Meeting of the Parliament

Meeting date: Tuesday, September 3, 2019

Official Report 899KB pdf

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Ferguson Marine Engineering Ltd

Time is tight, so I would like members to take their positions as soon as possible. The next item of business is a statement by Derek Mackay on Ferguson Marine. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions.

16:06  

I am grateful for the opportunity to provide Parliament with an update on Ferguson Marine shipyard. As I have made clear to Parliament on numerous occasions, my dealings with Ferguson have been guided by three objectives: securing the completion of the two vessels that are being built for the Caledonian MacBrayne fleet, protecting the jobs of the 350-strong workforce and ensuring a future for shipbuilding at the yard.

On 9 August, the directors of Ferguson Marine Engineering Ltd filed a notice of intention to appoint administrators, which, in effect, started the process of putting the business into administration. Administrators from Deloitte were then appointed by the first-ranking creditors to the business, HCCI. In response to that series of events, and to ensure that our objectives could be met, the Scottish Government has taken Ferguson Marine into public control while the administrators complete a marketing process, which is expected to last another two to four weeks. As part of the agreement that we have entered into with the administrators, we expect to acquire Ferguson at the end of that process if no viable commercial offer is forthcoming during that period.

We did not take that course of action lightly. The Scottish Government has been working for more than two years to find a resolution to the difficulties at Ferguson. Throughout that time, our preference has been to identify viable commercial options to keep the yard going and to finish the vessels. No such solutions have come forward.

Through its actions in relation to the contract with FMEL, Caledonian Maritime Assets Ltd has acted to secure the vessels and protect public money. At FMEL’s request, we convened a series of meetings between the parties to seek a resolution. An independent view of the merits of the claim that was submitted by FMEL was carried out for the Scottish Government. We advised the interested parties in confidence of the outcome, but it would not be appropriate to share the opinion further. However, it did not offer any legal basis for the Scottish Government or CMAL to pay FMEL more than the fixed-price contract. Of course, FMEL was free to pursue its claim in court at any point over the past two years.

We have been working to secure a future for the shipyard, and I am disappointed that we were not able to reach a commercial solution with Clyde Blowers Capital that would have prevented the appointment of administrators. We fully considered Clyde Blowers Capital’s proposal to continue running the yard, but we concluded that it contained a number of serious risks and could not be taken forward. The proposal offered no certainty on the overall final cost of the vessels and saw no money from CBC invested in the yard. There were also serious concerns that entering into the proposal would have been unlawful. Parliament will understand that, in seeking a solution to the issue, I could not and would not act outwith the law.

We were unable to accept CBC’s proposals, but the Scottish Government has supported the business significantly in recent years, including in providing a commercial loan of up to £30 million in June 2018 for working capital and to support diversification, in addition to a £15 million loan that was provided in September 2017. Those loans were provided to diversify the business and on the basis of a pipeline of work that FMEL indicated that it could win. We will use part of that £45 million loan to fund a credit bid for the yard.

It is important to make the right economic intervention on a case-by-case basis. In the case of Ferguson Marine, it is vital that the CMAL contracts to build the two new ferries are completed. They will provide crucial additional tonnage for the Clyde and Hebrides ferry services network and help to support the economies and lives of our island communities.

There is also a need to protect the Scottish Government’s position under the commercial loans that have been made to the FMEL group. The alternative would have been the Scottish Government walking away, the company going into administration, the yard potentially closing, jobs being lost, and the vessels not being completed. That was not an option that I was willing to accept.

On setting in place a structure to take the business forward, we have appointed Tim Hair as turnaround director of the business. He will focus on stabilising the business, establishing the financial position, and putting in place a programme to complete the two ferries in the shortest time possible, while ensuring value for money to the taxpayer.

For some months, we pressed FMEL for the cost to complete and delivery dates for the vessels. At no time has it given certainty on those matters. Developing a revised cost analysis that thoroughly establishes all the actions that are required to complete the CMAL vessels will be one of the main tasks for the business. We will work closely with the management to create a clear understanding of the costs of completing the two vessels, and we are already working to meet valid debt claims to suppliers.

To aid that work, I have formed a programme review board to work to secure the most effective delivery programme for the CMAL vessels to completion in terms of time, cost and impact on the workforce. The group includes representatives from key stakeholders and sector experts, including Transport Scotland, Marine Scotland, David MacBrayne Ltd, Scottish Enterprise, CMAL and representatives from the on-site workforce. The group will establish the cost and timescales to complete the vessels and will monitor the progress of delivery against those new milestones. A key focus over the coming weeks will be to get that task right and set the yard on the right path to show that it can deliver to programme and cost.

Alongside that, the turnaround director will take forward steps to stabilise the business and support the recruitment of an incoming management team, including a chief executive officer, which will refocus efforts on completing those vital contracts.

