Rural Economy and Connectivity Committee

Meeting date: Wednesday, March 3, 2021

Official Report 735KB pdf

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Construction and Procurement of Ferry Vessels

Item 7 is on the construction and procurement of ferry vessels in Scotland. I welcome to the committee Paul Wheelhouse, Minister for Energy, Connectivity and the Islands; Chris Wilcock, head of ferries unit, Scottish Government; and Tim Hair, turnaround director, Ferguson Marine (Port Glasgow) Ltd. Minister, would you like to make a brief opening statement?

I will keep this brief. Good morning to you and colleagues. I welcome the opportunity to address the committee today in my capacity as Minister for Energy, Connectivity and Islands. I would like to take the opportunity to thank committee members for their detailed consideration of what the committee’s report clearly acknowledges are broad-ranging, complex and important issues.

As the minister with responsibility for Scotland’s supported ferry services, I reiterate our commitment to our lifeline ferries across both networks and the communities that they serve. I would like to begin by recognising the significant effort that goes into the delivery of ferry services in Scotland, particularly during recent months, with a focus on the response to the Covid pandemic, in which staff have to balance the need to both connect and protect island communities. With your permission, convener, I thank all those staff who were involved across both ferry networks, and indeed other networks that we do not operate directly, for keeping Scotland’s communities connected and keeping our ferries operating during this very tough period.

However, I recognise the need for continuous improvement. I have now said several times that I share the committee’s ambition to identify and address future challenges and opportunities in the procurement and operation of vessels for the Scottish ferry networks.

The committee has specifically asked for an update on the timetable for completion of vessels at Ferguson Marine (Port Glasgow) Ltd. As noted in my response, we are still working to the timetable and costs as set out in the turnaround director’s report of August 2020. However, we will undertake a further review in the coming months, which will include consideration of the further impact the Covid pandemic has had on the timescales. The committee and communities are keen to have an update on costs and the programme for the vessels, but I am sure that the committee will understand the reason for the timing of that more detailed work.

To ensure that we give as much helpful information to the committee as possible, I felt that it was important to have Mr Tim Hair in attendance today to answer any more detailed questions that you may have. I thank the committee for accepting that offer to have Mr Hair with us today. I am happy to address the committee’s questions, as are my colleagues, as best we can.

Thank you, minister. The first questions are from Mike Rumbles.

Thank you for coming to the committee today, because this is the first opportunity that we have had to question you outwith the debate in the chamber on our inquiry report that looked into vessels 801 and 802.

Caledonian Maritime Assets Ltd has just launched a 10-year small vessel replacement programme. Considering that the committee unanimously—and I mean unanimously—took the view in our report that CMAL was “not fit for purpose” why should anyone have any confidence in CMAL’s plan?

Clearly, the small vessel replacement programme is a critical programme for the communities that it serves. We are looking to replace eight loch-class vessels as part of the programme. This dates back to the 2018 ferries plan and a commitment that we had made previously to replace those vessels. It is very important we get that work under way now. I recognise that, as we debated in the chamber—I am not going to revisit that—we do not necessarily agree with every finding in the report, but we recognise that there are lessons to be learned from the delivery of vessels 801 and 802. I acknowledge the concerns that Mr Rumbles and others have expressed about how that has unfolded over time. We clearly want to learn those lessons. We are in the process of commissioning a tripartite view, which was debated in chamber recently, and we have expressed our keenness to make sure that that exercise looks at such matters for the future.

11:30  

Rather than delay the procurement of the small vessel replacement programme, we are getting that under way. We feel that it is important to get that work started. For the communities that are served by those vessels, I hope that Mr Rumbles understands why. I assure him that we are clearly learning lessons from vessels 801 and 802. Additional steps, which I can go into if it would be helpful, have been taken to ensure that the procurement of vessels learns important lessons from the committee’s report and indeed our own exploration of what did not work well during that process.

I can understand the point of view that you have just expressed, which is that you do not want to revisit the debate. I do not want to revisit the debate either, but there are issues that the committee addressed and identified in our report. Obviously, you did not agree with it in the debate, but I come back to the question. I am not trying to make political points here. I am simply trying to get this right for the future. Every member of the committee was concerned that the mistakes that were made by CMAL—among other organisations, but particularly by CMAL—on vessels 801 and 802 might be repeated in the procurement programme.

You said that lessons will be learned but—forgive me for saying so—that is a generalisation. It does not address the specific issues that we had. I am not identifying any individuals; I am talking about the organisational process here. I hope that we are not doing so, but are we not just going ahead as normal? That is my worry.

I recognise that concern. For what it is worth, I recognise that you are not making party-political points. I appreciate that you and other committee members are doing your job as diligent members to try to make sure that we implement any lessons that we have learned and that we do not repeat the mistakes that have been made in the past.

To try to reassure you, I say that CMAL has already committed to improving its own processes in this area—irrespective of what happens in the tripartite review, I should stress—including introducing additional financial diligence and the use of additional naval architectural specialists to consider the abilities and track records of the yard or yards that are contracted to undertake any contracts that come through the small vessel replacement programme. The overall procurement strategy for the vessels will be developed as part of the programme, including a focus on how to ensure that they are delivered as efficiently as possible and to address the concerns that the committee has raised through the report.

Our first independent assurance review of the small vessel replacement programme has been undertaken and further formal gateway reviews will be undertaken at key milestones during the course of the programme. I hope that that gives some reassurance to Mr Rumbles. I am happy to try to address any questions that go beyond that as best I can.

Extra checks and balances are being put in place, as we would acknowledge some of the concerns about the capability of Ferguson Marine (Port Glasgow) Ltd—as constituted under its previous management—to deliver contracts 801 and 802. We are trying to learn from that by doing additional diligence on the technical capability and track record of contractors before we commission work with yards. We can talk more about that if that would be helpful.

