish Government had involved the Director General for the Economy to try and resolve the dispute between CMAL and FMEL whilst at the same time ensuring that work continued on the two ferries.
On behalf of the government, PWC confirmed the costs on the ferries and the additional funds needed to continue building them. They also confirmed that the monies drawn down were exclusively used for work on the two ferries.
FMEL was clear, as was the Scottish Government Economic Development Directorate, that the loans drawn down were a short-term bridging facility until a resolution was found to cover the substantial additional costs of building these two ferries. The finance required to continue work on the two ferries was put in place as loans specifically to avoid claims of state aid and to cover the additional costs of the ferries.
As already mentioned, the Government had also appointed a highly qualified expert, Commodore Luke van Beek to verify the work being done by FMEL prior to draw down of the loans. CMAL rejected any and all attempts to even discuss resolving matters and refused to engage in the process. Commodore van Beek testified to the Committee regarding the inexplicably hostile position taken by CMAL. The Committee also experienced this first-hand in some of CMAL’s behaviour towards the proceedings.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 25
All parties were trying to work towards a resolution except for CMAL whom we believe have transparently behaved in a belligerent, uncompromising manner throughout.
It is worth repeating the very clear statement by Commodore van Beek in one of his reports to the Scottish Government:
“I believe that the factors which have led to this position were outside FMEL’s control. I repeat that I believe FMEL have the management and technical capability to deliver both ships”.
The relationship between FMEL and CMAL had broken down completely well before the loans were put in place, which is why our chairman felt it necessary to raise a red flag with the First Minister on the 31st of May 2017.
FMEL served notice of mediation in 2017, which CMAL were contractually obliged to honour and initially agreed to the appointment of a mediator. However, the process was sunk by CMAL refusing to agree to the scope of the mediation.
Transport Scotland proposed expert determination which CMAL strongly rejected.
Commodore van Beek recommended arbitration, this too was rejected.
It was to our complete astonishment that the Scottish Government did not take a stronger line with CMAL and insist that they take part in mediation, expert determination or arbitration. They had the authority to do this, and a duty to intervene, given the potential catastrophic consequences, which had been clearly highlighted to them by 31st May 2017, at a meeting our Chairman had with the First Minister, subsequently reinforced by the BCTQ report and numerous reports by their own independent expert, Commodore Van Beek.
The Scottish Government had the authority to instruct participation in an expert determination, why were they afraid to challenge CMAL? There was clearly something going on between CMAL and the Government. The committee should have pursued this further.
Our chairman met with the Cabinet Secretary for Finance, Derek Mackay on 5th of June 2018 to insist that the Scottish Government intervene to instruct CMAL to take part in an expert determination exercise to resolve the very serious situation with the two ferries and the devastating effect this was set to have on the workforce, the viability of the yard and delivery of the ferries.
Our chairman was shocked and dismayed when Derek Mackay told him he could not do this because Ministers had received a legal letter from the CMAL board, threatening to resign en masse if the Government interfered with them as an independent board. Derek Mackay said that this could be politically very damaging for the Government, and he could not intervene. What was it that could be so politically damaging to the government that CMAL had over them?
On this, Kevin Hobbs said in his submission to the Committee, that it “did not happen”.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 26
• If he is saying that the conversation did not take place, during a meeting at which he was not present, is he suggesting that Jim McColl is lying?
• If he is saying the letter does not exist, is he saying the Minister is lying
Surprisingly, given his high-profile role in events, Mr Mackay was not called by the Committee who should surely have pressed further to investigate why the Scottish Government refused to hold CMAL to account.
Audit Scotland must ensure that all the funding that has gone in to cover the costs of the ferries is included in their assessment and should not allow the Government to disguise costs by writing off the “loans” that were made and excluding them from the arithmetic.
All “loans” advanced by the Government were made to cover the additional costs incurred on the contract. The cause of the additional costs needs to be fully investigated and allocated fairly to the party responsible. This can only be done by involving independent expert consultants with appropriate qualifications in naval architecture, marine engineering and shipbuilding. The extensive claims document produced by HKA provides a basis against which an independent detailed review can take place.
There can be no doubt that only by a public enquiry - with evidence given under oath, - alongside a review by Audit Scotland – can there be any hope of achieving full transparency.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 27
Hidden Financial Arrangements
As a condition of the 801/802 contract with CMAL, a cash refund guarantee was required to be put in place by FMEL. This was partly covered by a £25m insurance bond with HCC secured by a £15m cash deposit from FMEL and a first charge security over the yard and equipment. If FMEL were unable to complete the vessels CMAL would have the right to call the bond and claim the £25m which would then go towards completion of the vessels. In turn, HCC would be able to claim the £15m cash deposit and would also claim title to the yard and the equipment.
Prior to FMEL going into administration, the Scottish Government initiated discussions with HCC about taking over their first charge security over the shipyard.
A financial arrangement was reached amongst HCC, the Scottish Government and CMAL - which has not been disclosed by the government. They must also presumably have consulted with CMAL who would have had to agree not to call the bond. Having spent two years telling us that they could not interfere with CMAL as an independent board, those very Government restrictions seem to have been lifted.
CMAL had a contractual right to claim the £25m cash refund. Why did they not claim the £25m?
We now know that the arrangement with HCC resulted in them taking legal action in the Court of Session against the Scottish Government. The Court found in HCCI’s favour ordering the government to pay £5,047,775.79 to HCCI, including legal costs, although again the details of this legal action have not been disclosed. See article in Appendix 4.
All these arrangements which have not been fully explained need to be disclosed in full. Until then, it is not clear that the Government’s nationalisation of the shipyard was entirely legal.
There also needs to be full disclosure of any agreement between the government and HCCI on the appointment of Deloitte as administrators and details of the arrangement agreed between the administrators and the Scottish Government which allowed the government to act as managing agents during administration and subsequently take over the business.
All of the above unexplained arrangements must be disclosed in full.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 28
Design Specifications and Design Process Issues
The Committee stated that it had been “particularly concerned to learn that four years after the contract was originally awarded, 95% of sign offs on the basic design of the vessels were still not completed”. This statement, based on evidence provided by Mr Hair was factually incorrect and misleading.
Commodore Luke van Beek expressed surprise at this statement to the committee, saying,
“It seems to me that the design, in the main, was well understood, but perhaps there were issues with the physical business of signing it off”
In paragraph 91. of the RECC report Commodore van Beek expressed surprise at the number of changes to the design that were still being introduced at that stage and suggested that a failure by CMAL to sign off certain aspects of the design were causing ongoing problems with the construction of the vessels.
92. Commodore van Beek went on to suggest that a key issue for the project was a lack of maturity in the design specification of the vessels at the point at which the contract was awarded and construction began: “if you are going to put in place a design and build contract you should have the specification almost complete when you let the contract. That was not what happened at all.”