On 16 August, I met the excellent workforce and stressed the Scottish Government’s commitment to achieving the best possible outcome for the yard. We have also been working closely with trade union representatives throughout the process, and we will continue to do so in the coming days and weeks. This has been a difficult time for staff at the yard and their families, and we have been keen to reassure Ferguson’s skilled workforce of our commitment throughout the process.

My focus is—and has always been—on ensuring the completion of the two public sector ferries for the best value for money for the taxpayer while working towards the delivery of the other vessels that are currently under construction at the yard and, in doing so, securing jobs for the workforce through continuity of employment.

As for the future of the yard, we remain committed to working towards finding a solution to support future shipbuilding at the site. While the CMAL vessels are completed, the Scottish Government will continue to conduct further work to identify a viable future structure for the yard. The Scottish Government will at all times remain open to discussions with any parties that are interested in securing a viable commercial future for the yard, but we will also explore the option of keeping the yard in public ownership and how that might secure a lasting future for shipbuilding on the lower Clyde.

Throughout the process, the Scottish Government has worked in good faith to secure the vessels, the jobs and the yard. When we were presented with the prospect of the company entering into administration, we acted quickly and decisively to ensure that those objectives could be met and the yard did not close. Although it is clear that there is much work yet to do, our actions have ensured that there will be a tomorrow for Ferguson.

I thank the cabinet secretary for giving me back an extra minute. Time is tight.

The cabinet secretary will now take questions on the issues raised in the statement. I intend to allow until 4.32; we must then move on to the next item of business.

I thank the cabinet secretary for advance sight of today’s statement. However, it was delivered without a hint of irony—everybody knows that the yard is in such a mess because of his and his Government’s actions. The question is not whether we save jobs; the real question is how we will save those jobs. Today’s statement raises more questions than it answered.

I will ask some simple and straightforward questions, and I hope that we get some simple answers from the cabinet secretary. On the dispute between the Government and the yard, is the cabinet secretary happy with the levels of mediation and arbitration that took place, and will he publish details of the serious events that led us to where we are today?

On the timelines for delivering the new ferries, when will they actually be delivered? They are two years late already, so islanders want to know. What will be the cost to complete the ferries, given that they are now 100 per cent over budget? On the future of the yard, will the cabinet secretary’s plans to nationalise the yard create more or fewer jobs than the plans that Ferguson Marine’s owners had to grow the business? For the sake of transparency, will the cabinet secretary agree today to a full public inquiry into the entire fiasco?

I will work through those questions. First of all, it is entirely for Parliament to decide how it conducts its business. I will make myself available for whatever Parliament chooses to do by way of transparency on the issue. However, Mr Greene will be disappointed to find that, at every stage of the process, the Government has acted in the interests of the people of Scotland and, particularly, the people of Inverclyde, which Jamie Greene has not done since he entered Parliament. I will make myself available to the Finance and Constitution Committee, and I am, as was programmed, answering questions today.

On costs, I have made it clear to the public that I am establishing a programme review board that will consider the costs and timescales for completion of both the vessels and the other work that is already at the yard. Given that we have not had certainty from FMEL on the current position in relation to costs and timescales, Mr Greene will understand that we deserve the time to ensure that when I present those timescales and costs, they are robust and stand up to scrutiny. We will get those figures to Parliament as soon as we have them. Of course I commit to transparency; that is why I am making myself available.

On the dispute between CMAL and FMEL, there were Government processes and we tried to assist. As I said, we sought opinion on that and we had procurement officials consider it—we went through it all to ensure that there was the necessary diligence that anyone would expect. However, let us bear it in mind that it was a design-and-build fixed-price contract. I have offered to the Finance and Constitution Committee information on the loans that were provided.

Despite the pejorative language of the Conservatives, the reality is that when it comes to action, we invested in the yard. We saved the jobs, we will give Ferguson Marine a future, we will complete the vessels and we will deliver for the communities of Scotland. That is what this Government will do, which is in sharp contrast to the party that tried to deindustrialise Scotland when it was in office.

I thank the cabinet secretary for advance sight of the statement.

Labour supports action that secures jobs at the Port Glasgow shipbuilders. The workforce at the yard has been caught in the middle of a dispute that was not of its making. However, their skills and expertise will be crucial in getting us out of the crisis, as will fully understanding what caused it in the first place. We have had two years of claim and counterclaim between Ferguson Marine and CMAL over a contracting process that has failed to deliver and was never fit for purpose in the first place.

Does the cabinet secretary accept the need for a proper inquiry into the events that led to the yard going into administration? For the long term, does he also accept the need for him to tell us and, more important, the workforce, where exactly the work that will secure the yard and others into the future will come from—particularly in the absence of a proper national shipbuilding strategy from the Government, which the workforce has called for time and again?