I am conscious of time and I know that members may wish to come in, so I will leave it there.

Good morning. I have some further questions. You have mentioned the review. In the debate on 2 February, you dismissed the unanimous view of the committee of the need to change the organisational structure. Instead, you relied on an upcoming review to provide recommendations. What is the remit of the review? What will it cover and what will it not be allowed to look at?

I am not aware of anything that we specified that cannot be looked at, but I can bring in Chris Wilcock in case there is anything that I am unaware of.

I appreciate there was quite a heated debate in the chamber on the committee report, but I want to respond to the point that Mr Chapman has made in case there is any sense that we have not reflected on the issues. We are implementing many of the recommendations, as I think I acknowledged in the chamber. We had differences of views on some specific recommendations, as can happen with any report that is produced by anybody, not least Parliament. I hope that that does not take away from the fact we have taken very serious recognition of some of the key points that have been raised by the committee. Obviously, we are trying to address those.

We are at a quite advanced stage of commissioning the review. We are going through the final stages of appointment of the consultants for the review. We are through the standstill period now. I believe that there is an initial meeting on the appointment process later this week. Once that is over with, award letters will be signed and we can talk more openly about who the contractors are. We anticipate that the work will complete later this year, so we expect it to take six to nine months. After considering any recommendations, we would of course act on any immediate issues that could be addressed at an interim stage in the production of the review, so we would not have to wait for the full nine months.

The consultant team will include experts with a focus on governance and transport in the public and private sector from around the world. Transport Scotland will work with the consultants to develop any wider engagement that is required and can look at whether further expertise, with experience in operating external models, is appropriate. A significant focus of the work will be reviewing the technical and legal structures around the existing arrangements, considering whether the original reasoning for setting up the bodies in 2006 still applies and whether they remain fit for purpose, and identifying any new options that may be available now.

Although I know that it is a very technical study, we have also asked Transport Scotland to consider the role that bodies such as the CalMac community board could play in engaging with the work.

To address the points that have been made by Mr Chapman, I invite my colleague Chris Wilcock to say whether there is anything that is out of scope in the study that I am not aware of.

I confirm what the minister said. The scope is pretty wide ranging. We will start from that technical standpoint to see whether the structures as they are and the reasons why we put them in place in the first place still stand, to see whether that defines any parameters for us. We will look to see whether they are fit for purpose and whether there are amendments to them that we could make in the longer term.

We will be meeting the consultants on Friday, and we will then be able to set out in more detail what we might see at an interim stage in the way of early lessons to be picked up. To pick up Mr Chapman’s point, the scope is wide ranging. From my recollection, I do not think that we have said to the consultants, “This is off limits.” It will include a review of the role of all three organisations that are involved in the tripartite arrangement and a very detailed look at how we can improve those processes.

You will be aware that, as a committee, we were very critical of CMAL and very critical of the complex tripartite way of making decisions. Just for clarity, will it be within the remit of the review to recommend that CMAL be scrapped? Can the review go as far as that, if that is what it finds?

I understand why you are asking that question. Rather than respond in a direct way, I do not want to prejudice anything that the consultants will look at. They have the initial meeting coming up with this week with Transport Scotland to set the ball rolling. They may well come forward with recommendations about the future structure of the current organisation, based on their expertise and experience. I do not want to channel the review down a particular direction. We will take those recommendations and consider them, so I do not want to prejudge or pre-empt anything. Certainly CMAL recognises the concerns that the member outlined.

CMAL has already taken a number of steps on due diligence for all contracts of a value of more than £500,000. That includes working with credit reference agents and credit rating agencies to ensure that the financial health of a business is comprehensively assessed before CMAL contracts with it and taking new steps on pre-qualification and invitations to tender. CMAL will advise any future bidders that, should there be an unwarranted withdrawal of any material element of a bid, such as a bank guarantee, which is obviously critical in terms of the financial stability of a bidder, the bidder will simply be removed from the procurement process. Those are new steps that have been put in place.

CMAL is also engaging the services of a ship broker to enhance its understanding of shipyards, including their track records, skills and competences in producing first-class products, and it will introduce additional levels of assurance for full tender assessments by engaging the naval architect companies that I mentioned earlier.

Irrespective of what the study finds, we are already trying to address many of the concerns that were raised by the committee. I say that to reassure Mr Chapman and others that we have been listening, as has CMAL, and trying to put in place steps to give additional assurance. If the study makes recommendations about restructuring, we will look closely at those, but I hope that Mr Chapman understands why I do not want to give any steer at this point. I want it to be genuinely independent and objective and to come forward with what the consultants recommend is the best structure to achieve our objectives.

Thank you.

Transport Scotland and the Scottish Government are part of the tripartite agreement. You have talked quite substantially about the role that Transport Scotland will have in this review. Surely we need a completely independent review of the arrangement, not something that Transport Scotland seems to be leading on.

I can certainly understand where Mr Smyth is coming from. I appreciate that the Government has to contract with external advisers. The report produced for ministers will be genuinely independent. Ministers obviously cannot predetermine the outcome of the review or, in advance of an election, predetermine which ministers will be making the decisions. I am confident that the study will be done with a high degree of professionalism by the consultants independently of Government—either Transport Scotland or ministers. That is why I am being very studious not to give any kind of steer whatsoever. I am trying to make sure that it is an independent exercise that makes recommendations based on what the consultants think is the optimal structure to address our on-going needs for ferry procurement and operating our ferry network.