The fundamental problems with the construction of the vessels were that from early in 2017, CMAL refused to sign off on the many design changes they had requested, despite in many cases having agreed to them verbally.
These delays in signing off, resulted in delayed stage payments and an accumulation of additional costs which put Fergusons under severe and unnecessary financial pressure.
We do not understand the statement by the Committee that it was forced to conclude in the report that the conceptual design of the vessels was clear. Quite the opposite was true as was evidenced in paragraph 92. above by Commodore van Beek and evidenced to the Committee in both the BQCT and HKA reports.
This is further evidenced by the conflicting design criteria that came to light during design development which should have been evaluated by the buyer prior to contract signing. The fact remains that consequences due to a deficient concept design is the buyer’s cost and not the yards.
We take exception to the statement that there was strong evidence to suggest that FMEL lacked the appropriate level of design capabilities and consequently failed to manage the design iteration process effectively thereafter proceeded to build the vessels before the design had been suitably developed and signed off. This statement is factually wrong and misleading.
All the build work on the vessels carried out by FMEL was started only after suitably developed design work had been completed.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 29
FMEL were responsible for the design and build contract, but FMEL were not responsible for final design and drawing approval, a fact all seem to have missed. The approval time of key design decisions and approval of drawings was continually delayed having a massive impact on costs and schedule. With no drawings, you cannot progress the ship.
FMEL complained continually about the length of time for approval and decision making by CMAL. As an example, in one instance FMEL issued a letter of complaint to CMAL regarding time taken on the decision to change the ship’s draft to meet deadweight. CMAL took 3 months to make a decision on this. A competent owner would take less than a day.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 30
Project Planning and Management
We are extremely disappointed that the Committee have based their comments on evidence from a report by Mr Hair which was ill-informed, grossly misleading, and unfairly slanted, rather than on evidence submitted by more credible sources.
We have commented on Mr Hair’s evidence earlier in this report. See our previous report in Appendix 1 for ease of reference.
The capabilities in project planning and management at FMEL were fundamentally strong and, according to current feedback we have from the yard, substantially superior to the capabilities in place today.
Transport Scotland proposed an expert determination process to resolve the dispute. In our view the Scottish Government should have supported Transport Scotland’s proposal and insisted on it with CMAL. They had a responsibility to intervene given the catastrophic circumstances that were evident.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 31
Ferguson Marine Capabilities
Referring to FMEL, the RECC Summary of Conclusions and Recommendations stated that “the company had only recently been established and with an entirely new management team.” This statement is factually incorrect and grossly misleading.
Ferguson Marine was bought out of administration by Clyde Blowers Capital (CBC) on the 9th of September 2014, taking on the whole workforce, including the management team. These talented and experienced individuals were Ferguson Marine, along with the shipyard, the tools, the machinery, and all the historical drawings, designs and IP. A new legal entity was set up to hold the Ferguson Marine Business. The setup of this new legal entity had absolutely no impact on the inherent capabilities of Ferguson Marine. The capabilities of the business were encapsulated within the existing Management Team and the workforce, which were retained and strengthened over the next few years by the addition of highly competent individuals who were much respected within the industry. In this way, the established competence and capabilities of Ferguson Marine were significantly enhanced.
The first ferry built under the new ownership of the yard, the MV Catriona was launched on the 11th of December 2015, 6 weeks ahead of schedule and on budget. The ship was built at the same time the yard was being rebuilt. This alone is recognition of the competence of the management and workforce at FMEL. FMEL had a highly competent management, well qualified in Naval Architecture, Marine Engineering and shipbuilding, that had been consistently strengthened since being bought out of administration by Clyde Blowers in 2014.
All of which refutes the ill-judged conclusion by the committee that the management capabilities at FMEL should have been considered as a much greater risk factor.
In late 2016 as part of the UK National Shipbuilding Strategy, FMEL was audited by independent shipbuilding experts contracted to the MOD to assess the capability of the facility and workforce to be included as a named contractor alongside Cammell Laird, Appledore, H&W, A&P, BAE and Babcock. Not every yard in the UK was considered viable. As well as the facility, this audit also required completion of interviews and evaluation of the ability, competence and experience of the management team to build ships and deliver to plan. In addition, a presentation to Sir John Parker was required on FMEL shipbuilding Strategy and capability. The feedback was extremely positive, and the work done in the yard applauded. Following this forensic examination of FMEL resources and capabilities, that the yard was included in the National Shipbuilding Strategy is further confirmation of the capabilities of the management team and workforce.
Ironically, as the management team at FMEL was being consolidated and strengthened, the senior management at CMAL was changed. The CEO was replaced and a new Director of Vessels was appointed. We suggest, respectfully, that here is where the Committee should have directed its attention and requested a thorough review of management capabilities, allegiances, agendas and level of detrimental interference in the design and build.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 32
The Inconvenient Truth
Four years ago, FMEL management alerted the government to the seriousness of the situation developing between FMEL and CMAL and the damage this was having on the construction of the two dual fuel LNG ferries. A red flag was raised with the First Minister in May 2017.
The Scottish Government owed a duty of care and failed to act on that duty, by refusing to insist on CMAL’s participation in a dispute resolution process. Their inaction has resulted in serious harm to FMEL, its workforce and management, its investors, the future of the yard and the local Inverclyde economy. There was a great deal at stake, not least the damage to the Island communities and the hugely negative impact on public finances.
A misleading narrative was created by Derek Mackay, appointing Mr. Tim Hair with the illusory propaganda title of turnaround director and commissioning him to write a report which was ill informed, grossly misleading and unfairly slanted. The purpose of the report appeared to be to seek to discredit reports and comments made by Commodore van Beek, to shamelessly place the blame for the 801 & 802 fiasco on an extremely competent and talented FMEL management team and to defend the action taken by the Scottish Government. Commodore van Beek was genuinely an expert, genuinely independent and was appointed by the government. However, his findings were inconvenient:
“I believe that the factors which have led to this position were outside FMEL’s control, I repeat that I believe FMEL has the managerial and technical capability to deliver both ships”
Commodore van Beek also gave the following statement to the Committee: “If you are going to put in place a design and build contract, you should have the specification almost complete when you let the contract. That was not what happened at all”
The government did not favour Commodore van Beek’s informed findings which turned the spotlight firmly on CMAL. The report from the infinitely less qualified Mr. Hair provided an alternative narrative which was then used by Scottish government ministers and officials as a source of soundbites and “evidence” submitted to the committee. Extending the nonsense, this was even referred to by some as “expert opinion”.