I appreciate some of the comments that have been made by the Labour Party. I hope that it continues to co-operate with me to ensure that the yard has a future, because that is exactly what I am working towards—completing the vessels and all the construction that is currently under way at the yard, securing the jobs into the future and giving the yard a future. There are more decisions to be taken that will achieve that outcome. Those are my objectives, and I have mentioned them to the workforce.

The Conservatives have tried to accuse me of lack of transparency on Parliament’s first day back after the summer recess. I have given a statement, I am answering members’ questions and I am making myself available to the Finance and Constitution Committee. I will answer questions that are asked of me, but members should be under no illusion about my objectives, which are to save Ferguson Marine, to give it a future, to protect the workers and their families by protecting their jobs, and to ensure that we complete the vessels that the CalMac fleet requires. I will do what it takes to achieve that outcome, and I hope that I have Parliament’s support to do that.

I have 12 members wanting to ask questions. I want short questions, so that we can get in as many as possible. Can Stuart McMillan set an example, please?

Will the cabinet secretary provide further information on how his decisive actions have helped to secure stable employment at the yard? How does he see the situation progressing in the coming months? His decisive approach is in very stark contrast to what we have heard today from the Tories, who want the yard to shut.

Let us bear it in mind that, essentially, the company directors were heading for administration, so if the Government had not taken the action that it has taken, the yard would have been closed, jobs would have been lost and the vessels might never have been completed.

Through our actions, the yard remains open and we have saved the jobs. I commit to giving the yard a future, and we will complete the vessels. The people of Scotland expect that type of action, which was in the local and national interest. The alternative would have been unthinkable.

We have known for two years about the dispute between CMAL—a wholly owned Scottish Government company—and Jim McColl, one of the First Minister’s economic advisers. For two years, Jim McColl has been asking the Government to intervene. Why has it taken it two years to do anything? Is it true that the CMAL board threatened to resign en masse if the Government intervened? How much has the delay in acting cost the taxpayer?

There was absolutely no delay in acting. I am delighted that Paul Wheelhouse is in the chamber—he has been updating Parliament on the timetabling issues with information that we have, essentially, received from FMEL. As information was presented to me, I have engaged with officials to probe that information in order to try to ensure that the necessary work was going on between CMAL and FMEL—the client and the contractor.

We have tried to provide commercial support—the Government intervened with loans to support diversification of the yard. The yard was heading for administration, jobs could have been lost and the vessels might not have been completed, so a range of actions have been taken over the past two years.

It is quite clear from the noise that is being made by the Conservatives that they would, when push comes to shove, have walked away, jobs would have been lost, vessels would not have been completed and the yard would have been closed. How do I know that that would be the case? There is another shipyard in the United Kingdom about which the UK Government has said that it has no role because it is a commercial matter. We happen to believe that people’s livelihoods and their jobs matter. Ours was the right economic intervention, and we will see it through. We have acted in good faith throughout, and the people of Inverclyde see that.

As the cabinet secretary has acknowledged, island communities, not least those in my constituency in North Uist and Harris, have waited a long time for the vessels to enter service. The estimated completion dates are continually being put back. Given the existing pressures on the CalMac fleet, when does he anticipate island communities will have reliable information about when the new ferries will be delivered?

I have outlined a programme of work that should give me that robust information, and it should be possible to present that to members by the end of October.

It is true that Ferguson’s asked the cabinet secretary and the First Minister time and again to intercede. It is true that it asked CMAL at least 14 times to agree an independent naval architect and marine engineer to resolve the problem and that CMAL said no 14 times.

The Government and its agency CMAL showed no leadership, did little to support the workforce early on and refused help from independent experts. Will the cabinet secretary show leadership now? When will he sort out CMAL?

I am delighted that the workforce in Ferguson’s, who I visited on the day that the Scottish Government pursued public control, welcomed the Scottish Government’s intervention. If Jackie Baillie will forgive me, I will take the views of the workforce from the workforce and not from her press releases.

We have shown leadership on this issue. We have intervened to ensure that Ferguson’s will have a future. We have also, throughout the period, tried to ensure that there is a commercial way forward for FMEL.

Here is the thing: ministers of the Scottish Government must act in terms of value for money, in the public interest and within the law. If there was a viable commercial solution to the issue, I would have preferred to have pursued that legal, competent and viable solution. In the absence of such a legally compliant and value-for-money solution, we had to look at the range of interventions that we could make. The option that I was not willing to take was that of walking away. Therefore, we have intervened. We have done the right thing and we will ensure that there is a future for Ferguson’s.