I understand why Mr Smyth would ask that legitimate question. All I can say is that I will do everything that I can—and I am sure that the Government will do everything that it can—to make sure that the exercise is objective, independent and does the job that we need it to do to give us clear guidance on the best structure to address the needs of Scotland’s ferry networks.

Can you explain why CMAL has launched the small vessel replacement programme before the publication of the islands connectivity plan or the next vessels replacement and deployment plan? Does that not potentially limit the scope of the new plans, pre-empt the results of public engagement and undermine efforts around issues such as vessel standardisation?

Again, that is a fair question, which I inadvertently started to address earlier in response to a different question. The small vessel replacement programme was referenced back in 2018 in the current ferries plan, when we set out an indicative vessel replacement programme, which included replacing a number of small vessels during or soon after the life of the plan. All those identified vessels remain in the fleet as of today, so that objective has been identified in the latest draft VRDP report, which we are starting to share with stakeholders. The small vessel replacement programme will seek to address that objective specifically. I will check with Mr Wilcock, but I believe that eight loch-class vessels require to be replaced over a period of up to 10 years. That will help to build a pipeline of investment and build on the current tripartite vessels project for the Clyde and Hebrides network.

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On the standardisation point, the vessels that we have at the moment are largely interoperable, and we intend to enhance that interoperability through a more standardised design and a higher level of standardisation in the new programme. I want to make the point that the small vessel replacement programme is still at a very early stage of development, and it will still be some time before it goes to tender. As it develops, the process will certainly include engagement with the key stakeholders and the communities that are affected by the vessels, and it will include learning from the process that we have started to deploy in the procurement of the Islay vessel.

To pick up on the point about standardisation again, we do not think that the programme undermines efforts around vessel standardisation. We are looking at procurement of a series of vessels in which similar specification and equipment can be maximised. Hopefully it will be an early win in an approach to standardisation, in which perhaps there is less of an issue around standardisation of the harbours or facilities that the vessels need to use. It might give us an early opportunity to explore the benefits of standardisation in terms of crew training, standard parts and potentially improvements in fuel efficiency and other areas, which we can take forward in the design of other vessels.

I hope that I have addressed Mr Finnie’s questions, but if I have not, please come back to me.

I would not want to give the impression as a representative of the Highlands and Islands—as the convener is—that we are not delighted to hear about new vessels.

What about the notion that this is a very timely distraction for CMAL? We should have a rolling programme of replacements anyway. Could you comment on that, please?

From my point of view, that has not been a motivation in any way for CMAL or Transport Scotland. Smaller vessels take less time to build and procure. There are potentially early wins through which we can get improvements to address things like fuel efficiency. We are looking at opportunities across the fleet for decarbonisation, and smaller vessels on shorter routes are easier to decarbonise than bigger vessels doing more ocean-going work, which require more advanced propulsion options.

There are a number of reasons why the need for the small vessel replacement programme had been identified in the ferries plan back in 2018. The programme is attractive now and it may provide an opportunity to build an early pipeline of projects that can help to support the supply chain.

There are a number of reasons for the programme. If I thought that it was a distraction, as Mr Finnie described it, I would acknowledge that point, but that has not been part of my motivation. We are keen to get the Islay vessel procured as another early win. We have committed £580 million in the infrastructure investment plan and we can give more detail, if that would be helpful, about what that is intended to do. The small vessel replacement programme is part of the £580 million that we have announced.

Minister, we are quite a long way into this session and we are still very short on questions being answered. Could you speed up your answers, please?

Apologies.

I will make this brief. Will changes in state aid rules as a result of leaving the EU influence the Scottish Government’s approach to vessel procurement? Do you intend to do competitive tendering for such contracts? I hope not. My preferred option would be the direct award of small vessel contracts. Can you comment on that, please?

I recognise that this is a long-standing issue for you and that you are passionate about supporting the supply chain. Following the transition period, we are currently working to understand the various impacts of the new subsidy control rules, as they are known, which were introduced—and I stress this—without prior notice to the Scottish Government on an interim basis on 1 January this year.

The UK Government department with responsibility for the new rules is the Department for Business, Energy and Industrial Strategy. It is currently holding a consultation exercise, which is due to close at the end of this month, on how the new rules should be applied for the longer term. Officials were given no prior notice of the detail or timing of that exercise either, but we will feed into that and make sure that we contribute fully to the consultation before the end of this month. Given that purdah will be kicking in before the Scottish Parliament election, we will try to beat that deadline if we can.

Officials are working very hard to try to gain clarity on the new rules and the various impacts and subsidies and how they relate to ferry services and procurement opportunities. We are in a bit of a hiatus as we do not know exactly what the rules are. However, given the urgency of investment for the Islay vessel, we are intending to go ahead with an invitation to tender on the Islay project, as we believe that we cannot afford to delay that.

It is worth stating—this might be something that Mr Hair wants to reflect on in his contributions—that we know that Ferguson Marine (Port Glasgow) Ltd has two major vessels to produce at this time, so there is no immediate capacity at the yard, but it might still be able to tender for that exercise. That is a matter that Mr Hair and the management of Ferguson Marine (Port Glasgow) Ltd would have to consider at the time. We are very mindful of the need to look at whether we can directly procure vessels. I give a guarantee to Mr Finnie that, once we have clarity on state aid subsidy control mechanisms, we will be looking at that.

There are lots of questions that I would like to ask, but I appreciate the restraints of time, so I will hand back to you, convener.

I will try to bring you back in at the end, if there is time.

My questions are directed at Mr Hair. The minister has just said that, presently, there is not the capacity in the yard to take on significant new work. When might the yard be ready to go to the market and look for new work—in particular, Government work, but also work elsewhere? Are you confident that you have the people and the structures in place to be able to make successful bids and carry them forward?