Mr. Hair is no expert (his background experience is not in shipbuilding). The BCTQ report, the HKA report, Commadore van Beek’s various reports and the audit by independent shipbuilding experts as part of FMEL’s inclusion as a named contractor to the MOD, endorsed by Sir John Parker are all confirmation of the quality of the FMEL management and workforce.
The catastrophic nature of this whole fiasco around the procurement and construction of ferry vessels in Scotland demands a more forensic examination than has been possible with the RECC inquiry. The report contains numerous factual inaccuracies and misleading statements as a result of the limitations of a committee inquiry.
This report can only be seen as a first step and cannot be allowed as a way of sweeping this whole sorry state of affairs under the rug. The Scottish people, particularly those in the island communities deserve better.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 33
CMAL
The committee concluded that there had been a catastrophic failure in the management of the procurement of vessels 801 and 802.
In its summary of conclusions and recommendations the committee called on the Scottish Government to commission an independent external review of the processes for public procurement of ferries.
It also concluded that a root and branch overhaul of the current decision-making structures is urgently needed and that this should consider the relative roles and responsibilities of all bodies involved in decision-making around the procurement of new vessels and should also include an appraisal of whether each of these bodies should continue to exist or whether there is scope to streamline and simplify decision-making structures by merging or abolishing certain of them.
With respect to other new vessel procurement processes currently underway, notably the procurement of a new vessel to serve the Islay route, the committee calls on the Scottish Government to provide an urgent update on current status and progress.
Given the catastrophic failure in the management of procurement of vessels 801 & 802, it is completely irresponsible to allow CMAL to continue managing this procurement process without independent expert oversight.
Urgent independent expert oversight is essential to ensure the robustness of the design development phase and the feasibility of the conceptual design prior to finalising the specification and before issuing an invitation to tender and to avoid the catastrophic failures of the past. In addition, it is important that input should be sought from the island communities.
There are complex naval architectural and marine engineering issues to be evaluated. Independent review and verification are important. CMAL do not have the technical competencies to make such evaluations.
An interim oversight structure needs to be put in place urgently, to avoid a repeat of the catastrophic failure experienced with the procurement of 801 & 802, and until an appraisal is completed on whether there is scope to streamline and simplify decision-making structures by merging or abolishing certain of them.
This cannot wait for the outcome of an appraisal or a public inquiry. Action is required now.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 34
Post Nationalisation Performance
Following his appointment Mr Tim Hair, who himself had no previous shipbuilding experience, subsequently removed the entire vastly experienced and talented management team. This resulted in a loss of the considerable knowledge and detailed understanding of the construction projects. No attempt was made to debrief the team prior to their removal on the status of the projects. This left a huge void in the competence required to run the yard efficiently and complete the vessels. A void which has never been filled.
The learning that was lost caused further significant delays, cost increases, and had a definite impact to the capability and capacity of the incoming team. This is before we consider the undoubted reputational impact in the media and the local area.
A view from inside the yard:
“Since the removal of the entire senior management team there has been a steady stream of middle managers and other talented individuals leaving the business. Even several individuals who have been appointed by Mr. Hair have subsequently left. Some of these appointments can be described in no other way than disastrous.
“The FMPG senior management team has seen a significant amount of change, for example there have been 3 HR directors, 2 health and safety managers, 1 Head of Planning & Controls, who has not as yet been replaced, 2 operations managers, 1 ship manager along with interim positions for material controls and project management.
“The most recent change has seen the hugely experienced and influential Programme Director being replaced by another “Interim”. This is a massive concern, especially at this late stage in the programme.
“As well as the senior management team, the experienced resources the yard had, have begun to lose confidence in the current regime and have started to leave the business for new positions. These people were the lifeblood of the yard, and their loss will have an even more negative impact on the yard's long-term future.
“Some people simply do not want to work here anymore. Only last week, the announcement was made that the yard has agreed a £4.4 million contract with a Welsh agency, GMR services, to supply skilled labour to work on the vessels. In that process Mr Hair has now advised MSPs that “it is now impossible to say with any certainty” when Caledonian MacBrayne ships will be ready for service.
“Given the strength and quality of the workforce which passed into the care of Mr Hair and his new team at the time of nationalisation, it is a scandalous failure not to have retained and further developed the inherent talent, much of which has now dispersed, requiring the influx of foreign nationals where local workers once dreamt of greater things for Port Glasgow and the lower Clyde.
“A concerning recent event has seen one of the most talented, experienced and qualified people in the business leave, saying that he was no longer prepared to work with Mr Hair.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 35
“As things currently stand, the team are operating in an environment of fear for their jobs. “The behaviours and culture within the business are, quite frankly, archaic and they show no signs of changing. This coupled with the below par performance and poor productivity rates, lack of shipbuilding knowledge, lack of experienced resources and the failure to recognise the need for change indicate inevitable failure for the business.
“Performance and productivity factors within the yard are nowhere near where industry norms suggest they should be and the recently set baseline for completion of the ferries is already being placed under extreme pressure. There has been a definite inability to forecast accurately and that, coupled with the fact that the required resources cannot be secured to meet the planned work scope, indicates that not only will the programme for both ferries be pushed further to the right, but the inefficient way work is also being undertaken, means that costs will inevitably increase.
“A benchmarking exercise carried out by a renowned audit company, First Marine International, with extensive shipbuilding expertise, has determined that FMPG are one of the lowest scoring businesses they have been asked to analyse in recent years. The Scottish Parliament must insist on full disclosure of this report. To our knowledge no defined improvement plan has been put in place or urgent corrective action taken.
“It is the case, that despite the ongoing attempts to finalise the engineering and design scope, there are still numerous examples of pipework systems that have already been manufactured and installed being deconstructed, remade and refitted due to ongoing uncertainty and errors. This has not been factored into the current schedule or costs to complete. This must be a massive concern.
“The integrated management of the subcontractors for Electrical, HVAC and Outfitting installation is not being managed correctly and this too will undoubtedly have an impact on cost, schedule and quality.
“In the press during May 21, it was communicated that the 2nd vessel for Inverlussa Marine was successfully delivered by FMPG. Whilst the vessel was delivered, it was significantly late and considerably over budget and if this schedule slippage and cost increase trend is allowed to continue with 801 & 802, the impact will be even more severe than has been experienced to date.
“Since nationalisation CMAL have had a free hand unchallenged to continue making design changes. The final design specification has still not been clarified and signed off. As yet there is still no ship-wide bill of materials; there is still a significant gap in the resources required vs. the number currently employed in the yard; a very low percentage of the outstanding work has been completed since November 2019; no risk reviews are carried out on the delivery schedule and costs; due to the ongoing lack of design certainty, severe lack of shipbuilding experience at the top and huge chasm between management and production, it is highly unlikely that the remaining period of delivery will go smoothly.