How many jobs in total, including in the supply chain, would have been lost if we had just abandoned the yard to market forces, as the Tories believe we should have? How much longer would the islanders on Arran and in the Hebrides have had to wait for their new ferries if FMEL had been allowed to close—an outcome that, for ideological reasons, the Tories seemed happy to see?

I understand that, currently, there are 343 jobs in FMEL. Those jobs were at risk because of the predicament that Ferguson’s was in as a result of FMEL’s decisions in the approach to administration. I believe that those were the jobs that were at risk. In moving so quickly, we were able to ensure that, at the point at which we were able to intervene in terms of public control, no staff were let go. That is significant because, when we look at the further work that will be required, it is clear that we will have to look positively at employment. I have been clear that one of our three objectives was to sustain employment at the yard, and that is what we have done.

The Scottish Green Party supports the Scottish Government’s action with regard to taking Ferguson’s into public control. However, the cabinet secretary will also be aware that there is an ageing fleet and that resolving matters in relation to the two vessels in question is not sufficient. The future of our ageing fleet, and the necessary replacement of boats, cannot be conditional on private profit. To use his own words, will the cabinet secretary “see it through” and secure that long-term future of the yard by keeping it in public ownership?

The question of public ownership and public control is a good one. Public control could lead to public ownership in terms of the administrators’ decisions. We are not talking about an ideological position—the Greens might have a different position on the matter. The action that we took was a pragmatic intervention to achieve the objectives, which concerned the jobs, the vessels and the yard. I want the optimal structure that gives the maximum amount of work to Ferguson’s so that it has a future. Of course, that comes back to the question whether we need to replace and invest in the ferry fleet. Yes, we do. Is there the prospect of other work going to Ferguson’s, too? Yes, there is. I am approaching the issue on a case-by-case basis, making sure that we have the right economic intervention and that our structures optimise the amount of work that can go to the yard. The outcome of that process is in the hands of the administrators. Clearly, we have created a strong position in terms of public control and public ownership. However, what is more important than the governance structure is the objectives. If we agree with the objective that we should complete the vessels that the CalMac fleet requires and which will secure the jobs and give the yard a future, we should focus on that, and that is what I am doing.

Of course, we need a further investment strategy around the replacement and upgrading of vessels. There is a question mark around the standardisation of vessels, as well. Those are all matters that should be considered as we look to the future, and that is what we are doing.

Did the CMAL board threaten to resign?

I am not the accountable minister for CMAL. The reason why I make that point is because I am answering in relation to finance and the economy. I am not aware of the position that members have expressed to me. I am answering members’ questions. I really think that Opposition members should look to the facts that have been expressed in Parliament today, rather than TO the headlines that they would like to believe are true.

I call Alex Neil, and I might be able to squeeze in Dean Lockhart, depending on the next answer.

In the interests of transparency, will the cabinet secretary publish the reports and the correspondence of the commodore who was appointed to undertake a review of the contract and FMEL’s performance? It seems reasonable that that information should be in the public domain.

My second question is—

No, I am sorry Mr Neil, but that will have to do.

It is fair to say that, under the Scottish ministerial code, the Government’s legal advice is private. However, I am engaging with the Parliament today and I understand that I will see the Finance and Constitution Committee this week—that might well be in private session.

If Parliament wants further information, I want to be as transparent as possible, as I think that I have said. However, it would be wise of all members to fully consider all the facts, rather than just aspects that might suit their political narratives or arguments. I am trying to be as transparent as possible in answering members’ questions.

There is a range of information that we should consider here. Fundamentally, ministers have to act within the law, and that is what I have done: I have acted within the law, on advice that I have been given.

Given the cabinet secretary’s plans to nationalise Ferguson Marine, what risk assessment has he made in relation to the yard losing potential and existing contracts with the UK Government and other counterparties as a result of European Union state aid rules?

The member should probably just spit it out if he is talking about the impending announcement on Ministry of Defence contracts. If that is what he is referring to—[Interruption.] Okay—the member is not quite sure what he is asking about. That is fine.

I confirm that, as I have already said to Parliament, we will ensure that the governance arrangements and structures optimise the amount of work that the yard can receive. There are choices around the governance arrangements, and if we go from public control to public ownership, there are issues to do with how the company could be structured to do complementary work. My focus is also on the potential for other work, and we want a structure that ensures that Ferguson can take the work, should that be the outcome of a preferred bid in terms of contracts that are currently in play.

To answer the member’s question, I do not believe that the Government’s actions will deter work from coming to the yard, because I am making our objectives clear and the structure will ensure that we can maximise opportunities. I hope that the member understands what I am telling him. If he does, he will know that this is in the best interests of the yard.

That concludes questions. I apologise to Neil Bibby and John Mason, whom I failed to reach.