Our working assumption is that we will have to win the next vessels on commercial terms. I know that that goes back to the previous subject, but it is probably worth saying. As things stand, the capacity in the yard is fully allocated to finishing off vessel 805, which is the work boat for aquaculture for Inverlussa Marine Services. We will deliver that in April. The capacity is then fully allocated to vessels 801 and 802.

In the spring to summer period of next year, we will have capacity available to start on the next vessel, and we are actively out in the market to try to find the next vessel. That will potentially include tendering for anything that CMAL has if we think that its timescales fit our capacity and we have the capability to do the kind of job that it would rightly expect.

That—[Inaudible.]—will be spring or summer next year when significant capacity will become available at the yard. Two questions come from that, which I will ask together. First, is that it in terms of work, assuming that vessel 805 is complete very shortly? Secondly, and more to the point, in your experience, how long does it take from the point at which you get engaged in an invitation to tender or in a process preceding that until you are able to start cutting metal in the yard? Is it a year? Are we within a timeframe that means having space available in early or mid next year that positions you well for new contracts for the Government or, indeed, elsewhere, whether they be on commercial or allocated terms?

Can you hear me?

We can hear you.

I am sorry; I am less practised at online meetings than you are.

The speed of the process varies among potential customers. Obviously, several months of detailed design work need to be completed before steel is cut. Our working assumption is that we are active in the market now and that we will need to sign the contract for the next vessels towards the latter part of this year. That will put us in a position to be cutting metal when manufacturing becomes available in spring to summer next year.

My final question comes out of what you have said. Are there any serious constraints in the design office? You have clearly indicated where the early part in obtaining any new work would lie. If there are constraints, are those ones that you expect to be able to address?

Once I hear the answer to those questions, I am finished.

We have made excellent progress in establishing a design office at Ferguson. I remember that, when you visited us roughly a year ago, I commented that I was recruiting a new head of engineering. We appointed an excellent head of engineering in June, and she has been actively recruiting the necessary skills to be able to resource the design office and design controls at Ferguson. I know that I have mentioned in the past that we also have a contract with International Contract Engineering, which is a specialist detailed design house. It is providing us with large amounts of capacity to work through the designs for vessels 801 and 802. Obviously, design is a challenge as we sort out vessels 801 and 802, but we are currently in a much better place than I had expected to be in terms of our resource.

You have just mentioned vessels 801 and 802. On 21 August last year, the committee received an update on the construction of the two ferries. How much further has the timescale slipped since that update last year? Can any slippage be recovered, or will the estimated delivery dates be later than the ones that you set out in August 2020?

As the minister said in his opening remarks, we are still working to the timetable in that update, although it is fair to say that that timetable was predicated on there not being a further intervention with Covid.

We are dealing with two main areas of concern. With the change in guidance on workplace canteens at the beginning of January, we had to suspend production in the yard for four weeks while we reconfigured our amenities, and we have been trying to recruit additional employees into the shipyard for some time now. We are working through that combination of resource and suspension issues as we figure out how to recover the schedule and what impact that will have.

To be able to answer your question, probably the most critical thing on my agenda is that we announced last week that we will put on a weekend shift, to start on 19 March. We are currently actively recruiting up to 120 workers to resource that weekend shift, which will run on Friday, Saturday and Sunday to fit in with our weekday shift. Our success in being able to resource that shift will influence the exact timetable of the project.

In summary, there are undoubtedly some challenges. We have lost time as a result of the Covid suspension, and we have a large holiday accrual that we need to work our way through. We are trying to mitigate that with significant extra resource. The success in hiring those skills will influence the exact timetable for the ferries. However, right now, we are working to, and doing everything that we can to stay within, the August timetable, as published.

12:00  

To be clear, Mr Hair, when you gave the update in August, you said:

“The delivery of 801 is now planned for the range April 2022 to June 2022

The delivery of 802 is now planned for December 2022 to February 2023. 802 launch will occur in early May 2022.”

Are you saying that those dates are still on track to be met? If not, what would stop that happening?

Those are still the dates that we are working to. The Covid suspension has undoubtedly put that timetable under pressure, but we are still driving hard to achieve it. Our ability to recruit the skilled workers whom we need in order to resource the weekend shift that I referred to is critical to the ability to stick within that timetable or forcing us into a slippage. We are actively recruiting in order to resource that shift; indeed, we have been actively recruiting, and we continue to actively recruit, for the weekday shift, as well. Right now, I do not have an answer to the question how many people we will be able to recruit. When we know that, we will be able to give a clearer response.

I will come to the recruitment issue shortly. You said that you are sticking very much to that timetable. It is clear that there has been slippage as a result of the pandemic and, I presume, other factors. Has that slippage added anything to the cost of completing the two vessels, or has there been additional cost to try to ensure that you stick to the original timetable?

In August, I announced that we would treat the costs of the original lockdown as an exceptional item. We will also treat the production suspension that was triggered by Covid as an exceptional item. Putting that aside, we still intend to stay within the original budget of £110 million that was approved in December 2019.

Obviously, a substantial contingency was contained within that. How much of that contingency are you having to use in order to meet the additional challenges and delays?

As we said in August, we are booking the Covid-related element as an exceptional outside the project. There are some areas in which we have had to use the contingency, and there are one or two areas in which things have been favourable. We are still well within our contingency at the moment, although we have used a small amount of it. To give an estimate, we have probably used about a tenth of the contingency—[Inaudible.]

For the sake of time, I will ask a couple of questions together. Mr Hair, first, on your previous visit to the committee, you said you had a lot of items to fix. What is still outstanding? Are any of the ferry sections being constructed elsewhere, as was originally intended, or is that not now required? Secondly, if you need more than 120 posts, will you take on more people?