“Ferguson is currently being managed by an ever changing group of people who collectively have minimal shipbuilding experience. There is a distinct lack of people in the management
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 36
team who are invested in the local area or who are committed to securing a long term future for the yard. The current salary structure is way above market rates and this is another area that we believe should be addressed. We feel that a robust more dynamic and forward thinking management team could be put in place for less than half of the current salary expenditure.
“At present the gap between the management team and the people on the shop floor is huge. We have never seen a gap as big. There is a belief that the management team only take money from the business and there is no recognition or reward for the team on the shop floor. Quite frankly the morale and the atmosphere is awful and is beyond repair as things stand.
“The majority of the current management team live outwith this area and don't have that personal investment in the local area. Should Ferguson finally close, the history, the social and economic impact that would be felt, not just in the local area, but on the Clyde as a whole, would be significant. For the management team who have been in place, albeit in various guises, not to have secured any further orders for the yard, or improve the confidence levels that there will be further works won to secure the yards future, is not only surprising but we would suggest a dereliction of duty.
“Ferguson Marine is an institution and should be afforded the very best opportunity to extend expand and grow its long proud history on the River Clyde.”
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 37
An urgent need for action
The Scottish Government did not save Ferguson Shipyard: they were the cause of it going into administration.
The RECC concluded that there had been a catastrophic failure in the management of the procurement of vessels 801 and 802. It also concluded that a root and branch overhaul of the current decision-making structures is urgently needed.
This root and branch overhaul needs to be addressed now, it needs to be fast tracked. The whole system is a mess and our Island communities, and the local Inverclyde community, are the ones who suffer and will continue to suffer until the system is radically changed.
Ferguson Marine Engineering Limited had a highly competent management team, well qualified in naval architecture, marine engineering and shipbuilding, that had been consistently strengthened since being bought out of administration by Clyde Blowers in 2014. It was well invested, had a talented and committed workforce, an award winning apprenticeship scheme and a strong pipeline for future work. All of this was destroyed by a grossly dysfunctional decision-making structure.
The nationalisation of Ferguson Marine by the Scottish Government has been an unmitigated disaster. The evidence here and the evidence unfolding elsewhere strongly suggests that elements of the government’s actions and behaviour leading up to the nationalisation of the Ferguson Marine Shipyard were highly irregular and demand further investigation.
Indeed, it is not clear that the government nationalisation of the yard was entirely legal.
The number of factual inaccuracies and grossly misleading statements in the RECC report threaten to negate its worth and value as an informative document on which to base the urgent radical actions necessary to address the catastrophic failures in the construction and procurement of ferry vessels in Scotland.
There appears to be a complete lack of awareness within the Government as to just how bad the situation is at FMPG. An audit needs to be carried out urgently to establish where the yard is in terms of completing the two vessels and understanding the costs to complete.
In the interests of transparency and to avoid further deterioration it is essential that the results of the recent benchmarking exercise by First Marine International are made public in full and without redaction.
We believe that First Marine International following their recent report put forward a proposal, to help recover the situation, which has not been taken up.
Radical remedial action needs to be taken before it is too late. The new parliament needs to insist on complete transparency.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 38
First Marine International, Houlder or some other similar professional organisation needs to be part of a recovery plan to provide the expertise which is seriously lacking in the existing team.
It saddens us to hear that relations have deteriorated to such a low level. This yard still has good potential but not without radical action to put right the damage that has been done and continues to be done.
In closing, we ask that this report is taken in the spirit in which it is intended, which is not to be critical per se but to correct the record and ensure that the official parliamentary committee report, when read alongside this report gives a clear and accurate picture of what has gone wrong and what needs to be done to put it right.
We care deeply about the future of this yard and its workforce and even after what has gone before we remain ready and prepared to contribute to its recovery from this current destructive situation.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 39
Appendix 1
Response to Mr Tim Hair’s Report
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 40
Sub-Appendices in Response to Mr Tim Hair’s Report
1. Lloyd’s Register LRQA, audits carried out by awarding body (L.R): ISO 9001;. 4 X audits 2016, 2 x audits 2017, 2 x audits 2018, 2 x audits scheduled 2019, 1 x completed May 2nd audit was scheduled for 5th December 2019. ISO 1090-2; 2 x audit 2017, 1 x audit 2018, 1 x audit 2019.
2. CMAL quality manager George McGregor carried out client audits (authors very positive comments shown above for 2016 & 2017. Numerous requests went out to CMAL inviting their Quality Manager to carry out year end audit for 2018. Requests were made through the minutes of the 3 weekly client meetings. We were informed in April 2018 that the quality manager had left CMAL, we never had any other contact regarding client audits or who if anyone took over the role when he left CMAL.
3. Various examples of customer satisfaction CMAL, BAE Systems, CalMac, Serco
4. SHEQ audit carried out on behalf of Scottish Government (comments made “the management system is impressive”)
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 41
This report addresses the issues raised by Tim Hair in his report to the Scottish Government on the condition of the two ferries 801 and 802 together with a revised programme and cost to complete the two vessels.
Tim Hair wrongly cites in his report the following issues as being at the root cause of the delays:
“Lack of project management particularly critical on 801/802 which are complex ships where no one person has understood and controlled the overall programme.”
Prior to the company going into administration the FMEL management employed a very detailed project management system known as Short Interval Control. A visual system, setup in a dedicated project planning war room, with update meetings held twice daily, with key individuals in attendance; the Ship Managers, Planners, Engineering, Supply Chain, Operations, Finance, Quality and Health and Safety. These meetings were led by 3 individuals with a wealth of experience in project management. The CEO, the Operations and Business Improvement manager and the lead Project Planner. All understood and were in full control of the overall program. The whole team were absolutely on Top of the planning and control of the project.
However, when the company went into administration the Scottish Government insisted on being appointed as the managing agents in return for underwriting all running costs.
The CEO was asked to work from home by the administrator and was told that he would be contacted if they needed him, astonishingly no attempt was made to debrief him on the status of the projects, also the Operations and Business Development Manager and the lead Project Manager handed in their notice. 3 key individuals let go without any serious plan to download their combined knowledge of the project. The project planning system was abandoned and no project management meetings have been held for 5 to 6 months. A significant effort will now be required to re-establish an effective project management and control system adding to the delay and additional costs.
A second point raised by Tim Hair in his executive summary:
“An absence of planning and control systems has resulted in a lack of integrated working out of sequence activities and no useful management information “
As stated above there was in place a very effective planning and control system with twice daily meetings involving the Ship Managers, Planners, Engineering, Supply Chain, Operations, Finance, Quality Health and Safety. An effective cross functional team to ensure Fully Integrated Working, real time communication, and a totally collaborative approach to management of the project.
