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.