To take those questions one at time, we have made a huge amount of progress in the time since we last met. I have already spoken about creating an engineering department. We have put in new business systems. We have dealt with the inventory by moving it locally and sorting through it—I took you to those warehouses in Westway. Although we found some problems, we have not found the showstopper that I was very concerned might be buried within that. We have changed working patterns to make the process more efficient and to make the working arrangements more employee-friendly. We have introduced new planning systems. The list is endless. We have effectively created the shipyard from a standing start in the space of a year.

It would be fair to say that, as a result of all those changes happening in such a short time, there are teething problems as some of the processes fit together and we get the right information and the right equipment in the right place for the work, but overall a lot of those process-based foundations and design-based foundations are coming to fruition. I think that, when we last met, I mentioned that we had about 5 per cent of the basic design signed off by flag, class and ONO. We are now north of 80 per cent and are working on the balance. A great deal of progress has been made.

With regard to parts of the ship built elsewhere, the vessels are being completed at Port Glasgow. There is a small amount that is being outsourced, for instance, for a variety of reasons the aluminium fabrication of the aft mast on 801 is about to go out to a subcontractor. Basically the ships will be built and finished here. Some elements of the scope of work, like some of the pipe fitting and cable pulling, are being outsourced, but that was always in our plan.

As far as employment is concerned, my concern, frankly, is not about whether we can get more people if we need them. Rather, my concern is more that we will not be able to get the 120 people that we need for the weekend shift. We will recruit to whatever level is necessary in order to be able to deliver the ferries. I hope that there is capability in the labour pool to do it in Scotland. I have to say that I worry that we need a lot of people and that the skills may not be available, but we are going to find out over the next few weeks.

Colin Smyth, did that answer your questions on labour recruitment? I will allow you one question.

It would be good to know about your plan to recruit 120 qualified UK-based workers by mid-March. I hear the concern that you expressed. Are you on track to meet that target? How far away are you from meeting that? If you do not meet it, what is your contingency plan?

We announced the weekend shift last Thursday. So far, we have 31 expressions of interest. We have checked 15 of those and found that their skills fit what we require. The rest of them are going through the skills assessment. If I am honest, I had never expected to get 120 on 19 March. There was always going to be a degree of ramp-up involved, but it is early days. With our recruitment partner, we are doing everything that we can to make sure that the recruitment exercise is strongly promoted around the Clyde area so that people know where we stand.

If we cannot get the necessary number of people from UK-based workers, once the travel restrictions for Covid are lifted we will turn outside of the UK, either through subcontractors or through direct employment, and bring in overseas workers to complete the vessels. I would stress that my starting point—not just because of the Covid controls, which mean that I have no other option—is that we believe that there is a pool of labour in the UK and that we need to tap into it.

Colin Smyth, I think that you are happy with that answer. I would like to direct some questions specifically to the minister.

Minister, you wrote to the committee on 19 February saying that you wanted to bring Tim Hair to this meeting to update us. You gave an undertaking in that letter that there would be a full update on the delivery timescale and budget for 801 and 802 submitted prior to the parliamentary recess on 25 March. Do you stand by that commitment?

We are trying our best to get information to you. That is why we have brought Mr Hair with us today to give you an update. I know that that is what everyone is trying to achieve in terms of timing. The committee session was too early to be able to provide that information, but that is still our intention. I have not had an update on the deadline from Chris Wilcock or Mr Hair, but I am assuming—unless they want to intervene—that we still intend to meet it.

I take it that you are committed to doing what you said in your letter. At this stage, do you know what the exceptional costs for Covid are in relation to this? Tim Hair referred to that issue.

I do not have that figure to hand, convener. Perhaps it might be best to direct that to Mr Hair.

No, minister, I am asking you.

My answer is that I do not have that figure to hand. We are working on the basis that the additional costs over and above the cost to CMAL will be £110 million to £114 million, including the contingencies that Mr Hair has just discussed with other members. My understanding is that we are still living within that envelope of £110 million to £114 million total cost. We have provided some additional support to Ferguson Marine (Port Glasgow) Ltd in respect of the additional costs for tackling Covid.

How much, minister?

We can get the figure for that. I do not have that in front of me. If you will not allow me to go to Mr Wilcock to get that figure, I will get that to you after the meeting.

Minister, we signed a contract for £97 million; we paid £82 million; we paid £15 million in loans; we have given a £30 million loan; and we have been told that there is £110 million of additional cost. That is £237 million for these ferries. I would be surprised if I was in your position and did not have those costs at my fingertips. I am specifically asking you: do you have those costs at your fingertips and do you have the slippage dates?

First, I will correct the figures that you have outlined. The cost to CMAL for the vessels remains the original project cost of £97 million. As I have just said, the additional costs of £110 million to £114 million were provided to Ferguson Marine (Port Glasgow) Ltd from Scottish Government resources. That is not £237 million.

In addition to that, I have also stressed that my responsibility here is for the client side in securing the vessels. I am here to discuss vessel procurement. I am not responsible for the operation of the yard. That is dealt with by a different division of the Scottish Government, led by Ms Hyslop, as the economy secretary. Mr Wilcock and Mr Hair will be aware of the figure there. That is not my responsibility. I am responsible for procurement of the vessels.

Minister, with great respect, the procurement of the vessels involved the signing of a contract for £97 million. As a country, we have paid £45 million in loans to the yard and we are being told that it will cost us another £110 million to £114 million to get 801 and 802 delivered. Simple maths tells me that that comes to £237 million for those ferries.