On February the 20th 2018 Ferguson's head of Safety Health Environment and Quality (SHEQ) received an email from the procurement manager at CMAL requesting a final piece of information to allow him to submit his audit report to the Scottish Government. In his email
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 42
he stated; “Your side of the report is fine, the fact is it is a really high score your records are some of the best I have seen”. An excellent management system. Our score was 97%.
On the 18th of July 2018 Ferguson received their certificate of Approval from Lloyds register: “This is to certify that the management system of Ferguson marine engineering limited has been approved by LRQA to the following standards”: ISO 9001 2015. We also have numerous other examples of feedback including from CMAL and Cal Mac which are very complementary of the management of their projects. Examples of results from audits and customer feedback are shown in the Appendix to Section 1.
A third point raised in Tim Hair’s executive summary: - “Engineering Processes and Controls are weak. Specifications from the customer were not fully understood before design work was carried out resulting in an incomplete design and causing significant work.”
Engineering Processes and Controls were robust. The Lloyds approval cited above and the outcome of the CMAL audit by their procurement manager. “Your records are some of the best I have seen”, support the integrity of our Engineering Processes and Controls.
Commodore Luke van Beek was appointed by the Scottish Government on 9th Nov 2017 and was intimately involved at FMEL for 17 months focusing on the issues surrounding the delays and increased costs being experienced in both vessels. He was the only independent expert appointed by the Scottish Government who had the expertise to fully understand the complex technical issues for both CMAL and FMEL in building these 2 first in class vessels.
He said in one of his reports to the Scottish Government: -
“I believe that the factors which led to this position were outside FMEL’s control. I repeat that I believe FMEL has the managerial and technical capability to deliver both ships.”
Unfortunately, much of Commodore Luke van Beek’s correspondence has been withheld from FOI requests under the guise of commercial sensitivity and GDPR.
There has been a void post government intervention where there has been little attention to the vessels or the yard resulting in deterioration of both vessels and the housekeeping in the yard, which clearly is now having to be addressed.
The immature design and out of sequence working have been a direct result of the inadequate consideration given by CMAL to many of the fundamental issues required to establish the feasibility of the conceptual design, both in terms of accuracy and detail. If good international shipbuilding and marine practice is to be followed, and this is an express requirement of the contract, then outfitting works should be carried out in the workshop at block fabrication stage. This is known as advanced outfitting. FMEL was prevented from carrying out advanced outfitting and the optimum block building sequence as a result of CMAL’s failure to “retire all major risks” before award of the contract and its ongoing interference in the design process. This forced Ferguson into a situation where they had to engage in out of sequence working to keep the project moving forward. A detailed description of the changes in the sequence of works and the move away from concurrent constructions of Hulls 801 & 802 can be found on Page 19 of the HKA Report in Section 4.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 43
Throughout the life of the contract there has been interference by CMAL causing delay and disruption. There have been numerous “customer observations” by CMAL requesting changes which were not part of the specification. A significant number of these were outrightly rejected by FMEL, of those accepted a price increase was requested. Since the takeover of the yard by the government, CMAL have had a free hand to go in and make the changes they want without challenge or control of the impact on further delay and cost. These changes by CMAL are likely to make up a significant portion of the “remedial work”.
There was also comment made that the business did not operate an Enterprise Resource Planning System or a Document Management System. This is a misrepresentation of the true state of affairs. Whilst the business did not have a large Enterprise Resource Planning System (it’s a small business) it did operate a very effective Resource Planning System using Ship Constructor software and Excel. Similarly, with Document Management, the business employed a very capable Document Controller who operated an effective Manual Document Management System. The statements made by Tim Hair are grossly misleading.
Defect Management
This is a similar story to the other management controls. The Business Head of Safety Health Environment & Quality (SHEQ) and the Chief Quality Manager were very capable individuals and alongside the Procurement Manager were in control of Defect Management. The business head of SHEQ left the company as a consequence of the government nationalisation and the Head of Procurement has been suspended for no apparent reason. Examples of results from audits and customer feedback are shown in the Appendix to Section 1.
Most of the senior management have been eliminated or neutralised without any proper hand over of crucial information to the new management team who have been and still are being put in place. A highly competent management team has been wiped out without a carefully managed, professional hand over plan to transition the business. Senior management have been dismissed and asked to sign non-disclosure agreements as a condition for receiving compensation.
Background and Project Status
On the 16th October 2015, Ferguson Marine entered into a contract under an amended NEWBUILDCON form of contract for the construction of two LNG dual fuelled ferries. The contract price for each ferry was £48,500,000.
Approximately 18 months into the much-publicised contract, it became obvious that variations to the original contract (VTC’s) were resulting in significant changes and cost increases. These were well beyond what would normally be expected in a “Standard New Building Contract” and as a result, FMEL made numerous attempts to engage with CMAL to address these significant requested changes and cost increases. Unfortunately, CMAL repeatedly refused to meet and discuss the issues.
On 31st May 2017 a meeting was arranged at Bute House with the First Minister to request her intervention to unblock the stand-off by CMAL. Following this meeting the First Minister
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 44
asked the Director-General for Economy to lead a task forces to try and resolve matters. Despite many efforts throughout the summer of 2017, including numerous meetings with the Director-General for Economy, Transport Scotland and other officials from the Scottish Government, no progress was made with CMAL and a Notice of Mediation was served by FMEL. CMAL failed to come to an agreement on a proposed scope for mediation. They also refused to agree to an independent Expert Process proposed by Transport Scotland and the Government refused to accept a recommendation by their own appointed expert, Commodore Luke van Beek, to go to arbitration.
By repeatedly refusing to engage with FMEL in what would be a normal commercial dispute resolution process, the Government and its wholly owned entity, CMAL, forced the directors into a position where they had no option other than to place the company into administration.
See the attached report on the difficulties FMEL encountered in seeking a resolution to the damaging CMAL contract in Section 3.
The company has lost a significant number of really talented people as a result of the action taken by the Government. Star apprentices, talented young Engineers, skilled tradesmen and a highly competent management team. We had a very motivated workforce who became totally demotivated as a result of the chaos created by CMAL and the Government. Everyone was working as productively as possible under extremely difficult circumstances. It is not surprising that the productivity and motivation levels have dropped significantly over the past five to six months. This could take years to recover, if it recovers at all to previous levels. It was a very special Workforce, Management team and a happy and productive working environment under the previous management.
The cost and timescales for delivery of the vessels presented by Tim Hair:
Costs of remedial work £12.8 million.
This work will include some remedial work required as a result of the void period post the Government takeover. It will mainly require rework resulting from CMAL’s requirements which were not adequately set out in the tender documents and subsequently changed and continue to change throughout the contract period. They currently have a free hand to make any changes without challenge.