I have to take a position where I disagree with your analysis. I understand the £45 million that you are referring to in terms of financial support provided to the previous operators of the yard to give them the working capital and also to allow them to diversify the business. I am here to answer for the procurement of the ferries themselves. The ferries themselves are costing CMAL £97 million and will cost an additional £110 million to £114 million to finish. That is not £237 million.

What is £45 million in the big scheme of this, you would say. Let us take it back to the equivalent of £180 million—£197 million, actually—which is more than double the cost of the original ferries. Mr Wilcock, as the minister is unable to give me that answer, could you tell me what the additional costs of Covid are for these ferries, or can Mr Hair tell me? Who is the right person to ask? I am unclear.

I will pass that to Tim Hair in regards to those exceptional costs that he mentioned earlier.

Tim Hair, could you tell me what the exceptional costs are for Covid, please?

12:15  

The exceptional costs figure that we published in August for the previous lockdown was £3.3 million. We suspended production on the ferries and that was for roughly four months of full lockdown. My chief financial officer is working through the final figure for the recent suspension. We suspended for four weeks, so I think that it will be pro-rated down. I am not going to guess a number. I expect it to be proportionate to the £3.3 million for four months. I will happily write to the committee no later than Monday of next week and give a hard figure, if that would help answer the question.

It would. Also in that letter, could you please confirm to me that you are absolutely clear that there will be no slippage on the original times that were put forward to the committee for the deliveries of 801 and 802 when you took charge?

Yes, I will address that in the letter.

I have to say in passing that I find it odd that—as I said to the minister—we are talking about a contract of this size, involving such a large amount of money, but he does not have these figures to his fingertips.

I take exception to that remark. You are conflating two issues here. One issue is the Covid impact on the Ferguson Marine (Port Glasgow) Ltd, which we are the owners of and which we are supporting to come through the pandemic, as other businesses are having to do. That is a separate issue from the costs of the contract that I am referring to. I have given you accurate figures for the cost, as I understand it at this moment in time, for the delivery of the two vessels. I reject your criticism of me for being unable to provide a figure that is not related to the contract.

So, it is a matter for another department. Angus MacDonald, could you ask your questions now?

Minister, you will be aware that, during the course of our ferries inquiry, we took evidence that suggested a dissatisfaction with CMAL and, to a lesser extent, CalMac’s community engagement. We made recommendations on that in our report and called for better engagement. It is fair to say that both CMAL and CalMac claim that they had significant community engagement in the past. You mentioned the CalMac community board earlier, but, given the concerns expressed, how do you intend to give island and remote mainland communities a meaningful role in decisions on future vessel and ferry service specification and procurement?

You raise an important point. We certainly took on board completely the recommendation in the report for the need to improve our engagement strategy with the customers of the ferry networks. We have been in the process of developing a revised communication and stakeholder strategy. That is one element of this and we will continue to build in improvements with stakeholders to develop greater transparency with regard to how community views are received and included in our decision making. That is important because there have been challenges in relation to transparency around how community views have influenced design and why, and why there have been variations from what communities wanted. We have not been so good at communicating ultimately why the design of a vessel has ended up the way it has.

On vessel procurements, we continue to try to build on the positive engagement that has been started by CMAL, Transport Scotland and CalMac in relation to the Islay vessel project. As I think that I mentioned in the debate, in one virtual event, 140 attendees discussed the design of the Islay vessel. I had some very good feedback on that from the chair of the CalMac community board, Angus Campbell, who I should stress is a very effective chair of that board. That has helped us to understand how we can improve processes there.

We are committed to continuing to ensure that community views are taken on board. Obviously, they will have be balanced at some point between the operational and cost considerations, but I think that we need to improve on how we explain how those factors are all mixed in together. The point that I made in the debate was that, ultimately, with some vessels, the design may reflect the need to provide a wider resilience role, so it is not just for the route that it will spend most of its time delivering. It may have to provide a back-up role to alternative routes, and some design features might reflect that. I hope that that is a helpful answer. I recognise that that was an important point in the committee’s report and we fully acknowledge and accept that we have to improve in that regard.

I am certainly glad to hear that you have taken those issues on board—to coin a phrase. Communities will certainly appreciate it.

Our inquiry also looked at the issue of the propulsion systems in the vessels, and you have made some reference to it today. How do Transport Scotland and CMAL intend to make decisions on the most appropriate propulsion systems for new ferries with a view to delivering the Scottish Government’s net zero carbon commitments, particularly given the long lifespan of the vessels?

Again, that is a fair question. The approach we are going to take involves the issue forming a key part of the VRDP. We are considering the lowest-emission design and fuel types available. We believe that some significant savings can be achieved through modern hull designs. We are looking at a hull form for the Islay vessel that could potentially save—we can check with Chris Wilcock—in excess of 30 per cent in terms of fuel use. In addition to looking at alternative fuels in terms of propulsion systems, that could make a huge difference.

The ability to save money will vary across different classes and sizes of vessel and routes. We are channelling that money back into perhaps being able to deliver more services to those who are served by networks. Along with other bodies, CMAL and Transport Scotland are also looking to replace their fleets and to consider where lessons and synergies can be shared. For example, those operating internal ferry routes in Orkney and Shetland or in the Highland Council area can perhaps benefit from any learning we are undertaking as part of our thinking. We would be happy to share that with others.

The ICP will also investigate the opportunities and technologies that are available in the maritime sector and set out pathways toward delivery of vessels that will operate with either zero or significantly reduced carbon emissions. As I said earlier, in response to John Finnie, I believe, the VRDP will be looking specifically at whether any of the up to eight vessels could be using battery-operated technology, because of the nature of the short-haul routes that they have to deliver. Mr Wilcock can add to that.