Cost to complete the vessels £95.1 million. Capex for yard equipment £1.6 million. Performance penalty provision £0.8 million. TOTAL COST - £110.3 million
This cost has to be added to the costs already incurred of £135 million including the £45 million loan which went into the construction of the 2 vessels up to the point of administration. Since administration the Government have been covering the costs of the yard. This could be a further c. £10 million, including the costs of the numerous advisors.
The total cost of the 2 vessels is therefore currently forecast at c. £255 million. A detailed analysis of the costs on Hull 801 reported on by HKA is shown in Section 4.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 45
The Scottish Government did not save this yard from administration, they forced it into administration by repeatedly refusing to instruct CMAL to engage in reasonable requests for mediation, an expert witness process or arbitration to address the significant cost pressures being put on the yard - even when recommended by their own appointed independent expert. All Ferguson asked for was a fair hearing to agree a fair price for the work they were asked to do. The Government denied them a fair hearing.
The First Minister was made aware of the serious issues Ferguson was experiencing with CMAL over two and a half years ago, in May 2017. At a meeting in the Scottish Parliament on Tuesday 5th June 2018 a direct appeal was made to the Cabinet Secretary for Finance and the Constitution to intervene and instruct CMAL to participate in an expert witness process to resolve the critical situation with the contract for the two ferries. Had either of them taken decisive action then to insist on a resolution between both parties, there is every likelihood that the Glen Sannox would now be sailing and ship 802 would be significantly closer to completion. The Government should have insisted on independent mediation, an independent expert or arbitration process. Ferguson were crying out for this action, to allow them to complete the vessels, grow the workforce, and ensure a very prosperous long-term future for the yard and the local Inverclyde community.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 46
Sub Appendix 1
ISO 9001-2008 ISO 1090-2 ISO 9001-2015 ISO 9001:2008: Executive report; 2nd February 2016, “based upon the sampling technique employed it is considered that the management system is being implemented in accordance with the controlling standard. It is therefore recommended that the LRQA Approval be continued”.
ISO 9001:2015: Executive report; 18th July 2018; “based on the assessment outcome the Assessment Team recommends the ISO 9001:2015 certification of Ferguson Marine Engineering Ltd for the agreed scope. This visit was to assess the compliance of the management system of Ferguson Marine Engineering Ltd against ISO 9001:2008 as defined in the audit planning documentation. The plan for the visit was completed covering the surveillance activities and new standard transition.
The management system implemented by Ferguson Marine Engineering Limited, located in Port Glasgow (PA14 5NG), continues to meet the requirements of the ISO 9001:2008 standard and compliance with ISO 9001:2015 standard. Ongoing certification to ISO 9001:2008 remains appropriate and recommendation for ISO 9001:2015 certification, existing scope and location, is recommended.
The Assessment Team Leader confirms the contractual arrangements for ISO 9001:2015 are correct.” Assessment outcome: Areas for senior management attention: “No significant areas for attention for senior management were identified from the sample selected for this assessment”.
ISO 1090-2: Executive report; 23rd August 2018; “This visit was to assess the compliance of the management system of Ferguson Marine Engineering Ltd against Construction Product Regs as defined in the audit planning documentation. The purpose of this visit was to sample the Ferguson Marine Engineering Ltd. management system for the compliance to EN 1090- 2:2008+A1:2011 (Construction Product Regulations)”.
The plan for the visit was completed. “The management system continues to meet the requirements of the standard and as such continued certification of the management system to EN 1090- 2:2008+A1:2011 is recommended”.
ISO 9001-2015: Executive report; 29th May 2019; “This visit was to assess the compliance of the management system of Ferguson Marine Engineering Ltd against ISO 9001:2015 as defined in the audit planning documentation. “The primary objectives of the visit were achieved with ongoing certification to the assessment criteria validated and confirmed with no new findings reported”.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 47
Sub Appendix 2
AUDITOR SUPPLIER Ferguson Marine Engineering Ltd DATE 1st March 2016 LOCATION Port Glasgow George McGregor Total Points Available
% of Section Max Points for Available Points Sub-Section Score Sections Reviewed Section Points Points 10 1 - Quality Management System 4.0 10.0 10.0 100.0% Rating Scale: Score 8 2 - Document and Data Control 3.8 8.0 7.7 95.8% Excellent 90 to 100 8 3 - Supplier Quality Management 3.9 8.0 7.9 98.1% Satisfactory 70 to 89.9 8 4 - Receiving Inspection 4.0 8.0 8.0 100.0% Conditional 50 to 69.9 8 5 - Inventory Management 4.0 8.0 8.0 100.0% Unsatisfactory Less than 50 10 6 - Process Control 4.0 10.0 10.0 100.0% 10 7 - Product Inspection 4.0 10.0 10.0 100.0% 8 8 - Corrective Action 4.0 8.0 8.0 100.0% 8 9 - Records 4.0 8.0 8.0 100.0% 8 10 - Personnel/Training 3.0 8.0 6.0 75.0% 7 11 - Plants and Grounds 4.0 7.0 7.0 100.0% 5 12 - Customer Service 4.0 5.0 5.0 100.0%
98 Total 46.8 98.0 95.5 97.5% Audit Score
Auditor's Comments Ferguson Marine Engineering Ltd (FMEL) have very good systems in place which will only get better, The Quality Manager is in the process of updating all the records. If the Training records had been available then this would have been a very high score.
AUDITOR George SUPPLIER FergusonMarine DATE 1st LOCATION Port Glasgow McGregor Engineering Ltd March 2017
Total Points Available
Max Points for % of Sections Available Points Sub-Section Section Score Reviewed Section Points Points 10 1 - Quality Management System 4.0 10.0 10.0 100.0% Rating Scale: Score 8 2 - Document and Data Control 3.9 8.0 7.9 98.3% Excellent 90 to 100 8 3 - Supplier Quality Management 3.9 8.0 7.8 96.9% Satisfactory 70 to 89.9 8 4 - Receiving Inspection 3.9 8.0 7.8 97.5% Conditional 50 to 69.9 8 5 - Inventory Management 3.9 8.0 7.8 97.5% Unsatisfactory Less than 50 10 6 - Process Control 3.9 10.0 9.6 96.3% 10 7 - Product Inspection 4.0 10.0 10.0 100.0% 8 8 - Corrective Action 3.8 8.0 7.6 95.0% 8 9 - Records 4.0 8.0 8.0 100.0% 8 10 - Personnel/Training 3.7 8.0 7.4 92.5% 7 11 - Plants and Grounds 3.7 7.0 6.4 91.7% 5 12 - Customer Service 4.0 5.0 5.0 100.0%
98 Total 46.6 98.0 95.3 97.2% Audit Score
Auditor's Comments Ferguson Marine Engineering Ltd (FMEL) have very good QMS systems in place, The Quality Manager has updated most of all the QMS Documents and records. The training records are now available . The apprenticeship programme is really good and well run, Community benefits are in place and also you can see tangible benefits. This information is vital to CMAL and within our rights to ask for. Overall I congratulate the QM for running and maintaining very good QMS system.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 48
Sub Appendix 3
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 49
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 50
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 51
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 52
Sub Appendix 4
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 53
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 54
Appendix 2
Alex Vicefield & Jamies Davies interviews by Tom Gordon, The Herald Scotland
“Our shipyard wasn’t nationalised and we became a success”
&
Shipyard takeover the act of a 'banana republic'
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 55
Our shipyard wasn’t nationalised and we became a success 2 September 2019, By Tom Gordon, Scottish Political Editor
Mr Vicefield (on the left) and Davies (on the right), Chantier Davie Canada Inc.
THE parallels are striking, the outcomes very different.
In 2012, Alex Vicefield and James Davies took over Canada’s largest shipyard, Davie in Quebec, through their offshore Inocea Group. The next year it won a $125m contract with state-owned transport firm STQ for two dual-fuel ferries.
The eco-friendly boats, the first of their kind in North America, were to run on both traditional marine diesel and liquefied natural gas (LNG), the cleanest fossil fuel.
The order proved highly complex and overran by several years and $100m, with STQ refusing to pay over the original price.
Meanwhile in Scotland, Jim McColl’s Clyde Blowers empire bought Ferguson Marine in Port Glasgow in 2014, then landed a £97m contract for two dual-fuel ferries from CMAL, the state-owned firm behind CalMac.
The order proved highly complex and overran by several years and 100 per cent, with CMAL refusing to budge on price.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 56
SNP ministers loaned Ferguson’s £45m to stay afloat, but the blame game and the cash flow problems continued.
Last month the yard was put into administration and now faces nationalisation.
In Canada, the Quebec government helped resolve the dispute with STQ, and Davie has gone from strength to strength under the same owner.
“It’s an almost identical story,” Mr Vicefield, chair and CEO of Inocea, told the Herald.
“We had two prototype LNG ferries of a similar design and propulsion systems to the ones at Ferguson’s - and we had a government buyer, the government of Quebec.
“What happened with us is what happened with Ferguson’s. We realised the ships were going to be twice as much as first thought. We sat there for a long time in a stalemate with a part-built ship and a client saying, ‘fixed price, fixed price, fixed price’.
“The difference in our situation was that the government of Quebec saw sense and took a leadership role. They appointed an independent expert who mediated and basically said, ‘Yes, Davie are right. The ships would cost that much to build.’
“The government got a fair price and so did we, and everyone won because those ships were built no problems.
“In Canada, the blame was put onto the STQ. Why wouldn’t the Scottish Government at least appoint an independent expert to look at where the blame really lies?”
He said he and Mr Davies had been “shocked” when they first saw the Ferguson contract price and knew from the outset it would cost more. After following its progress, they recently contracted Mr McColl.
“I think he nearly fell off his chair when he heard the similarities between our situations.”
Mr Davies, CEO at Davie, said a fixed price for the CalMac ferries was “a complete
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 57
fiction”, given the rules governing such boats in the UK didn’t exist when the contract began.
“It’s not like a Ford Fiesta and you turn up and say I want the blue one,” he said. “You’re talking about a technology which is very new. When we started you couldn’t possibly price it because you couldn’t know it needed double pipework for all the fuel lines, for example. All these changes add a huge amount of cost. It’s aspirational.”
Mr Vicefield said CMAL’s attitude showed a basic misunderstanding of shipbuilding.
“To be honest, no shipbuilding project is really fixed price because you will always have changes as you go through.
“It’s always easy to put the blame on the shipyard, but in fact the buyer of a ship is equally as important in ensuring a successful outcome for a shipbuilding programme.”
The pair are critical of CMAL (“inexperienced” and “incompetent”) and the Government.
“If they had built the ships in the biggest, most experienced, most established shipyard in the world, they would still have encountered these problems,” said Mr Vicefield, adding he was impressed by the technical abilities at Ferguson’s.
“From our perspective, the nationalisation of a shipyard is a terrible idea and that’s obviously the government’s fault. But if you go back to looking at who’s actually to blame for this situation, you really have to look at CMAL.”
Mr Davies said the government should have taken a much longer view of the situation.
“When you restart a yard like Ferguson, any yard, it takes a while for the momentum and the throughput to reach stability.
“If they brought McColl back in to run the operation, that could make it work.”
Mr Vicefield added: “The best the Scottish Government could do now is bring in some form of independent expert to assess the situation."
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 58
As for the future, he is pessimistic unless the government changes course.
"If any commercial buyer comes in, they’re going to want exactly the same thing as McColl would want, which is for the client to pay its fair way. We would be so proud if Ferguson could stand on its own two feet and be a commercial success. It’s just insanity to do what they’re doing.”
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 59
Shipyard takeover the act of a 'banana republic'
The Herald Scotland Exclusive by Tom Gordon @HTScotPol Scottish Political Editor 2nd September 2019
Finance Secretary Derek Mackay took Ferguson’s into public control last month.
SCOTTISH ministers have been accused of acting like “a banana republic” and deterring overseas investment by taking over the last civilian shipyard on the Clyde.
One of North America’s largest shipbuilders said public control of Ferguson Marine in Port Glasgow was “insanity” and “a slow motion car-crash” for workers and taxpayers.
The owners of Canada’s Davie yard said the “very short-sighted” decision could make it harder to find a buyer for Ferguson’s and deter investment in Scotland more generally.
They also said that if ministers thought Ferguson’s would get work on UK defence orders, such as the new Type 31e frigate, as a nationalised yard “they are smoking crack”.
Finance Secretary Derek Mackay took Ferguson’s into public control last month after it was driven into insolvency by a £97m contract for two CalMac ferries.
He said the move would safeguard 350 jobs and ensure completion of the ferries, which are substantially over-budget and behind schedule.
If no commercial buyer is found within a fortnight, the yard will be nationalised. Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 60
Around 20 expressions of interest have been received, with the asking price around £60m.
Jim McColl, whose Clyde Blowers empire bought Ferguson’s in 2014, has blamed CalMac’s public sector owner, Caledonian Maritime Assets Ltd (CMAL), for the situation.
He said repeated design changes on the innovative dual-fuel boats led to delays and rising costs, while CMAL insisted it would not pay above its “fixed price” contract.