I echo the minister’s points. The savings from all forms are encouraging, but looking at marine technologies and emerging low-carbon fuels is a key piece of work for my team. As the minister has indicated, we are looking to do that with other partners, not only in the ferries sector, but working with other parties such as the Northern Lighthouse Board, which is setting up groups on this with other parties across Scotland, building on some of the work in that space that we have done around Covid. Particularly where we have pipelines of vessels, such as the small vessel replacement programme, we are starting to build into our thinking what happens over a 10-year framework. If technologies improve, we need to think about how we adapt those systems. We are also looking at retrofitting down the line. That may or may not be an option in some cases, but we are just building that into our thinking. It is very much the focus of the work around these vessels at the moment.

It would be good to get more information on retrofitting. That would be helpful. I make the point, convener, that, while options are being considered here, electric ferries are being deployed in Scandinavia.

Thank you, noted.

Good afternoon. I have a number of questions to ask, so I ask for fairly concise answers.

With regard to the issue that has just been spoken about, the Cabinet Secretary for Transport, Infrastructure and Connectivity highlighted to the committee that performance on the targets on low emissions had gone backwards because of the purchase of the northern isles ferries and freight boats. Can anything be done to those boats to make them more efficient, or are there any plans to make them more efficient? Obviously, they are not low-emission ferries; in fact—you might be able to confirm this—there is concern locally that they are fairly fuel-unfriendly vessels.

We can certainly come back to you with more detail on that in due course. The freighters that you referenced are in scope for allocation of the £580 million that we have announced in the infrastructure investment plan. Within that total, between the 2021-22 and the 2025-26 financial years, there is about £281 million in voted loans for new vessel investment through CMAL. The way in which the funding tends to cycle through is through voted loans. Consideration of the northern isles freighters is in scope for that, alongside other projects.

I know that Kevin Hobbs and the team at CMAL are looking at what design options there might be for that. I am sure that Mr Halcro Johnston, as someone who has strong connections with Orkney, will want to ensure that we have as resilient an operation as possible, and when the vessels are in for their annual maintenance overhaul, we might want to make sure that we have some additional passenger-carrying capacity as part of the freighter redesign. We are actively looking at that. We can come back to Mr Halcro Johnston on the emissions aspects of those vessels, which I appreciate need to be addressed.

Thank you—that is helpful.

I have a couple of other questions, which I will roll into one. Would you consider extending the duration of the future Clyde and Hebrides and northern isles ferry service contracts, which would allow operators to plan and implement long-term capital investment plans? Could you set out the scope and timetable for the review of the current tripartite arrangements for the delivery of Scotland’s lifeline ferry services? How might you include communities, the need for whose inclusion was mentioned earlier, and external ferry experts in that review?

I have touched on the second point already, so I will try to focus on the aspects of your question that I have not covered. When it comes to the duration of future CHFS and northern isles ferry service contracts, I recognise the point that Mr Halcro Johnston makes—obviously, the longer the contract, the more able the contractor will be to recover its investment and to have certainty of revenue. We have always been clear that a decision on the future approach to the procurement of the Clyde and Hebrides contracts, in particular, including the possibility of making a direct award to a public sector operator, which I know that Mr Finnie has been anxious to push for, would be taken ahead of the expiry of the current contracts in October 2024.

We can consider that, but we will have to, as I alluded to earlier, take into account the outcome of the Department for Business, Energy and Industrial Strategy consultation on the subsidy control mechanism to ensure that we stay on the right side of the law in that respect. That consultation ends at the end of March, and I hope that any output from that is made available by BEIS reasonably soon after that, which might influence any recommendations around the message that comes out of the tripartite review, which Mr Halcro Johnston also referred to.

As I mentioned, the consultants will have an initial meeting on the tripartite review this week. I talked about the focus of that review earlier. I hope that we will be able to give an indication as to which contractor that is very shortly and to allow it to start to engage as regards what it will do with stakeholders around the tripartite review. Given that Mr Hair will be writing to the committee early next week, perhaps we could confirm the contractor in writing and maybe also provide the details of the scope of the review, if that would be helpful to Mr Halcro Johnston and others.

Yes, that would be helpful. Jamie Halcro Johnston has one more brief question to ask, after which we will go to Emma Harper.

Could you give us a brief update on any discussions with the northern isles councils on the replacement of internal fleet vessels? What role do you see Ferguson Marine (Port Glasgow) Ltd playing in any procurement process?

We continue to have discussions with Orkney Islands Council and Shetland Islands Council, and—I should mention this for completeness—with Highland Council and Argyll and Bute Council, although their needs are not of the same magnitude as Orkney Islands Council’s. It would be fair to say that Orkney Islands Council’s capital investment requirements across ports and harbours, as well as vessels, is very significant. Targeted investments are required in respect of Fair Isle and Whalsay, which are routes that Shetland Islands Council is keen to invest in; Highland Council’s Corran ferry; and some smaller vessels in the Argyll and Bute Council area that require to be replaced. Those discussions are on-going.

12:30  

I do not make this point to be in any way difficult. Technically, those services are currently the responsibility of the local authorities, but we recognise that we can, as I said in a previous answer, share expertise and help them with future design. If we can pass on the lessons that we have learned on propulsion systems and fuel savings, that will have a big bearing on the cost-effectiveness of the ferry services and their efficiency. We will continue to engage at official and ministerial level with those councils. The Cabinet Secretary for Finance, the leaders and chief executives of Orkney and Shetland councils and I have had productive discussions recently, and I assume that those discussions will pick up after the election.

We will see what we can do to support those councils. At this moment in time, we do not have any specific investment proposals, but we are engaging in detailed discussions on the business cases for those councils, and we expect to receive further detail from Orkney Islands Council in due course.

I think that Emma Harper is going to try to roll up some of her questions, but we will see how she goes.

I will do my best. I have a couple of questions on the islands connectivity plan. With regard to the development of the ICP, our briefing paper outlines a number of bullet points on what the scope of the plan could include. Could you provide a timetable for the development of the ICP? What will its scope include? You covered the issues of vessel design, the port infrastructure upgrades that are required and the need for community involvement in response to Angus MacDonald’s questions. Could you provide an update on the ICP, please?

Sure. For those who are following the session and are not familiar with the subject, the ICP will replace the current ferries plan by the end of 2022. It will be developed within the policy context that is provided by the on-going national transport strategy and the national islands plan, which are aligned with the Scottish Government’s purpose and the national outcomes and feed into that family of target measures.

The ICP will be closely linked to the strategic transport projects review. As I am sure that colleagues will be aware, the first phase of that has been published, with the second phase being due later this year. That work is being led by Mr Matheson. In order to consider island connectivity more broadly, we have specifically included consideration of aviation, ferries, fixed links and connections with onward travel, which are critical for those who alight on the mainland and for those who travel to the islands.

The plan will include a long-term programme of investment in vessels and ports, which will be developed over the next five years with the support of the £580 million that I mentioned earlier. That was announced on 4 February by Mr Matheson as part of the infrastructure investment plan. I can give more detail on the specific issues that will be covered by the £580 million, or we could supply it subsequently, if that would be helpful from the point of view of time. We plan to engage with stakeholders to determine each island’s needs for transport connectivity.

We recognise that no two islands are the same. Their needs are different, and that includes the potential for further service or capability enhancements or investment in vessels and ports. That feeds into the point about standardisation that Mr Finnie mentioned earlier. We are also trying to understand in the round the extent to which the harbour infrastructure needs to be adapted to support that objective.

The plan will also analyse how services can achieve greater integration with the wider transport network and improve travel choices for residents and visitors, as well as encouraging and promoting economic growth. Given our engagement with the Mobility and Access Committee for Scotland, I should also mention the need to take into account the needs of people with mobility issues. Today, further grant funding has been announced to support accessibility issues on the transport network.

For the benefit of the convener and Ms Harper, I mention that, following the evaluation of road equivalent tariff, we will look at that in the context of fares policy, including freight fares, as part of the ICP.

Thank you. Is the £580 million part of the long-term financial planning for the ICP, or would a long-term financial plan have a separate funding commitment?

The £580 million is purely an allocation as part of the infrastructure investment plan for the next five years. The ICP might have a longer timescale, in that it looks beyond any messages or indication of direction of travel—no pun intended—beyond that period with regard to the wider combination of aviation, ferries, onward travel connections and fixed links. The £580 million covers that, but I should stress that it does not include the additional costs that I mentioned earlier in response to the convener around the £110 million to £140 million. Those are new projects—harbours and vessels—that we will undertake over the next five years. It is a significant commitment, but it is not the only commitment that we are making. We will be looking to plan for the future and to ensure that we have a pipeline in place to support the growth of the supply chain.

John Finnie has a couple of questions to ask.

Indeed. A number of the matters that I wanted to ask about have been covered by the minister.

Could you say a bit more about the islands connectivity plan and how it relates to fares policy? You briefly alluded to that, but could you outline for the committee how wide ranging that policy will be? Do you envisage any fundamental changes? Will that involve the interisland ferry services in the northern isles?

We are certainly looking at how we can address the needs of the northern isles. We are looking at expanding the VRDP—as a separate document—to look specifically at the needs of the northern isles. I mentioned in response to Mr Halcro Johnston that we are already looking at the replacement of the freight ferries to the northern isles. I hope that that gives Mr Finnie confidence that we are very much looking at the future investment needs of both networks, and not just those of the Clyde and Hebrides network, which obviously makes up the bulk of the ferry operations.

On the fares policy, we have had a recent evaluation of RET, which has thrown up some interesting messages on the impacts that RET has had. In the vast majority of cases, it has had a positive impact for island communities. A number communities—Bute is one example that I recall from reading the report—reported more of a mixed message and said that there had been some negatives. The trade-off between deck space and visitors, and members of the local community having access to that deck space, is an issue that we need to consider.

We will take a look at ferry fares. I should stress that the principle that we would not want to make any communities worse off is our starting point. The issue is more about what more we can do to help communities and to support economic growth in communities in a sustainable way through fares policy. Freight fares is a very tricky area. If we were to take a very blunt approach to applying ferry fares in respect of freight, it could have very detrimental impacts on some communities, so we have to tread extremely carefully there.

The key thing for us is to understand what the outcome of the subsidy control mechanism consultation that BEIS is undertaking says to us, and whether it changes the landscape or allows us to operate as we have been doing. We can come back to that.

I do not know whether Mr Wilcock can add any further detail to help Mr Finnie on that point.

No—I think that the minister has covered everything. For clarity, I confirm that although we will produce the ICP to replace the ferries plan at the end of 2022, we will deliver many of the pieces of work that have been mentioned in the interim. I stress that we are not going to wait until 2022 for all those pieces of work to come to fruition. We will prepare those as we go along.

I thank the minister and Mr Wilcock. I think that the issue of RET would require a whole session of its own, so that is maybe for another day.

Thank you for saying that RET would probably require an entire meeting of its own.

I thank the minister and the other witnesses for taking part, and I look forward to receiving the updated information that has been promised by the minister and Tim Hair, and a full summary of the costs, as promised to the committee, by 25 March.

Our next meeting will be on 10 March, when we will speak to the Cabinet Secretary for Transport, Infrastructure and Connectivity and will look at some SSIs. I thank everyone for attending. That concludes the committee’s business.

Meeting closed at 12:39.