Mr McColl offered the Government a stake in the yard if they absorbed half the overrun, but Mr Mackay refused, saying it would breach EU state aid rules.
The Davie owners said a public sector contract for the same kind of ferries at their yard had uncanny parallels with CMAL and Ferguson’s.
However, in Canada, an independent expert was used to assess and apportion costs, resolving the dispute and allowing the boats to be delivered.
The Davie owners said the Scottish Government should have done the same, and taken a long view rather than nationalise Ferguson’s over its inaugural order under Mr McColl.
Alex Vicefield, chair of CEO of the Inocea Group which owns Davie, said: “I don’t know anyone in their right mind who would think that nationalising a shipyard in 2019 in the western world is a good idea.
“If a successful entrepreneur like Mr McColl can’t do it, I can assure you a government won’t be able to do it. You only see government owned shipyards in banana republics.
“It sets a pretty dangerous precedent. If I was a foreign company looking at investing in Scotland and doing business with the Scottish Government, I’d be pretty scared that my company’s going to get appropriated like it would do in any other banana republic.”
James Davies, CEO and president of Davie, said: “To finish these ships [at Ferguson’s] you need somebody who’s capable of leading a high quality team to finish a very difficult project. What you don’t do is nationalise a shipyard and throw money at it.
“To alienate McColl and those guys, it guarantees that that shipyard will ultimately falter.
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 61
“What signal does it send to private capital? You put your $30m into this business and then ‘Oh sorry, it’s not gone completely to plan and we’re going to nationalise it.’ Good one.”
Scottish LibDem leader Willie Rennie said: “The case for an inquiry into events at Ferguson is compelling. The fact a similar project was handled in such a different way in Canada shows there are big questions to answer about the Scottish Government’s approach. We need to understand if investors are being deterred because of the fear of nationalisation.”
Tory MSP Jamie Greene MSP said: “No one in their right mind thinks nationalisation is the answer to the Ferguson fiasco, and this damning indictment re-enforces that.
“If SNP ministers think civil servants will run the yard better than a team of commercial shipbuilders then frankly they’re wired to the moon. This madness must be stopped before the SNP welds the final rivet into the coffin of Scottish ship- building.”
A Government spokesperson said: “This action was about securing jobs and giving the yard a future - the alternative was to stand aside while the company went into administration.
“Suggestions we could simply have followed the steps taken in Canada, or other countries with vastly different rules and regulations on state aid, are ignorant and ill- informed.”
A CMAL spokesperson said: “The comments made by Davie shipyard are inaccurate, uninformed and demonstrate they have no knowledge of the situation.
“We have always acted in line with our contractual obligations.”
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 62
Appendix 3
Davie Strategic Journey: Generation 2040
Response to the RECC’s Report on its inquiry into the construction and procurement of ferry vessels in Scotland. 63
From: Liesbeth Kirscht
Message sent on behalf of James Davies & Alex Vicefield:
We are very pleased to share the Davie Strategic Journey: Generation 2040 : here 2021 is a year of generational significance for Davie as we enter a long-term partnership with the Government of Canada under the National Shipbuilding Strategy.
A 20+ year orderbook worth over $9bn offers a stable, predictable flow of work allowing Davie to invest, roll out a wide range of initiatives and create generational value for our stakeholders. Add to this more than $20bn in pipeline opportunities and it becomes clear Davie is embarking on a period of sustained success unlike any in its near 200-year history.
As Canada’s National Icebreaker Centre, Davie will be responsible for renewing the Canadian Coast Guard’s icebreaker fleet. We also aim to build self-sustaining export opportunities in a growth market defined by the twin forces of spiking demand for ice- breaking services and a heavily overaged global fleet. This can position Davie as the world’s premier icebreaker builder.
Also, as a Naval Maintenance Centre of Excellence, Davie is responsible for sustaining and upgrading the Royal Canadian Navy’s warship fleet. After the huge success of the Resolve Class Combat Support Ship, we are delighted to further develop a long-term working relationship with the RCN.
Moreover, Davie is building a new fleet of cutting-edge ferries for the federal government where we aim to introduce new technologies and set new standards in environmental sustainability.
We hope you share our firm belief that this Strategic Journey shows that the only limit on our ambition is our imagination.
Our collective future has never been so bright.
Sincerely,
James Davies, President & CEO Alex Vicefield, Chairman
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Appendix 4
Scottish Government loses court battle over £5m Ferguson shipyard insurance Payout
by Alastair Dalton, The Scotsman
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Scottish Government loses court battle over £5m Ferguson shipyard insurance payout The Scottish Government has been told it will have to pay £5 million to insurers over the Ferguson Marine ferries fiasco. By Alastair Dalton The Scotsman Tuesday, 25th May 2021, 1:43 pm
Ministers have lost a case at the Court of Session brought by HCC International Insurance over money paid to Scottish Government-owned ferries owner Caledonian Maritime Assets Limited (Cmal).
In 2015, Cmal ordered two ferries for CalMac to be built by Ferguson’s Port Glasgow shipyard, but major delays and cost overruns led to the firm going into administration and being taken over by the Scottish Government.
The first, Glen Sannox is not now expected to start operating on the main Arran route until summer 2022 – more than three years late.
Glen Sannox and a sister ferry are being built at Ferguson's shipyard in Port Glasgow. Picture: John Devlin
Her unnamed sister vessel is due to enter service early in 2023 on the Skye-Harris- North Uist routes.
Their combined cost has increased from £97m to £192.8m- £196.8m.
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In a ruling, known as an opinion, Lord Tyre, said: “I hold that HCC has proved that it is entitled, in terms of the documentation as it stands, to payment of the sums sued for.” However, the judge suspended, or “sisted”, payment until separate legal proceedings in England were concluded.
The case involved refund guarantees taken out in 2016 by Fergusons with HCC as security for substantial advance payments made by Cmal for construction costs in case the shipbuilder defaulted on the order.
Fergusons also indemnified HCC over any payments made to CMal under these refund guarantees.
In February 2019, an agreement was made between HCC, the Scottish Government and others over the respective rights of Ferguson’s creditors, with debts due to HCC having first priority.
The shipyard went into administration six months later and was subsequently taken over by Scottish ministers.
A deal was agreed involving “certain payments” by HCC to CMal, and HCC’s liabilities under the refund guarantees being terminated.
HCC brought the Court of Session case to seek reimbursement from the Scottish Government for the money it paid to Cmal, along with costs and expenses, of £5,047,775.79.
An inquiry by MSPs into the ferries debacle concluded in December that management of the process had been a “catastrophic failure” and called for a “root and branch overhaul” of how new vessels were procured.
A Scottish Government spokesperson said: “As this claim is ongoing, we are unable to say anything further at this stage.”
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